Opinion ID: 345093
Heading Depth: 2
Heading Rank: 1

Heading: Royalty Compensation

Text: 17 In holding that 100,000 units of sales, as well as one dollar of the selling price on each unit sold, were lost as a result of the Levy album, the court below commenced with the proposition that the Lennon album preceding Rock 'n' Roll, entitled Walls and Bridges, had American sales of 425,000 units and the album issued after Rock 'n' Roll, named Shaved Fish, had sales of 408,000 units, compared to Rock 'n' Roll sales of 342,000. While recognizing that the Rock 'n' Roll album was not an album of Lennon's own music, that it received some highly unfavorable reviews, and that in fiscal 1975 Capitol sales were down 15 to 20%, the court concluded on balance that the presence of the competing Roots album and television advertising, which caused Capitol to alter the release date and promotion of Rock 'n' Roll, had a substantial adverse effect upon Rock 'n' Roll sales. The judge looked to Canadian sales of Rock 'n' Roll as indicative that sales in the United States might have been over 500,000 units. He held that the low side of potential sales was the figure for Walls and Bridges of 425,000 and the high side was a figure of 520,000 based upon projections from the Canadian sales. 18 In general, damages may be recovered only if there is a necessary, immediate and direct causal connection between the wrongdoing and the damages. See Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 562, 563, 51 S.Ct. 248, 75 L.Ed. 544 (1931); American Safety Table Co. v. Schreiber, 415 F.2d 373, 381 (2d Cir. 1969), cert. denied, 396 U.S. 1038, 90 S.Ct. 683, 24 L.Ed.2d 682 (1970). Here Judge Griesa found that it would be ignoring reality to believe that the rushed release of Rock 'n' Roll caused by Roots did not do some damage to the sales of the former album. Recognizing as we must the substantial role of advertising in the marketing of popular music, we cannot say that this finding is clearly erroneous. However, the evidence that release of the Roots album injured Rock 'n' Roll sales in an amount as high as 100,000 units is very thin indeed. In the first place, Capitol's rush of its promotional campaign did not affect the quality of the album or the jacket. The promotional plans had already been agreed upon, and a complete marketing campaign had been approved by Lennon and Capitol executives. No changes were made in those plans, except that there was a reduction of television advertising and there were certain delivery delays on posters, T-shirts, buttons, postcards, stickers and press kits, in addition to which plans for mobiles were dropped completely and a billboard on the Sunset Strip in Los Angeles was delayed. 19 The reasons advanced for the cutback in television advertising were that it was uneconomical under the circumstances, that Capitol did not have enough time to plan a television campaign, and that Capitol was concerned with compounding a bad situation by having two major competing television campaigns running at the same time. But Levy and his Roots album were off the air within a few days after Capitol and Lennon mobilized their forces to halt the sale of Roots. In addition, Capitol increased its radio advertising, although radio advertisements were delayed by some ten days after Rock 'n' Roll was released for sale. Moreover, advertisements in the trade press (Billboard, Cash Box and Record World) were placed in issues which went on sale on February 17, only four days after the release of Rock 'n' Roll, although the late release resulted in two-color instead of four-color advertisements and inability to obtain preferred placement. While there was evidence from the Capitol president that a record has its largest selling period immediately upon release and that the sales soon thereafter begin to decline, in this case Rock 'n' Roll did quite well in its early stages, making its way into the top twenty album hits less than a month after its release and working its way up to number four or six, depending on whose charts one examines. Of course the album might have done better but for the rush caused by Roots. Nevertheless, an approach based on lost sales caused by Rock 'n' Roll's rushed release plainly would not justify the district court's 100,000 figure. 20 Holding as we do that the estimate of lost sales by the court below is clearly erroneous, and that it may therefore be set aside by this court, Fed.R.Civ.P. 52(a), our task is the necessarily imprecise one of finding a different, more reasonable estimate. In projecting average sales on the basis of Lennon's other record albums, the court disregarded his best-selling album, Imagine, which sold over a million and a half copies, and also his worst-selling albums, Two Virgins, Unfinished Music No. Two: Life with the Lions, and Wedding Album, each of which sold from 20,000 to 50,000 copies. The court also excluded from consideration Sometime in New York City, which sold 164,000 following its mid-1972 release, and Mind Games, which sold 376,000 following its October 1973 release. Needless to say, appellants would have us consider these latter two albums, since averaging them with Walls and Bridges would result in average sales of some 321,000 units, less than the actual Rock 'n' Roll sales. 