>> MARY BONEY DENNISON: Welcome, everybody. I'm Mary Boney Denison, the
Commissioner for Trademarks from the U.S. Patent and Trademark Office. We
have a fabulous panel here for you today. We are really excited to hear
all our speakers on the postmortem right of publicity. I'm going to
introduce them in alphabetical order. So we start with Kareem Abdul Jabbar,
the greatest basketball player in history, as everyone knows. (Applause)
When he retired from the NBA after player a record 20 seasons as well as
setting the records for points scored, games played, minutes played, blocked
shots and defensive rebounds, he was also a record six time NBA most
valuable player, a record 19 time NBA All-Star, 15 time All NBA selection
and 11 time NBA all defensive team member. Wow! Don't know how you can
even remember all that. But since retiring from the NBA, he's been
active as an education advocate, writer of social commentary, novels,
history books. He's written 15 books including his most recent New York
Times best seller Coach Wooden and Me, Our 50 Year Friendship On and Off the
Court and Becoming Kareem, Growing Up On and Off the Court. Mr. Abdul Jabbar
also produced a documentary adaptation of On the Shoulders of Giants, which
won an NAACP award. And of particular interest to this audience of IP
lawyers is his book entitled What Color Is My World, The Lost History of
African American Inventors. And if that weren't enough, in October he has
a novel coming out called Mycroft and Sherlock. So he has been quite busy.
In 2016, President Obama awarded him the Presidential Medal of Freedom, the
country's highest honor for civilians. He also is an award winning columnist
for the Hollywood Reporter and the Guardian. Along with his writing, he
is a highly sought after public speaker so thank you for joining us
today. (Applause) We are also really lucky to have his business manager Deb
Morales on the panel. Ms. Morales is a successful businesswoman who bounces
her busy careers as a CEO, an award winning movie producer and business
manager for Kareem Abdul Jabbar. As Founder and CEO of Iconomy Multimedia
& Entertainment, Ms. Morales has been helping professional athletes go from
success to significance by creating a plan to ensure financial stability
while they pursue their post-playing dreams. She has also produced two
highly acclaimed documentaries, On The Shoulders of Giants and Kareem,
Minority of One. As Kareem's Business Manager, she has helped him realize
his dream of becoming a successful writer of novels, history books,
political commentary and screenplays. She is currently writing a book
herself about the challenges of being a business manager called The
Accidental Manager. Please join me in welcoming Deborah. (Applause) On the
legal side, we are really lucky to have two distinguished experts in this
area. We have Jennifer Rothman and Priya Royal. Jennifer Rothman is a
Professor of Law at Loyola Law School in LA and she is an Elected Member of
the American Law Institute and an affiliated Fellow at Yale Law School's
Information Society Project. She is nationally recognized for her
scholarship on intellectual property and constitutional law and her website
Rothman's Roadmap To The Right of Publicity is the go-to place for right
of publicity questions and news. Her latest book, The Right of Publicity,
Privacy Reimagined for the Public World was published this year by
Harvard University Press. She received her AB from Princeton University and
an MFA from the University of Southern California School of Cinematic Arts.
She also used to work in the film industry before attending law school
at UCLA where she graduated first in her class. She clerked at the Ninth
Circuit, was an entertainment and intellectual property litigator at
Irell and Manella and then she went on to become a law professor. So please
join me in welcoming Professor Rothman. (Applause) And last but
certainly not least, Priya Royal is the Tax Law Editor in the Estate Gift
and Trust Group at Bloomberg BNA. She was formerly an estate tax attorney at
the Internal Revenue Service where she examined high and ultra-high net worth
estates and also worked on training course materials for incoming estate
tax attorneys. She has a JD and an LLM in taxation from Villanova University
School of Law and she has been a panelist on a number of webinars and
seminars over the years, most recently addressing the 2017 tax reform. She
has also been in private practice in trust and estates and tax law
representing a variety of clients from New York to DC for over a decade. In
addition to tax law, she has also represented clients on trademark and
copyright issues, especially as they relate to estate planning and
valuation. She is admitted to practice in five states. It's amazing. So
without further ado, let's welcome Priya. (Applause) I'm going to ask
Professor Rothman to kick us off. Thank you, all. >> JENNIFER ROTHMAN: I
think I might be the shortest person on this panel so excuse me for
adjusting the mic. Thank you for that introduction and for inviting me to
share my expertise with you this morning and to be part of this
incredible event on trademark law, which is near and dear to my heart.
It's actually the first subject that I taught when I first became a law
professor. We have a short time together for an enormously complex
issue or set of issues and we're only going to scratch the surface of them
here today. My goal is to set the stage for the discussion that follows
and for Ms. Royal's comments, more specifically about tax law and to
provide some guidance for all of you as attorneys, as managers and as
agents and most importantly for the very individuals whose identities may
be at issue in these sorts of cases. So I'm going to focus on two primary
topics today. The first is the overlapping set of legal entitlements
that apply to the dead, which are not just the right of publicity and in
fact there's a lot of confusion because they're often collapsed. The
second topic I'm going to focus on is more about the right of publicity
which people know the least about and talk about some of the challenges for
having postmortem after death rights in the identity of a deceased person
and they vary quite widely from state to state. So first as a preliminary
matter, I want to consider the question posed by the session itself,
who owns you when you are dead? We're not talking about dead bodies here.
