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Expert witnesses are typically the key to establishing awards for plaintiffs seeking recording royalties owed. In a recent ruling, a Nashville federal court awarded back royalties to a group of oldies artists, but reduced the recovery requested due to what the trial judge said were problems with presentations by the plaintiffs’ experts. The case also involved issues of what “at source” income means and whether the record company owner should be held personally liable. Thomas v. Lytle , 104 F. Supp. 2d 906. The action grew out of a prior royalties suit by Gene Pitney, the Shirelles and B.J. Thomas. That case resulted in a ruling in favor of the plaintiffs. It was also reportedly the first such royalties suit to reach a federal appeals court. Thomas v. Gusto Records Inc. , 939 F.2d 395 (6th Cir. 1991). In the recent case, Pitney, the Shirelles and Thomas were joined by R&B singer Hank Ballard. The artists claimed that G.M.L. Inc., Gusto Records and their owner, Gayron “Moe” Lytle, had failed to fully account for royalties owed under agreements settling earlier suits that the plaintiffs had filed. The artists now sought $5.5 million in unpaid royalties. But the court awarded approximately $1.2 million. The court agreed that there was “ample proof that the Lytle defendants have breached these [settlement] agreements,” but found that the royalty estimates provided by the plaintiffs’ experts were unreliable. Among other things, the court noted that plaintiffs’ expert Steven White had estimated the sales for each product for the eight-year royalties period at issue in many instances without regard to actual release dates. To determine the base price for foreign royalties, White used the published price to dealers (PPD), a calculation with which defense expert Thomas Bonetti agreed. Aleta A. Trauger, the trial judge, relied instead on the testimony of a long-time English fan of Gene Pitney to decide that the base price for budget CDs is approximately $6. As for foreign units sold, plaintiffs’ expert Tony Hughes based his estimate on a list of record companies provided to him by White that included an estimated number of units sold and an estimated sales price. Hughes then calculated that 15,000 units were a reasonable minimum for a record company to sell. But Hughes admitted that he wasn’t familiar with many of the record companies on the list and that he had never given an expert opinion based on the methodology that he used in this case. Judge Trauger thus relied on depositions taken from four foreign licensees of Nestshare Ltd., a company to which G.M.L. licensed the exclusive right to exploit the artists’ master recordings outside the United States. The four licensees were Ace Records, Castle Communications, Reader’s Digest and See for Miles Ltd. For example, White had determined that 50,000 copies of “The Very Best of Gene Pitney” had been sold. A Reader’s Digest representative testified, however, that in the six-month period following the album’s January 1998 release, only 303 audiocassette tapes and 615 albums were sold, with comparable sales figures for the subsequent six-month period. The court then concluded that “the plaintiffs’ experts have provided no reasonable basis for estimating that each product containing the plaintiffs’ master recordings would sell 15,000, 35,000 or 50,000 units. The testimony of the four foreign licensees indicates that product containing the plaintiffs’ master recordings sold, as a result of foreign exploitation, an average of 5,000 units.” The settlement agreements had acknowledged that the artists were entitled to 50 percent of revenues earned from third-party licensing. But the parties argued over the point at which the plaintiffs’ share of such licensing income should be calculated. The Ballard agreement stated that this would be “computed from the source,” and the Pitney/Shirelles/ Thomas agreement stated that it would be “computed at the source,” i.e., based on the income received by the ultimate licensee. G.M.L. argued that the artists’ royalties should be based on the monies that G.M.L. received from its licensees. The court sided with the plaintiffs, noting, “Under the defendants’ interpretation of the disputed language, there would be no need for the terms ‘at the source’ and ‘from the source’ to appear in the agreements at all.” Finally, the trial court applied the law of Missouri, where G.M.L. is incorporated, to determine whether the company’s veil should be pierced to make Lytle himself liable. The court then noted that “Lytle dominates and controls GML and Gusto to such an extent that these two corporations have no ‘separate existence’ of their own.” That meant that Lytle would be personally liable if the plaintiffs aren’t able to secure the judgment award from G.M.L. and Gusto. According to plaintiffs’ counsel Sam Lipshie of Nashville’s Boult, Cummings, Conners & Berry, “This is the first royalties case in which Lytle was found individually liable.” Lipshie also says that, despite the fact that the $1.2 million award is substantially less than his clients asked for, “it is certainly considerably more than the defendants offered us.” Defense counsel Timothy Warnock of Nashville’s Bowen, Riley, Warnock & Jacobson, says that the court’s ruling is important because “it clarifies what’s required of expert testimony to estimate royalties. In this case, the plaintiffs’ experts estimated sales based on factors that have nothing to do with the particular artists, the period in which the music was recorded or the demand for that type of artist or music.” Meanwhile, the defendants have asked for a new trial or amended findings of fact. The plaintiffs are seeking attorney fees, increased damages and prejudgment interest. Stan Soocher is editor-in-chief of Entertainment Law & Finance. He is also chair of Music and Entertainment Industry Studies at the University of Colorado at Denver.

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