Frank Music Corp. v. Metro-Goldwyn-Mayer Inc.

The district court calculated unchallenged net direct profits of $6,131,606 from Hallelujah Hollywood. It allocated 10 percent of those profits to Act IV because the revue had ten acts and ran about 100 minutes. But the record established that Saturday performances had only eight acts and lasted 75 minutes, while Act IV ran approximately eleven and one-half minutes in every show. Across the weekly schedule, Act IV accounted for 12 percent, not 10 percent, of the revue's running time.

A duration-based allocation is acceptable only if the court has, at least implicitly, found that the individual acts had substantially equal drawing power and value. The record supported that conclusion: although each component contributed to the revue's success, no single act was the overriding attraction. Thus, the court could use comparative running time as the starting point for apportionment.

The district court also correctly recognized that Act IV's profits did not flow solely from plaintiffs' work. Arden, performers, choreographers, costume designers, stage effects, and the Ziegfeld Theatre's presentation contributed to the act. A defendant's genuine creative alterations of infringing material may be considered in apportioning profits.

But the district court placed far too much weight on those production contributions. Act IV incorporated not merely music, but lyrics, characters, settings, costume designs, and much of the look and sound of Kismet. Costly staging and related production inputs are also substantially reflected in the deduction of defendants' costs. In a profits apportionment, uncertainty must be resolved in the copyright owner's favor; defendants' lavish presentation could not become a license to appropriate the underlying work.

The court therefore held that plaintiffs' copyrighted material accounted for 75 percent of Act IV, while defendants' contributions accounted for 25 percent. Applying that percentage to Act IV's 12 percent share of the revue yielded 9 percent of MGM Grand's direct profits, or $551,844.54.

Frank Music I had already held that plaintiffs could recover a share of ascertainable indirect profits attributable to the promotional value of Hallelujah Hollywood. On remand, the district court considered the hotel's many other sources of patronage and profit, including accommodations, restaurants, lounges, casino operations, celebrity entertainment, convention facilities, recreation, and general advertising.

Given those numerous independent attractions and promotional efforts, the district court did not clearly err by finding that only 2 percent of MGM Grand's indirect profits were attributable to Hallelujah Hollywood. The Ninth Circuit therefore left that percentage intact.

The district court, however, made an arithmetic error in subtracting direct profits from total net profit. Correcting the figure and applying the 2 percent allocation to the revue and the 9 percent allocation to plaintiffs' Kismet material resulted in an indirect-profits award of $699,963.10.

Although the 1909 Copyright Act did not expressly mention prejudgment interest, statutory silence does not bar courts from awarding it. The central equitable consideration is whether interest is necessary to compensate the injured party fairly for the loss of the use of money that should have been received earlier.

Patent-law history reinforced that conclusion. Before Congress expressly provided for interest in the Patent Act, courts had awarded prejudgment interest in patent cases despite statutory silence, under language comparable to the 1909 Copyright Act's damages-and-profits provision. The court therefore declined to infer from Congress's silence that interest was unavailable to copyright owners.

The common-law distinction between liquidated and unliquidated damages did not foreclose relief. Courts retained power to award interest on unliquidated sums when necessary for fair compensation, and copyright awards under the 1909 Act may otherwise undercompensate a prevailing owner because the owner can recover only the greater of actual damages or infringer profits, rather than both.

Interest also serves the restitutionary purpose of a profits award. The infringer should generally surrender not only profits generated by use of copyrighted property, but also the time value of those profits. Treating interest as unavailable would anomalously permit recovery of promotional indirect profits while allowing the infringer to retain the value of using infringement-derived revenue.

The court remanded for an award of prejudgment interest on both direct and indirect profits, running from the last infringing performance because that was the date plaintiffs requested. The presumptive rate was the fifty-two-week Treasury bill rate, unless equitable considerations justified another rate.