There's some very interesting cases about who owns dead bodies, wonderful
lawsuits, not the topic of today. We're also not going to be talking
about the tangible property of the dead, things like cars, houses, boats,
and memorabilia. We're not talking about those. So we're going to focus
on intangible property and what happens to it after a person,
particularly a famous person or celebrity, dies. And so this is also
sometimes called the intellectual property and this includes a variety
of rights I'll be talking about. Sometimes the right of publicity is
thought of as an intellectual property right, though I think that's a
mischaracterization of that interest. So again our focus here is going to be
on these intangible rights in a deceased person and specifically in
their name, likeness, voice and other indicia of identity. This is not a
single right at issue but a multiplicity of rights that intersect
and teasing them apart is crucial in litigation, in estate planning, in
dealing with the growing IRS efforts to tax high value celebrity estates
and also in the context of pre-death or inter vivos, if you want to go all
Latin on it; inter vivos transfers of rights. So these we need to sort of
tease these apart and that's the first topic for today, these overlapping
legal claims. I'll start with the basic proposition, which is who owns
you after you die has a lot to do with who owns you while you're alive, so
that should be the starting point for any evaluation. And then you have to
tease apart what are the legal claims at stake in a particular estate? Those
include copyrights, which as most in this room know, protects original
works of expression in a fixed form. So if a person's image or voice is
captured in a photograph, a movie, a sound recording, those are sometimes
thought of right of publicity related as well but they're actually also
covered by copyright law and so copyright law is something that
survives death. It lasts for 70 years after the lifetime of the author. In
the context of works for hire, which will also frequently be involved in a
high end estate, it lasts 95 years after publication or 120 years from
the time of creation; 95 years from publication, 120 years from creation.
So often the person whose voice or image is captured in a copyrighted
work is not the owner of the copyright and that raises some complex issues
related to whether the copyright is going to overcome any right of
publicity claim after death but it also is sometimes true that the
particular individual owns the right to the copyright and can assert those
rights or their estate can after death. The second type of right we're
dealing with are those of trademarks and so when we're talking about
someone who's famous, they may have a number of trademarks that protect
their likeness and name if they're using it in conjunction with products
or services including entertainment services or writing services. And
these can survive death as long as the estate or businesses or licenses
continue to sell products or services using those same marks with the
person's likeness, a particular version of the likeness and the
person's name or related names. And trademarks can last forever so that's
another consideration after death. There's a third category of rights
that are sometimes often forgotten in this context which is there's a whole
umbrella of unfair competition laws including under the Federal Lanham Act
and consumer protection laws varying from state to state in which an estate
can file false endorsement or false advertising claims even after the
death of a person because there might be a suggestion of sponsorship or
endorsement by the estate. And finally, the claim that we're going to
spend the rest of the time or most of the time talking about is the right of
publicity. The right of publicity is often misunderstood as an intellectual
property right akin to copyright law that's separated from the right of
privacy in the 1950s. These are all myths about the right of publicity
that I debunk in my latest book that was mentioned on the right of
publicity. And I also delve into some more of the issues that I'm talking
about today. So if you want to learn more, that would be a place but those
are some myths that I bust there. But I want to make sure that we're all on
a level playing field talking about the right of publicity without reading
the book in advance. Just broadly speaking, the right of publicity is a
state law. It varies widely from state to state. It provides a right to stop
others from using your name, likeness and sometimes other indicia of one's
identity without permission usually for the defendant's advantage. Not
always for a commercial advantage. Some of you who have practiced in the
area may think that it's limited to commercial speech. It is not in most
states and it's not even always limited to for profit uses. So there
are many variations from state to state. For our purposes today, not
every state has an independent right of publicity separate from its right
of privacy and not every state has a postmortem right of publicity. Not
every state has a right that survives death so this varies also widely from
state to state, which is one of the reasons out of frustration I started
this website in which you can click on a state and find out what the laws are
so I'll talk a little bit more about this in a few minutes, but one of the
things you have to tease out is there even a postmortem right of publicity.
So I said the first topic we're going to talk about is overlapping rights so
I want to use the Michael Jackson estate litigation with the IRS to
highlight these overlapping rights. So this is the Schedule F forms submitted
by the Jackson estate. Ms. Royal is going to talk in more depth about some
of the tax issues but I'm going to sort of use this to highlight this
overlapping issue. So when they filed the form, they had a single item image
and likeness. Image and likeness valued at $2,000 of Michael Jackson,
which is absurd. That was like waving a red flag in front of the IRS, come
and get us. The IRS said no, that's over 400 million at least in Michael
Jackson's name and likeness. We can talk more about this later but what I
want to highlight is that image and likeness was collapsed into a single
line rather than being teased out. Image and likeness of Michael Jackson
in copyrighted works, photographs, music videos, etc. trademark rights.
And then there's the separate question of whether false endorsement, false
advertising potential claims or potential right of publicity claims
should even be part of the property of the estate. That is something that
should be contested. The Jackson estate failed to contest the inclusion
of the right of publicity or false endorsement or false advertising in
the estate. So that is where this Jackson litigation is going to set a
precedent. The IRS is using it to be more aggressive in taxing postmortem
rights of publicity but I just want to remind everyone no one challenged the
inclusion of the right of publicity in the estate. That's still something
that can be challenged and litigated. And I also want to highlight that they
collapsed all of those different property rights, which all should have
been separated just in a single box of image and likeness which has caused a
great, having talked to some of those involved in that litigation has caused
a great deal of confusion by the judge as well as the experts in trying to
value this property. So I'm just highlighting those things to show how
they overlap and you need to disaggregate them. And as we think
about this though, I want to focus in on the right of publicity because this
is what people I think in the room probably know the least about but I
wanted to start by reminding you not to forget about trademarks, copyrights
and related estate claims. So one of the biggest challenges however is just
figuring out postmortem rights of publicity and they don't exist in
every state. I'm going to highlight six challenges posed by a postmortem
right of publicity, an after death right in your name, likeness, voice or
other indicia of identity. So first there's just the variability of state
laws. As I said, not every state even has a postmortem right of publicity.
