Fairey et al v. The Associated Press

Filing 229

MEMORANDUM OF LAW in Support re: 228 MOTION in Limine No. 2 to Exclude Evidence of Fair Use, Purpose, and Intent Under FRE 402, 403, and the "Law of the Case" Doctrine.. Document filed by The Associated Press. (Attachments: # 1 Exhibit A)(Cendali, Dale)

Fairey et al v. The Associated Press

Doc. 229 Att. 1

EXHIBIT A TO THE AP'S MOTION IN LIMINE NO. 2 TO EXCLUDE EVIDENCE OF FAIR USE, PURPOSE, AND INTENT UNDER FRE 402, 403, AND THE "LAW OF THE CASE" DOCTRINE

Dockets.Justia.com

Confiden ntial ­ Subje to Protec ect ctive Order

IN THE U UNITED ST TATES DIS STRICT CO OURT FOR THE S F SOUTHERN DISTRIC OF NEW YORK N CT W

SHEPAR FAIREY and OBEY GIANT AR INC., RD Y Y RT, Plaintiffs, P v. THE ASSOCIATED PRESS, D Defendant a Counterc D and claim Plainti iff, v. SHEPAR FAIREY OBEY GIA RD Y, ANT ART, I INC., OBEY Y GIANT L LLC, STUD NUMBE ONE, INC., and ONE 3 DIO ER E TWO, IN (d/b/a OBEY CLOT NC. THING), Counterclaim Defendants. C m (FED R. CIV. P 26(a)(2)(B D. P. B)) EXPE ERT REPO ORT OF MAR L. HAIR CPA RK R, Action No. 1:09-cv-01123-AKH Civil A

Respectfully submitted this 2nd day of Novembe 2010: y er

_________ __________ ___________ __________ ______ Confi fidential ­ Su ubject to Pro otective Orde der

Confidential ­ Subject to Protective Order

from standard to actual cost was a decrease in the standard COGS related to the Obama Merchandise in 2008 and 2009. A summary of the adjusted actual Obama Merchandise COGS is shown below and detailed in Exhibit 6:
Actual Annual COGS by Obama Merchandise Description 2008 Obama Yes We Did Yes We Did - One Color Total $ $ 711,208 39,529 13,774 764,510 $ $ 2009 157,665 99,994 20,479 278,138 $ $ Total 868,872 139,523 34,252 1,042,648

C. Direct Costs
33.

I also quantified four specific costs that are directly attributable to the Obama

Merchandise. These direct costs are summarized in the following table (as well as Exhibit 7), and discussed in detail below:
Direct Costs for Obama Merchandise Royalty Expense Marketing Fee Expense Commission Expense Obama Special Project Costs Total Direct Costs $ $ 95,422 2,733 144,715 74,011 316,880

modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles. (OTT 028545-562)
EXPERT REPORT OF MARK L. HAIR CIVIL ACTION NO. 1:09-cv-01123-AKH

16

Confidential ­ Subject to Protective Order

·

Royalty Expense ­ Effective June 28, 2006, One 3 Two entered into an Amended and Restated Trademark License Agreement with Obey Giant.33 Under this

agreement, One 3 Two has the exclusive right to manufacture, distribute and sell clothing which displays Mr. Fairey's artwork.34 As compensation, Obey Giant receives royalties ranging from 0.5% to 5.5% of net sales, based on the associated discount off the normal selling price.35 I have applied this royalty structure to the sales of the Obama Merchandise, as reflected in Exhibit 7-A. The result of this analysis is a total royalty expense related to the Obama Merchandise of $95,422.36 · Marketing Fee Expense ­ Effective July 1, 2006, One 3 Two entered into an Amendment to the Amended and Restated Trademark License Agreement with Obey Giant. Under this agreement, One 3 Two agreed to pay Obey Giant a marketing fee equal to 0.25% of net sales that were subject to a full royalty (i.e., 5.50% royalty rate).37 I have applied this marketing fee structure to the sales of the Obama Merchandise, as reflected in Exhibit 7-A. The result of this analysis is a total marketing fee expense related to the Obama Merchandise of $2,733.38 · Commission Expense ­ One 3 Two pays sales commissions to certain of its sales representatives based upon the amount of sales generated by that representative

33 OBCL 00217-254. 34 OBCL 00221-222. 35 OBCL 00225-226. 36 The amount I have calculated for the royalty expense is the same as the amount determined by One 3 Two (OTT 027506, Van Berckelaer Deposition, Vol. I, pp. 141), as well as the amount I understand was received by Mr. Fairey. (FAIREY 125542) However, I understand that while royalties were paid on the Obama Merchandise, this was contrary to the intentions of Mr. Fairey. (Juncal Deposition, pp. 127-128) 37 FAIREY 61287.001. 38 The amount I have calculated for the marketing fee expense is the same as with the amount I understand was received by Mr. Fairey. (FAIREY 125542)
EXPERT REPORT OF MARK L. HAIR CIVIL ACTION NO. 1:09-cv-01123-AKH

17

Confidential ­ Subject to Protective Order

and the discount level applied to those sales.39 As detailed in Exhibit 7-B, the amount paid for commissions related to the sale of Obama Merchandise totaled $144,715. · Obama Special Projects ­ In an effort to support then-Senator Barack Obama during his presidential campaign, One 3 Two engaged in a series of promotional activities.40 These activities involved the donation of Obama Merchandise in the form of t-shirts and shirts, as well as profits from the sale of the Obama Merchandise, to various entities supporting the presidential campaign. Specifically, the profits were used to pay for magazine advertisements, posters, postcards, flyers and window graphics, all of which contained the Obama Image.41 The costs associated with the donated products totaled $74,011, as reflected in Exhibit 7-C. D. Indirect Costs
34.

Overhead, often referred to as indirect costs, are costs that cannot be specifically

allocated, or are difficult to trace, to a specific business activity, product line, or product. However, these costs are requisite for the production, distribution and sales of the products and necessary to the operations the business. Examples of indirect costs include expenses such as administrative payroll, utilities, rent, insurance, and depreciation, among others.
35.

In many cases, it is not practical or possible to allocate indirect costs to specific

manufactured units based on metrics, such as the relative amount of time spent on a
39 Van Berckelaer Deposition, Vol. I, pp. 183-184. 40 Juncal Deposition, Vol. I, pp. 176-177; and Deposition of Christopher Broders, March 16, 2010 ("Broders Deposition"), pp. 209-215. 41 OTT 027506; and Broders Deposition, pp. 212-223, 234-242.
EXPERT REPORT OF MARK L. HAIR CIVIL ACTION NO. 1:09-cv-01123-AKH

18

The Associated Press v. One 3 Two, Inc., et al. -- Civil Action No. 1:09-cv-01123-AKH Exhibit 7-C: Obama Special Project Costs

Cost by Project Type Ad Ad Ad Ad Flyers Postcards Posters Windows Windows Windows Total Obama Special Projects (Source: OTT 027506) Nylon Holding, Inc. YRB Magazine Complex Magazine Antenna Magazine Alloy Marketing Integrity Print Group Heintz Weber Monster Media Monster Media Monster Media $ Amount 5,000 4,000 10,000 3,049 20,700 1,950 22,263 3,679 1,749 1,621 74,011 Amount Source OTT 000051-53 OTT 000068 OTT 000069-72 OTT 000083-86 OTT 000087-88 OTT 000054-55 OTT 000057-59 OTT 000060-65 OTT 000076-78 OTT 000079-82

$

1 of 1

Confidential Subject to Protective Order