21 We believe that the district court should have taken Mind Games sales into account along with the sales of Walls and Bridges and Shaved Fish. Mind Games was the album just prior to Walls and Bridges, which in turn preceded Rock 'n' Roll by only a few months. Our use of Mind Games seems particularly justified in light of the citation by defendants to Canadian sales of Mind Games (and Walls and Bridges) in their exhibit on which the district court based its upper limit projection of American Rock 'n' Roll sales. As for Shaved Fish, while an argument could be made for excluding it based upon its greatest hits character (it was a collection of Lennon's most successful compositions, which had appeared on prior albums), we believe it should be given some weight as the Lennon album immediately following Rock 'n' Roll. Averaging Mind Games in with Walls and Bridges and Shaved Fish would result in likely sales of 403,000 albums for Rock 'n' Roll, 61,000 units more than Rock 'n' Roll's actual sales of 342,000. 22 Judge Griesa used Mind Games and Walls and Bridges comparisons of American and Canadian sales to estimate average Lennon sales in Canada to be 12.5% of average United States sales. Canada's actual unit sales of Rock 'n' Roll through February of 1976 were 65,000. The court was initially reluctant to attribute much weight to the Canadian figures, but in its final decision it appears to have done so. The plaintiffs' attack on the use of these figures is premised in part on the fact that the defense witness who supervised preparation of the Canadian statistical analysis, a director of financial planning and analysis for Capitol for many years, admitted that he was not personally familiar with actual retail selling prices in Canada or the state of the Canadian economy and that he did not know whether the same type of advertising was done in Canada with respect to this album, whether television promotion was used, and whether Canadian tastes were the same the album Imagine, for example, had sold only about 8% of its total in Canada. Moreover, plaintiffs argue that they were kept from introducing contrary Canadian evidence by Judge Griesa, who they say misled them into believing that he would not rely on the defendants' statistics. We think these deficiencies do weaken the weight accorded to the Canadian evidence, but do not bar its use in determining damages. On our view of the record, we would attribute to these figures enough weight to offset any decrease below the average reached above that might have occurred from the American recession, from the unfavorable reviews, or from the fact that the music was uncharacteristic Lennon. In short, we hold that the lost sales were 61,000 units, which, multiplied by Lennon's average royalty of 66 cents, would reduce his damages resulting from lost sales to $40,260, less a sum equal to the fee payable to the American Federation of Musicians, discussed infra. 23 As to the reduced price at which Rock 'n' Roll was offered, Mr. Menon, the president of Capitol, testified in his deposition that the first consideration for pricing Rock 'n' Roll at $5.98 was the condition of the marketplace in the first quarter of the calendar year, especially as it seemed to affect Capitol's sales, in addition to Capitol's beliefs about the general state of the industry sales. He further testified that an additional reason for the Rock 'n' Roll album's lower price was that none of the compositions were original Lennon compositions, but rather were songs that had been exposed to the public through previous performances by other artists. While Menon also thought that the unauthorized or pirated Roots album had a bearing on the lower sale price, the fact is that there was apparently nothing preventing Capitol from using a suggested retail price of $6.98. 5 Finally, Menon testified that there is no elasticity of demand between the $5.98 and the $6.98 price categories, so that if Capitol had charged the higher price there would have been no decrease in sales. 24 Judge Griesa's finding attributed the entire reduction in price to the fact that Capitol had to reduce its price to compete with Roots. In view of the testimony of Capitol's president and other evidence, we think this finding clearly erroneous. If the judge had attributed one-third of the $1.00 price decrease to this factor, on the basis that it was one of three major considerations, as testified to by Menon, such a finding would be sustainable. While we could remand for further findings, in the interests of terminating this litigation we reduce Lennon's damages on this basis to one-third of the 10 cents per unit Judge Griesa found them to be, or 31/3 cents per unit, on actual American and foreign sales of 437,000 units, see note 3 supra. This results in damages of $14,567 for the price reduction, less a sum equal to the fee payable to the American Federation of Musicians. 25 With regard to the AFM amount, because Lennon agreed to have it deducted from his royalty damages, rather than from Capitol's damages (although the record company apparently often pays the AFM fee), we follow the same course here. Calculation of the original AFM sum involved two computations, one related to the loss of 100,000 units in sales ($6,433.64) and the other related to the $1.00 price decrease ($2,968.56). See Exhibit C to Plaintiff's Motion to Vacate or Modify Findings and Conclusions. As to the first figure, which involves a per-unit calculation, since we hold that the relevant loss was 61,000 units, we can take 61% of $6,433.64 or $3,924.52. As to the second figure, since we are attributing just one-third of the lower price to plaintiffs' action, it seems appropriate to deduct from Lennon's royalties one-third of this part of the original AFM payment deduction, or $989.52. Hence the combined AFM payment is $4,914.04, which, when subtracted from the total of Lennon's royalty compensation, $54,827 ($40,260 for lost unit sales plus $14,567 for the price reduction per unit sold), leaves a final royalty compensation figure of $49,912.96.