Some only provide rights to the living. Some have postmortem rights
that only apply to soldiers. If you want to know why, you can ask me
later, but some limit it to soldiers. Some limit it to personalities, people
with commercially valuable identities who have been selling products or
investing a lot of time and money in making themselves commercially
valuable. Some let anyone have a postmortem claim. Some limit claims to
those who died domiciled in a particular state. Some open their
doors, like Washington State to all-comers. There's a wide range of
duration in the postmortem rights. Some provide a ten year period, some
25, some 30, some 40, some 70, some forever. Some require registration,
some don't. Some have specific designated heirs to which it's
limited, some don't. So as you can see, one of the basic challenges is
just figuring out what law would apply to the particular person you're
dealing with. This also raises significant valuation questions for
taxation purposes and otherwise. The second challenge I want to highlight
is the potential danger of forced commercialization. So as the IRS
becomes more aggressive in enforcing a state tax inclusion of postmortem
rights of publicity, there's a concern that people who don't, the sort of
survivors of a famous person who don't want to commercialize their loved one
will be forced to do so simply to pay off the estate tax burden. Now Michael
Jackson's estate is heavily commercializing Michael Jackson's
estate. They do so regardless of the estate tax situation but that's not
true for every person. Some people don't want to be commercialized after
death and their heirs don't want to commercialize them either but because
of the way the tax works, they will be taxed as part of the estate tax if the
right of publicity is included at the rates highest and best value at a
commercialized value even if that's not what the person wants to do. This
was very concerning to Robin Williams who developed a very elaborate trust
plan to try to avoid that outcome for his family and so he vested his name
and likeness rights and his right of publicity in a nonprofit through the
trust and barred the non-profit from commercializing in any way his name,
likeness, voice or identity for 25 years after death. Now I'll mention
not only am I not giving you specific legal advice but this trust has not
been challenged yet so it's not clear that it will be valid but it is sort
of the primary example I know of someone trying to deal with this
potential forced commercialization problem. And of course that forced
commercialization problem could be solved other ways through legal reform
or altering how the IRS is behaving currently. And of course getting rid
of the estate tax, which could happen any day. All right so a third
potential problem is not having an estate plan at all when you die in a
state that has a postmortem right or maybe that doesn't have one. I call
this the Prince problem. So Prince is a high value deceased celebrity who
died without a will. He didn't think he was going to die. He didn't make a
plan. So there are several challenges to this and I'll just highlight at the
outset Minnesota doesn't have a postmortem right of publicity. And
there was a rush in the aftermath of his death to try to get Minnesota to
pass one and then when I and some others highlighted the estate tax
problem and the danger of forced commercialization and valuation, all
of a sudden all the support for that bill was removed and it was pulled
from the Minnesota legislature because of tax concerns in particular. But
even putting those to the side, there's the problem of whose going to
inherit and who should get the value of this money of our dead person. Now
just again reminding of the overlapping rights so this is not
about copyrights or trademarks which will vest in whoever the heirs were
but specifically about the rights of publicity and we want to provide this
additional value and to whom. So in this case, there were a lot of
estranged sort of relatives of Prince who now wind up owning him after
death. It's not clear that's what Prince would have liked at all as
compared to his fans who are a big supporter of in allowing them to
perhaps have in memorium posters and other things to celebrate him. And
there's also for a while a fight by someone who is incarcerated and
claimed to be a child of his claiming that he should have rights, so we
might want to think about that if we tease apart postmortem rights or maybe
what they want that we want them to look like, who should get them and
when and particularly if there's no will involved. And this ties up with a
fourth potential concern which is the question of who profits from
postmortem rights and potential abuse particularly of the elderly. I don't
know if some of you read the recent New Yorker piece or saw John Oliver
talking about guardianship with the elderly and some abuse in which older
people are sort of stripped of their assets and lose control. This could
happen to older celebrities as well who may not have family watching out
for them or even the family themselves as we see in the instance of Stan Lee
maybe taking advantage. And there could be a transfer of postmortem
rights of publicity while the person is living and so this may shift wealth
to a company for example that's wholly unrelated at the expense of others and
they may do things that the person might not like. I give an example in
the book but also there's one I circle here. Bettie Page who is one of the
top ten dead celebrities and she was actually, you probably know a lot more
about her now that she's dead because she's owned by CMG , a corporation
that owns more dead people that anyone else and they have turned her into big
business. We might ask is that -- do we want all that wealth shifted not to
close heirs of a survivor but to just an unrelated corporation that's making
hundreds of millions of dollars off dead people away from the public being
able to comment on people. And I'll also mention that Bettie Page who
became very religious later in life sort of rejected some of the more
sexual imagery around her and yet this company that owns her is now selling a
sex toy line, the Bettie Page sex toy line. It probably wouldn't have been
something she would have chosen if asked. And this sort of shift about
transferability leaves us to the last two things that I'll just highlight.
One is about transferability for the living. So privacy rights don't
transfer after death but if we make the right of publicity transferable at
death in most states that brings along with it transferability during the
lifetime which could lead to some abuse of the least powerful. So if we
think of aspiring actors, singers, musicians, they may assign their
rights forever in their name, likeness, voice to managers, to
agents, to reality shows. Parents may assign forever the rights of their
children and in the context for example of student athletes a
condition for playing in the NCAA is to sign a very lengthy contract and
also to get your scholarship money and the NCAA claims to therefore own the
student's rights of publicity forever. The standard student athlete agreement
according to the NCAA transferred to an all-rights in perpetuity to the
commercial use of student athletes images including after they graduate.
