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This month, a groundbreaking tax trial begins over what Michael Jackson’s estate owes the Internal Revenue Service for the value of the late entertainer’s image and likeness when he died in 2009. The dispute’s significance not only derives from Jackson’s fame and the stakes — perhaps as much as $1 billion — but also first-impression legal questions that will impact how celebrities prepare for their eventual demise.
Maybe it’s no surprise then that as the case nears trial proceedings in California, U.S. Tax Court Judge Mark Holmes is having to figure out whether to allow testimony and expert reports from some of the most distinguished legal scholars out there. For instance, UCLA Law School professor Eugene Volokh saw his report on behalf of the estate ruled inadmissible in December while copyright legend David Nimmer’s report on behalf of the IRS is currently pending a motion to preclude.
The big issue for Holmes to settle is how to properly value Jackson’s right of publicity at time of death. That’s not simple. Does it mean the judge should put emphasis on how Jackson’s name was tarnished before he died, emphasizing charges of child molestation and rumors of drug use? Should he ignore the lucrative deals that executors of Jackson’s estate made with Cirque du Soleil and others after Jackson died? Can the judge incorporate post-death earnings by maybe seeing it through the prism of what a theoretical buyer might have paid Jackson for the right to use his name and image for eternity?
With such questions hanging in the background, Holmes on Thursday issued a ruling pertaining to Weston Anson, a licensing expert, whose report included such speculation as a “Michael Jackson theme park.”
The most significant objection to Anson’s testimony dealt with how the expert incorporated the value of trademarks, copyrights and rights to receive royalties as a performer. Jackson’s estate argued that “mashups” of different rights violated a requirement that every item of property be valued separately.
“This is an especially interesting legal question,” writes Holmes in his order. “In a world without transaction costs, it wouldn’t matter if publishing rights, performance royalties, trademarks, etc. were valued separately because a rational buyer would value them as if they could be put together in the most profitable way even if they were bought separately. But it is entirely possible that trial will show that these separate rights would be more valuable if used together. If so, and if the Estate owned these separate rights, it might well be the case that they are worth more together than they would be if summed separately.”
Holmes is allowing Anson’s report and testimony about intellectual property synergies.
Separately, the judge has deferred the issue of whether it’s the IRS’ burden to show Jackson’s right of publicity is worth hundreds of millions or it’s the Jackson estate’s burden to show it’s worth just $2,105.
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