Under Frank Music I, a parent may be liable for its subsidiary's infringement where the parent has a substantial and continuing connection with the infringing acts. The district court clearly erred by considering only MGM Grand's use of MGM, Inc.'s studio facilities and overlooking substantial additional evidence of MGM, Inc.'s direct involvement.

MGM, Inc. wholly owned MGM Grand during the infringement; its counsel handled inquiries about the Kismet use; Arden maintained his office at MGM, Inc. and was selected by an MGM, Inc. representative; and the revue was intended in part to promote MGM, Inc. and its Leo the Lion brand. MGM, Inc. personnel consulted on the show, supplied the Kismet film for viewing, gave the purported clearances for material used in the revue, and helped provide music-library resources. Those facts established the required substantial and continuing relationship.

That relationship justified treating MGM, Inc. and MGM Grand as one for purposes of joint and several liability for MGM Grand's infringement profits. But MGM, Inc.'s wider corporate profits—from its other businesses and interests—were too attenuated and speculative to attribute to the Kismet act. The necessary nexus may exist between a hotel showroom performance and hotel profits, but not between that performance and the parent corporation's enterprises generally.

Statutory damages were also unwarranted. Statutory damages under the 1909 Act serve compensation and deterrence, but plaintiffs had no proven actual damages and were already entitled to MGM Grand's ascertainable profits from both MGM Grand and MGM, Inc. jointly and severally. A separate statutory-damages award against MGM, Inc. would create a windfall rather than improve compensation or deterrence.

Frank Music I allowed joint liability for MGM Grand's profits only if Arden had acted as a partner or practical partner rather than as an employee or independent contractor. The district court's finding that Arden was an MGM Grand employee whose work on Hallelujah Hollywood fell within the scope of his employment was not clearly erroneous.

An employee may still be severally liable for profits personally earned from infringement, but salary is not a profit for that purpose. The record showed that Arden received a weekly salary and no royalties or revenue-based share from Hallelujah Hollywood. Thus, there was no personal profits award to impose.

The court also declined to award statutory damages. Arden had consulted MGM, Inc. about using Kismet material and was told that the use was permitted. Whether that assurance was correct depended on licenses and contracts controlled by MGM, Inc. and MGM Grand, not Arden. He did not knowingly misuse the work or personally benefit from infringement, while plaintiffs were already adequately compensated by the corporate defendants.

The court's conclusion that MGM, Inc. had a substantial and continuing connection to the infringement meant that the district court could not continue to dismiss the pendent claims on the theory that MGM, Inc. had little or no relevant involvement. The prior factual premise for dismissal was inconsistent with the appellate court's liability holding.

Nonetheless, affirmance was appropriate because the state-law theories could yield no additional nonduplicative recovery. Any recovery based on profits would duplicate the copyright profits award, and any recovery based on actual damages was foreclosed by the prior affirmed finding that plaintiffs had failed to prove actual damages from the infringement.

A prevailing copyright plaintiff may receive reasonable attorney's fees without showing a further special circumstance. Such fees encourage private enforcement of copyright law and deter infringement. The district court therefore did not abuse its discretion by awarding plaintiffs some fees despite defendants' objection.

The district court was entitled to scrutinize counsel's request. Counsel had not maintained contemporaneous records for much of the litigation, submitted reconstructed records for some years, and gave only generalized estimates for later years. The absence of contemporaneous records does not automatically require a reduction, but claimed hours must be reasonable and supported by testimony or other documentation.

The court could not, however, simply announce a substantially reduced lump-sum fee. It made no specific findings regarding the reasonable hourly rate or the reasonable number of hours. It also faulted both parties for delays and discovery disputes without distinguishing plaintiffs' unnecessary work from work reasonably required to answer defendants' litigation strategy.

Because the record justified careful discounting but not an unexplained award, the Ninth Circuit vacated the fee amount and remanded. The district court was directed to conduct a more detailed assessment, make findings on reasonable hours and rate, and, if appropriate, permit supplemental evidence.