And we can play out the implications of that but I don't have time now but
I just want to flag that for you as people call for more expansive
postmortem rights. We should be careful not to harm the living who may
lose control over their own identities. And if you think this only
applies to celebrities you might want to think about the terms of service on
Facebook and what they could do to your own rights and your name and
likeness. And finally I'll just leave us with some thoughts about some
potential free speech issues and this really affects valuation too because
all of these rights are limited by the First Amendment. And when we think
about the breadth of some of these rights from a legislative point of
view we also need to take these under consideration so I'll just highlight a
few examples of this. Martin Luther King Junior's estate has been very
litigious over his name and likeness rights. The bust in the center is
something that the Martin Luther King Junior estate sued over its sale in
multiple copies and prevailed in shutting that down so people could not
buy these and have them in their homes to honor Martin Luther King Junior. On
the left is the memorial here to Martin Luther King Junior and the
federal government, I know there are a lot of federal employees in the room,
I don't know if people know this, the federal government paid $800,000 to
the estate to get permission to make that statue. I don't think they had to
pay but that's the sort of thing honoring someone. Elvis' estate also
sued over an honoring statue in Tennessee. On the right is a plaque
that Rosa Parks’ estate sued over that was sold by Target to celebrate civil
rights. That lawsuit was ultimately rejected for reasons that I don't have
time to go into but these are sorts of things that we might lose out on if we
have an over-expansive postmortem right but we also need to think about
in terms of valuation as well as uses in movies and books. And so I'm almost
done and we'll turn things over and I'll just to think about in the
discussion why should we have postmortem rights? We might want to
think in particular about the dignatory interest of the survivors.
Obviously the deceased no longer have a need to be paid and they may have
dignity in a broad sense but in the law we generally don't respect or make
laws based on the dignity of people who are no longer living. But also
there's lots of ways in which other laws, trademarks, copyrights, unfair
competition might apply after death. So I know others are going to talk
after me and Ms. Royal, I will turn it over to you to talk in more depth
about tax and I will try to get your -- (Applause) >> PRIYA ROYAL: Good
morning, everyone. So as you can guess I'm a tax attorney. I read the code
for fun. It's also the bedtime story for my daughters, unfortunately. Just
to get an idea of what sort of audience I'm speaking to, how many of
you are IP practitioners? Ah-hah. All right. Any of you tax practitioners or
have a tax background or a CPA by any chance sitting here? Ah, so we're
going to have fun. Okay. So Jennifer did an excellent overview of the
general issues that arise in estate planning, estate administration. I'm a
former IRS estate tax attorney. I did planning. I continue to do planning
which essentially means the things I draft to protect my clients interests
I basically look at them and say ah, this is going to get picked up for
audit and I can't do anything about it but I can win. So that's sort of what
I'm throwing out some terms that you should consider when you speak to your
clients, to your employer if you're in corporate counsel for considerations
on things that an estate planning attorney should address. One of the
reasons I'm excited that Mr. Jabbar is part of our panel here is that he sort
of represents the conglomerate of issues and different types of IP
rights that could be tax issues. It's sort of what would be the value of him
in his authorship rights versus his basketball legend rights versus his
speaker rights versus his journalism reporter sort of editorial rights? I'm
mean the list could go on and from an IP standpoint what you would think is
what you would tack on for a license agreement is not necessarily what is
going to be the case on a tax again especially when you're dealing with
postmortem rights. So the right of publicity essentially in a nutshell is
the commercial value of a person's name, likeness or image. And where
there's commercial value there's an asset attached to it. Where there's an
asset there's an estate. Where there's an estate there's a tax. So anything
that can be taxed will be taxed. I always joke and say you always start
with Section 61 of the Internal Revenue Code which says all items are
included in gross income unless excluded otherwise which means never
ask the question will this be taxed. Always ask the question will this not
be taxed and how do we make it that way. The way you can sort of minimize
the tax and not make it tax at a certain time, or in a certain way, or
in a certain amount is obviously to transfer the right, which is why we're
sort of touching on the transfer of the right of publicity. The survival
of the right of publicity. I know Professor Rothman touched on state law
which is sort of an evolving landscape. Some states allow rights of
publicity to survive, some don't. There's case law that basically in New
York there were no postmortem rights of publicity which means it was free
for all. The Marilyn Monroe estate is actually one good example of that,
which I'll get to in a second. One of the things that most literature out
there and most of the material that's not touched on is actually dual
citizenship and estate tax on the right of publicity. Take for example,
we're going to pretend to kill off celebrities now. Charlize Theron from
South Africa. She has dual citizenship or dual residency. What laws apply?
Right now, the WTO does not govern the right of publicity. They do not manage
it. They do not limit it. They do not define it so how do you define it?
What is the value? She may have international acclaim. She may have
publicity rights. She may -- Aeon Flux for anybody who watched it that could
be her image. That could be used in various things. So that is in terms of
evolving landscape let's just say there is a lot of work and possibly a
lot of employment opportunities at the IRS for estate tax attorneys if
somebody wants to get into the minutia of this. And for estate planning
attorneys this is a great area especially if you have an IP
background or you have dealt with IP in specifically trademarks, copyrights
and sometimes patent ideas, the broad concepts coming to define this right
of publicity. So these are sort of like touch point examples of how the
law is progressing the tax arena. Right of publicity as Professor
Rothman could probably tell you has been around for a very, very long
time; several decades. The tax issues in the line of publicity as of today
we actually have no idea how they're going to get taxed. Well we have no
idea to the extent I could disclose how they're going to get taxed. So the
tax history is we sort of look at the estate of Marilyn Monroe as
establishing right of publicity for tax purposes because it was an issue
of domicile which sort of goes back to the dual citizenship idea of taking it
beyond states to other countries because we live in a global digital
age. And so in the estate of Marilyn Monroe, she passed away in 1962.
Essentially her heirs 50 years later wanted to tack on a right of publicity
to the things that were being used, her image, her likeness in 2012
because they thought it a commercial value. And if you think about it from
the IRS perspective, this is exactly what they're taxing. If you think it's
unfair that they tax somebody's image and likeness somebody is making money
on this so why shouldn't there be a tax. That's one perspective. On the
other hand, you are who you are. How dare you tax me as a person, right. So
in that case it was basically judicial estoppel was what kicked in. For tax
purposes New York had more favorable tax law that said protection laws at
the time she passed away in 2012, they wanted to switch that because they
wanted the protection of the California laws. The courts said you
don't get to eat your cake and have it too. I mean you just can't have it
both ways. And then I call it the escalation point. Estate of Whitney
Houston which would be a mystery to most people out there because the IRS
settled with the estate of Whitney Houston. She on paper died
impoverished. She owed I believe four million and her state was only three
million. At the end of the day they agreed on a two million dollar value.
