Jimi Hendrix, Michael Jackson, Bing Crosby. You never would have seen them together on the same stage, but they’re sharing the limelight over an intriguing valuation issue known as the “right of publicity.” It’s a form of intellectual property that covers people’s likeness, including their name, image, signature, voice, and so on. The issue has made recent headlines in three cases.
It’s bad: Michael Jackson’s estate valued his name and likeness at a mere $2,105, according to the Los Angeles Times. No doubt this low value reflected the negative publicity and scandal swirling around the pop singer at the time of his death. But the IRS disagreed with this value and has filed documents in Tax Court contending that the value is $434 million. Other assets in his estate are also undervalued, says the IRS, and the difference is so great that the estate was hit with the 40% gross valuation misstatement penalty—double the normal penalty—a very unusual move.
In the case of singer/actor Bing Crosby, his first wife filed suit asking for a share of the value of his right of publicity stemming from the time they were married. However, the court never got to address the issue or the valuation because her estate had settled with Crosby’s estate some time ago. The judge ruled that the settlement precluded her pursuing her new claim.
Currently, 19 states have statutes that cover publicity rights, and those that do not will recognize some of those rights through common law. Also, dozens of states say it applies posthumously. Another recent case, involving Jimi Hendrix, challenged the constitutionality of the state of Washington’s publicity rights statute. The 9th Circuit refused to declare the statute unconstitutional.
Where you’ll find it: According to Jonathan Faber, founder of the Luminary Group and an expert in this area, valuation analysts will come upon the right of publicity issue primarily in three contexts: (1) estate valuation and planning; (2) divorce; and (3) infringement due to unauthorized use. But the issue often fails to surface at all because of a lack of awareness. The valuation involves techniques and methods common to the valuation of other IP assets, such as determining royalty rates, examining cash forecasts, choosing a discount rate, and so on. But the “application of those common methods really requires the judgment of someone who works with the right of publicity on a regular basis,” says Faber. “Those who may be experts in other areas of IP valuation should not assume he or she can jump into a right of publicity analysis and perform a defensible valuation,” Faber said.
You might think that the right of publicity only applies to celebrities. Not so. Anyone can get caught up in this issue. We’ll explore more about it in future issues of BVWire and also Business Valuation Update.