Reference no: EM133543761

Homework: Economic Analysis of Legal Issues

Case Study: Property Law and Bargaining.

Background

The case of Steven V. Whitmill (‘Whitmill') vs. Warner Bros. Entertainment Inc. (‘WB') looks at the applicability of copyright laws to tattoos. This case has a heavy focus on a couple specific aspects of copyright law, namely if tattoos are copyrightable, is human skin an applicable medium according to the law, and the difference between parody and satire under ‘fair use' doctrine (particularly satire, which is not fair use, versus parody). The focus of this study is how to apply economic analysis to this particular case. The legal questions that arise are not of the interest of this homework.

Figure 1: Mike Tyson at the Synergy Global Forum Valery SharifulinTASS via Getty Images)

Whitmill is an award-winning tattoo artist whose most prominent work is the facial tattoo he designed for Mike Tyson (figure 1). In the Warner Bros. comedy, The Hangover 2, a character gets a "virtually exact reproduction" of the tattoo. Whitmill sued WB for copyright violation.

Note that this case pertains to the reproduction of Tyson's tattoo, not Tyson (and his tattoo) appearing the film itself. The questions of joint-ownership of a tattoo, while interesting, are not part of this study. Whitmill submitted evidence that Tyson signed a release form agreeing that the facial tattoo is property of Whitmill's tattoo studio (essentially a licensing agreement).

Whitmill filed his suit about one month prior to the film's theatrical release.

Task

Question I. Why did the plaintiff sue Warner Bros., and what remedy did he seek (note: there are two separate filings with two different requests)? Summarize Warner Bros. main points of contention as to why they should be found ‘not guilty.' Do you believe Whitmill's timing of the lawsuit is strategic; how would it make a difference in bargaining theory had this lawsuit been filed earlier (more than a month before the film's release)? What did the trial court rule, and what did the judge say to motivate a settlement? Be specific in your answers.

Question II. Why did WB not license the tattoo from Whitmill? Identify transaction costs involved in a hypothetical bargain for the right to use the tattoo's likeness prior to the release of the film's promotional materials (which may be different depending on who starts the bargaining process), and explain if you think that WB and Whitmill could have come to a cooperative solution prior to filing the complaint. In your estimation, if time (i.e. the movie's release date) were not an issue, are these transaction costs sufficiently high to have precluded bargaining?

Question III. In Whitmill's complaint, legal counsel states "[the plaintiff] has suffered and will continue to suffer damages in an amount not yet fully determined." If you were to be hired as an expert economic witness, how would you have evaluated what dollar amount in damages the defendant would owe Whitmill? (N.B. you need not come up with an actual dollar amount, but rather what data and information you would need, and how you would use these to calculate a dollar amount that would make Whitmill indifferent to winning and never having his work disseminated.)

Question IV. Had Whitmill been awarded the injunction, how would you evaluate the cost to Warner Bros. in complying with the injunction? Provide evidence/research to determine an estimation of Warner Bros.'s threat value.

Question V. We learned the economic rule: an injunction ought to be awarded when bargaining is possible (i.e. number of parties is small). In this case bargaining is certainly possible, as they ultimately settled, but the relative value of the property right is disproportionate. Model the bargaining (settlement) game between Whitmill and WB under two scenarios: (i) had the injunction been awarded, and (ii) what actually took place: no injunction, judge strongly hinting out trial outcome. Use these models to explain why an injunction would not have been the appropriate remedy in this case demonstrating the following rule: an injunction should not be issued when it can be shown that the value of a nuisance greatly exceeds the damages that it is imposing.