And the way this works is the estate gets audited. Everything in the estate
is everything that the taxpayer had full dominion and control over at the
time of death. Standard valuation is date of death. There are no statutes,
regulations or internal revenue manual guidelines as far as I know which
dictate that the time of death is to the precise second and not the second
after. And the reason this is important is because if you take a
celebrity or any sort of -- okay, Mr. Jabbar actually would be a good
example. I'm sorry Mr. Jabbar but we're talking about estates so I don't
mean to talk about the very future. You have sort of established yourself
as this person who is for social justice as an author predominantly and
moved away from your role and your emblem as a basketball legend. I mean
that is sort of the first part of your career. After you pass away, the
basketball legend aspect of it is going to get commercialized. That is a
given. But does the value of your persona as a basketball legend now
carry a greater value because one second after you passed away you are
now worth more on that piece than as an author because it is very likely
that the commercial value of your profile as an author is less than the
commercial value of your basketball history. So this becomes an issue for
valuation purposes because tax is taxed at 40% of the asset in the
estate so what are you putting in that estate? So then the estate of Michael
Jackson, the very famous case where the estate reported a $2500 value. The
IRS said it's 500 million. It is, as an estate planning attorney, it is not
a red flag, the estate of Michael Jackson is the red flag so there are
several estates of extremely huge public figures that have been put at
thousands of dollars, hundreds of thousands of dollars and they bill
billionaires and the reason is estate planning. With Michael Jackson, he did
not actually die with $2,000. He had excellent estate planning attorneys
who literally pulled one billion dollars of his assets out of his
control on paper. He died wealthy. The IRS was I'm sure not too happy about
that and they wanted to find some way to get a piece of it so they found
something else and said your right of publicity is worth 500 million
dollars. But there was an issue about whether he would have any value in his
persona because there were various contentions. He was sort of not in the
greatest view publicly at the time he died. The IRS will take the
perspective that allocates a discount to his value, not eliminate it because
there is a risk of litigation that proves that his value was less than
what they deem it to be or and it's going back to the time of death there
is one case involving [indiscernible 00:36:20] restriction rights which
literally went into the time of death. It is a corporate business asset case
and that may get pulled by a brilliant estate tax attorney into a situation
like this but it is a very hard argument because no statutes, no
regulations, date of death is just valuation. So on the date of death, at
the time he died, the IRS said he was worth 500 million dollars. We are
looking to see what is going to come out of this case because this is sort
of what you didn't see is Professor Rothman put out the Schedule F of
866-A, which is a form that the IRS uses to make assessments. That is not
the estate tax return. The estate tax return for the estate of Michael
Jackson my guess would be was probably somewhere between seven to 20 boxes
because they contain valuations with details in them. That is required. It
is not a complete 706 without valuation. So those questions we're
waiting to get answered and will probably be answered in the court
dicta and if they were in there they were probably present at trial and
they will show up in the court dicta. I mean it's there somewhere and
they're basically putting valuation experts against valuation experts.
What is the value and how much time does the IRS really want to spend on
this? That's what it comes down to. The future estate of Prince, the man
died without a will. Big mistake. Not selling services but big mistake. Not
only were his regular assets not protected. His right of publicity, the
value is unknown. The uphill battle in an estate tax audit which is
guaranteed essentially I would say for all intents and purposes it'll
probably pass several hundreds of thousands of dollars in legal fees.
That is a cost of not doing a five figure estate plan because you're
going to go through -- and the estate tax statutory period is three years.
Or if you take a situation like the Michael Jackson estate where they
reported the value of the right of publicity at 2,000 there is a clause
in the statute at the REGS for gross undervaluation which essentially means
that the asset wasn't reported or if it wasn't reported specifically enough
as instructions require the estate remains open indefinitely. So this is
why expert, seasoned estate tax attorneys who understand the
implications, who understand celebrities, who understand public
figures, who understand what IP means, what the right of publicity means is
crucial and they have to be consulted. The first time you as an IP attorney
draft a licensing agreement where you're giving a company name rights to
one of your clients, you should be talking to a tax attorney because
maybe that name right shouldn't be going as a direct person to the entity
or that person. Maybe it should be sheltered through a trust. Maybe it
should be sheltered through business entity because we can split rights. We
can create remainder interests. We can create income interest so that the
person who owns these rights can have control over them while they're alive
but still not have value in them when they die. These are complicated,
extremely, I would say intense very multi-layered sort of planning and the
nebulous part is we don't know if these are going to be blessed by the
IRS but we have an argument and at the end of the day when you create a trust
and you put it in there and you create remainder interest, you have an
argument where you can at least negotiate it. And negotiating means
maybe you can get less than 50% of what the IRS claims the value is. If
you have nothing, what is your argument? You never took anything out
of the estate. So with the IRS most people don't know this, estate and
gift tax audits there are about a little over 250 attorneys in the
country who work for the IRS as estate tax attorneys. They have fun going out
to the middle of the country to look at every single estate and gift tax
return that has ever been filed. There is no return that does not task the
purview of an attorney. You will only hear about it when it is selected for
audit. So if you think that putting your client’s right of publicity at
100 million dollars is going to escape audit, be advised. That is not the
case because you have a potential for dispute on a valuation issue that is
most likely going to go for a full audited exam. But you can cut that
time when you have reliable valuation reports in the record, great experts
who are collaborating with you, a team of tax attorneys, CPAs, IP attorneys
who can go into every aspect of this basically off the top of their head
and that will cut down the cost of examination from hundreds of thousands
of dollars significantly. Any client out there is going to enjoy having to
not have legal fees after they pass away so their beneficiaries get even
less. Theoretically, it's a deduction of the estate tax return for the legal
fees but remember at a 40% tax, you still lose 60%. NACVA is the National
Association of Certified Valuation Analysts. They have developed specific
business valuation methodologies. They're highly respected by the IRS.
If a valuation analyst, business valuation IP analyst, anybody has an
NACVA certification, they know the standards to follow. They know the
order to put it in. They know the format. They know that they need to
address all three approaches to valuation, which I will touch on, and
if those things are missing it becomes an insufficient valuation report which
is more easily challenged. So I recommend looking for some sort of
certification and background for these valuation analysts and most attorneys
-- I went through -- so while at the IRS we were put through the training
for NACVA certification so I can actually do strategic valuation. The
slides here you're going to get a copy of it so it looks like we are running
out of time quickly so I just want to sort of touch on these points so that
you can always follow-up with me with questions and I can go through them.
Essentially about appeals process, there's a higher chance of negotiating
at the appeals process and the tax code is your decision maker
eventually. I mean it's -- and then the costs we just touched on. We can
go back to what Professor Rothman said concerning this. Discounting is
something I touched on again. Risk is discounting on the reverse side. If
somebody is worth the value of their -- because they did good protecting of
their public rights, the IRS has the ability to tack on a premium so it
goes both ways. You can actually be more than what you thought your
licensing rights were for your client. Income costs and market approaches,
the three approaches, the most widely used. This evolving field is actually
a combination of the income and the market approach, which basically
factors in future streams of income and comparables although I don't know
who you would use as a comparable for say Mr. Jabbar because he is sort of a
unique case, which goes back to valuation of unique art and other
nebulous items. The IRS has experts for everything you can imagine. There
have been valuations of show dogs so there is nothing that they do not have
the resources for. And this is again splitting the right of valuation. I
spoke about trusts, moving it. There are a couple cases, the Trump Act
conundrum is at what point does free speech end and what point does his
rights as a celebrity which has value which includes the estate tack on.
That's interesting. I'll probably have a couple articles on that upcoming so
you can view more on that. It's obviously more -- restricted transfers
again IP attorneys you're familiar with that. It is very similar to the
business idea of licensing. I'm speeding through this because I just
got a note that there is probably less than one minute at this point.
Charitable options. There's a deduction of the estate tax return for
the charity. The role of the estate planner flips. The estate planner
wants to create the highest value for the right of publicity when you're
putting it into a charity because that's the highest deduction. It also
increases the basis of the properties when it transfers because when you
transfer it in a [indiscernible 00:45:19] where remainder interest may
go to noncharitable beneficiaries you have increased basis in some assets so
capital gains are lower. And I said this is sort of I'm sure goes over the
head of most people who have absolutely no interest in tax law
because boring numbers in the Internal Revenue Code but these are things that
you can mention to clients, to your employer, to your companies and it
sort of gives them an idea there are other things beyond the scope of just
licensing rights, what happens today, royalties and things of that nature. I
can go through those. As I said, you can follow-up with questions. And here
are some references for a general review and an article one of my
colleagues published. But and if we have any time, would we have any
questions or comments from anybody else in -- (Overlapping) >> FEMALE
SPEAKER: I think the list of resources will be handed out at the end for
people. I know that we started a little late but I think we can get
sort of conversation -- [Indiscernible 00:46:27] >> PRIYA ROYAL: Questions or
comments. Okay. Sure. Do you want to come up here? Do you want to go back
and forth Jennifer? >> AUDIENCE: I can just use this. >> PRIYA ROYAL: Okay,
great. >> KAREEM ABDUL JABBAR: Good morning, everyone. My question is how
does someone with some level of fame know that they need to do estate
planning around their right of publicity? I'm 71 years old and now
trying to deal with this type of planning for my family and my
survivors and I'm just learning about it. So how do we figure out who to go
to and what questions to ask? >> PRIYA ROYAL: We are sort of in the session
of what should your lawyer know to be a good lawyer. I think the ethics
battle is going to address this whether it would be an ethics issue if
you don't know, if you don't advise your client about things they should
be considering that are not necessarily specifically within the
scope of the engagement. And they are -- a good business manager should be
aware that these issues exist so that they can vet the attorney because
invariably for famous people the business manager essentially manages
who is hired, who is not hired, and understanding these issues at least on
a very broad level is critical to that. So I would say get good people
so they know what they should know. And it never hurts to sort of keep
abreast of what is happening in the news because like the estate of
Michael Jackson is in the news and you sort of say what is this? Does this
apply to me? Always ask is this my issue? >> JENNIFER ROTHMAN: I think
people need to start, it's not about age. You mentioned your age but I
think anyone who has a high commercial value, identity, needs to make a plan
because no one knows when they're going to die so it doesn't really
matter how old you are. It matters if you have a large enough value estate
that you need to make a plan. >> PRIYA ROYAL: Let me add that everybody
should have a basic estate plan. As soon as you have let's say reality
show star walk into your room and say I want to be in this project or I'm
going to get paid $500 for six episodes you need to tell them we need
to start thinking about where we're going to put those $500 because it is
likely that tomorrow that $500 may be 500 million dollars. So you have to
start at the very basic level and you build on estate planning. You start
low so your fees are low and then you keep building more and more trust
instruments. It's a life-long process. >> DEBORAH MORALES: Now I'm Kareem's
business manager and I've been doing this for about 15 years as his manager
and I consider myself one of more the savvy managers out there. I'm very
aware of issues but I didn't know about this until just a few months ago
and we have lots of famous friends and we've been talking to all of them and
they don't know about it. It seems that they think this Michael Jackson
case is an anomaly. So while I'm not a lawyer, what is my responsibility to
inform my client of these types of issues? >> PRIYA ROYAL: From my
perspective as a business manager, you are competing with other business
managers and your duty is to enable your client to be completely aware and
protected entirely so it is a responsibility. You should be aware of
what legal issues may arise and essentially you need the information
to vet a tax attorney and an IP attorney. You need to know so how much
is my client's right of publicity worth and they sort of give you this
glazed look, we have a problem. >> JENNIFER ROTHMAN: I think there are
different issues. One is a legal issue which is do business managers have a
legal liability to know about the right of publicity? I'm going to put
that to the side. But there's another issue which is should a business
manager know about the right of publicity and the issues related to
it? Absolutely. I mean I think that's important but it's not just about the
managers. The people who most need to know about this are the actual
individuals and not just the wealthy and famous but everyone because I
don't know if people know this but some of the strategies that Ms.
Morales suggested and that people with high value estates are enacting are
potentially jeopardizing those who have less valuable estates as well as
the living. So for example, in New York there was a recent push to pass a
postmortem right of publicity and there's a very small subsection of
individuals across the country for whom a postmortem right of publicity
matters, that the IRS will care about, that will transfer. But by setting it
up in a certain way, what it's going to do is that the sort of less
powerful athletes and individuals will be harmed by some of the transfers and
there won't be protection. So I just want to make sure that people see the
sort of bigger picture but I think business managers absolutely know as
well as the individuals involved about the right of publicity and associated
rights. >> KAREEM ABDUL JABBAR: Are the right of publicity laws protected
differently by each state and how does that affect people that might have
roots in various states or homes? How is that determined? >> JENNIFER
ROTHMAN: I'll take the first part and then maybe you can take the second
part of that. So the states vary widely so only about half of the
states provide any postmortem right of publicity so the other half don't have
it or we don't know whether they have it or not. And of those as I mentioned
initially -- >> DEBORAH MORALES: Sorry, when you say that some of them
supply it and some of them don't, does that mean that if there's no right of
publicity in the state then there's no estate tax or is that still -- ? >>
JENNIFER ROTHMAN: Ah, see that's the second part of the question and so
this is not a simple answer because the IRS doesn't know and as you
probably realized from this conversation they want to try to get
the most tax. They're going to value it at a very high rate so they're
going to say well we don't know that there's a postmortem right in your
state but since we don't know, let's presume there is and let's presume
that it looks like this other state's right of publicity and then we'll
value it as if it's fully commercialized and there's never a
First Amendment defense and never a copyright preemption defense and you
get all the money all the time and that's what we're going to tax you on.
So that's the IRS version. As a matter of state law, that's not right and so
it's hard to know exactly how but that is an area of litigation that will
eventually be sorted out. People are going to challenge hey look, I died in
a state that doesn't -- or the estate will say I died in a state, there's no
postmortem right of publicity. I died in New York. I died in Minnesota.
There's no postmortem right of publicity so you shouldn't value it.
>> DEBORH MORALES: Dr. Rothman, if you die in New York and you're Marilyn
Monroe and your estate is being monetized by a company like CMG and
the family is not getting the money because they died in a state where
their right of publicity is not protected? >> JENNIFER ROTHMAN: So
it's more complicated than that. So Marilyn -- let me just answer that
part and then I'll tag Dan. So Marilyn Monroe is complicated because Marilyn
Monroe tried to avoid paying California taxes, her estate, and by
doing so they said oh no, she was a resident of New York when she died so
we don't have to pay those taxes in California which are higher than those
in New York. Then later when her estate wanted postmortem rights they
said oh no she died in California because we have those postmortem
rights and of course you can't change where she died. She's dead. You picked
one. You're stuck with it. So that's a slightly different issue and so I want
to reiterate two points that I made. One, the right of publicity, whether
Marilyn Monroe's estate has a right of publicity after death or not, doesn't
change that her estate still can enforce false endorsement and false
advertising claims if anyone is claiming to have official Marilyn
Monroe merchandise. It doesn't change any ownership or enforcement of
trademarks and copyrights that the estate holds so there's still a lot of
money related to Marilyn Monroe's name in likeness separate from whether New
York has a postmortem right of publicity. And then I'll just add to
that the additional piece that some states open their doors to all-comers
so Washington state for example and Hawaii if you sell Marilyn Monroe
merchandise there under current law from the Ninth Circuit, it hasn't gone
all the way up to the Supreme Court, the Marilyn Monroe estate can enforce
those rights in those states because you don't have to have died domicile
in those states to enforce your rights as to products sold in those states.
>> PRIYA ROYAL: Yeah, thank you. So just a caveat to something Professor
Rothman said, the tax person, for tax purposes you can pick where you die so
that's sort of what she was touching on with domicile. >> JENNIFER ROTHMAN:
But you can't change it. >> PRIYA ROYAL: You can't change it. You can
pick where you die and you can sort of, I mean, the definition is a little
bit fluid so you can sort of say your domiciled in one place and not the
other if it has advantages and you have enough contacts and things of
that but we won't go into that right now. The other thing is you can also
pick varying rights of publicity get valued and where they so to speak die
to have an afterlife because that's where planning comes in. But you pick
and choose and you put it into entities. Let's say Nevada has no tax
on corporate. Maybe some parts of those right of publicity I'm sure Mr.
Jabbar is quite fond of his name but if he wants to use, if he never
applied to use Lou Eseldor (Ph) for example maybe he could put that in a
Nevada trust somewhere and never use it but then he could monetize on it
because other people want to use it. Or he would give up control or he
could retain control having end of interest and then he would give up
control when he dies and that's a different type of trust. So I've
essentially probably confounded the audience but I'm sorry. >> JENNIFER
ROTHMAN: I just want to add -- I just want to reiterate something because I
think if I read the tea leaves right what's going to happen over the next
25 years is that high value individuals like Mr. Abdul Jabbar and
others are going to create companies and vest their rights of publicity in
them as a tax strategy to avoid things. But the problem is that the
door will then close and so the next Kareem Abdul Jabbar will sign an NCAA
contract which transfers the right of publicity to the NCAA or to a manager
or agent will sign over all of the rights of publicity or to some third
party corporation and won't be able to get it back. So the only people who
can benefit in some respects for the transfer right now are people who are
already so powerful that they can't have their rights stripped from them.
And so I just want to, when we're thinking about these planning
strategies, there's dealing with your individual client but I also think
this is an area since we're in DC to highlight some of the potential law
reform that needs to take place so that maybe we're helping heirs of
celebrities so they're not forced to commodify their identities or have the
survivors deal with crass commercialization of their loved one
but we're not taking advantage of every other person. >> KAREEM ABDUL
JABBAR: How exactly do we go about finding out how much your right of
publicity is worth if you're trying to make these plans? How do you find that
out? >> JENNIFER ROTHMAN: I'll start but then Ms. Royal I think will have
more to say about how the IRS would value it. I know that for example in
the Jackson estate that one of the experts that were brought in for the
Jackson estate which is actually perplexing to me is a company that
specializes in selling celebrity personalities and licensing them. So
they had a vested interest in a high valuation as you can imagine so that
is not the person you want valuing a right of publicity if you want it to
come in low, a company that makes money by coming in high. So I just,
strategy-wise, if you're in that situation you might want to look
elsewhere but because of who the IRS goes to and others, there are only a
very small number of people who could say they're right of publicity value
experts and they largely are these people who have a vested interest in
it being high. So that is a whole problem with the valuation process
itself and the valuation is complicated by and there was an expert
filing by a colleague of mine, Eugene Volokh, in the Jackson estate saying
well how do we even value this because of the First Amendment and copyright
preemption things? So it's very fuzzy and amorphous plus the variation in
state law. And with that said I think there are strategies to --
(Overlapping) >> DEBORAH MORALES: Priya, how does the IRS calculate the
value of an estate and once they do calculate it, what can be done to
properly challenge an over-evaluation? >> PRIYA ROYAL: I'm going to mention
that and answer that question right after I address some issues that
Professor Rothman spoke of in terms of IP and planning. But in estate
planning and from an IRS valuation standpoint, you actually want a
valuation expert who does these high valuations because when you call a
valuation company that does right of publicity the first thing you tell
them is not that I need a valuation but that I need a valuation for estate
tax purposes. They will use different comparables. They will use tax
beneficial parameters where there is some gray area. And the IRS will give
more credibility to those valuations because they know what they're talking
about from their perspective because that is what the IRS has. The IRS has
people and they can outsource to private companies the very person who
values your client's right of publicity in their estate is going to
be the same person that the IRS will hire tomorrow on another estate. So
wouldn't you want to put apples to apples and then say my apple is better
than yours? That's the idea. So when you asked about IRS I think I just
answered your question so that's where the methodology is. >> KAREEM ABDUL
JABBAR: With the constant movement of federal estate exemptions, how does a
celebrity properly plan and make the adjustments that they have to make
with all this movement? >> PRIYA ROYAL: So right now the estate tax
exemption amount is set at 11 million, adjust for inflation like 11.18,
something like that, and it's good until 2026 unless the Brady Bill
passes which means that we have it perpetually or infinitely until
Congress changes hands. But so the idea is that when we have tax reform
like this you need an attorney who is abreast on the law changes and who
knows how to plan quickly because here we have a great opportunity to pass
double the amount of assets in valuation out of the estate. You would
want your valuation expert to value conservatively. Maybe sort of say at
the worst case scenario this is probably going to be the value so
let's see how much we can pull out of the estate in this amount. So this is
where you have to work and you have to be -- most people who have
conservative rights of publicity they should be getting updates from their
attorneys. They should be getting new law updates and they should basically
be saying okay now what for me? And you should be getting a list with a
customized plan that says okay now we need to change these things. >>
DEBORAH MORALES: If the current deduction is 10 or 11 million dollars
for a single person and then that changes in 2026 then does this have to
be readjusted again? >> PRIYA ROYAL: Not necessarily. If you're putting it
in these vehicles where on paper the person has given up control on paper
or you're putting the grant to retain annuity trust for example or an
intentionally defective income trust where basically Mr. Jabbar would get
income that is generated from this commercialization but he doesn't
actually own the name, have control over his name and likeness for estate
tax purposes, so essentially when he dies it passes out of his estate. It's
not in his estate anymore so you maximize -- when the exemptions are
high, you pull more assets out so that's sort of -- (Overlapping) >>
DEBORAH MORALES: My last question for you is so how do you know whose
valuation is correct; the IRS’s or the valuation company that you hired? Even
if it's in apples to apples, how do you plan for an expensive legal
battle? >> PRIYA ROYAL: The best way to do that, I usually recommend with
planning -- I'm from being tax editor of one of the premier leading tax
publications because we address these issues in our portfolios. If you have
an entirely illiquid estate which is what you're looking at, right? Rights
of publicity are illiquid. There's nothing tangible there so intangibles
and they're illiquid. You don't want to have to sell Mr. Jabbar's house for
example to pay taxes. So the classic example that is applied to other
wealthy, not necessarily celebrities even, taxpayers is that you would have
a very high amount of life insurance. By the way, the full value of life
insurance is also included in the estate so there's a special trust to
pull the life insurance out of the estate and then use the funds from the
payout of the life insurance to pay the taxes for the estate so you do
that planning. So I think that sort of gives you a general -- that's just one
of many ideas but that's one of the more commonly used ones. >> KAREEM
ABDUL JABBAR: Do you give aspirin to people who are trying to figure this
out? (Laughter) >> PRIYA ROYAL: Now you know why I apologized. Thank you.
>> MARY BONEY DENNISON: We are running out of time. If you have any last
questions, we can ask them. Otherwise I think we need to wrap up because
we've got a tight schedule today. >> DEBORAH MORALES: We've got a lot to
learn. >> MARY BONEY DENNISON: Okay well thank you. Please give everybody
a big round of applause. Thank you. (Applause)