If you consider it unbelievable that the brand name and image of Michael Jackson was recently valued at $2,105—the price of a heavily used 20-year-old Honda as put by the U.S. Tax Court Judge Mark Holmes—you are not alone. The valuation was submitted to the court by the Jackson Estate. The valuation is unbelievable, right?
But when a $700million unpaid tax and penalties are upon you, you begin to appreciate why the Jackson Estate literally denied Michael Jackson before the popstar did the moonwalk twice. The consequence of the brand being valued at a higher price was as certain as death itself. It was Daniel Defoe who wrote in his book The Political History of the Devil that “[t]hings as certain as death and taxes, can be more firmly believ’d”.
So rather than agree with the Internal Revenue Service (IRS) that the likeness and image of Michael Jackson was worth the $161million the IRS estimated, the Jackson Estate basically devalued Michael Jackson’s brand!
IP Matters is back, and better! Let’s look at Michael Jackson’s IP matters involving the pop star’s undervalued brand name and why it matters to your IP matters.
The dispute between IRS and the Jackson Estate is tax but it all boils down to asset valuation—particularly intellectual property (IP) valuation.
On the one hand, the Jackson Estate’s valuation of Michael Jackson’s image and likeness, publishing-rights interest in Beatles/Jackson’s songs, and Jackson’s master recordings suggests that the best of Michael Jackson was in the past. But on the other hand, the IRS’s valuation of these assets suggests that the best of Michael Jackson still lives with us!
The Jackson Estate and the IRS did not agree on the value of the three categories of Jackson Estate assets below:
- The Jackson Estate valued Michael Jackson’s image and likeness at $2,105 while the IRS valued it at $434.26m;
- The Jackson Estate valued Michael Jackson’s interest in the Trust that owns the Beatles/Jackson’s songs at $0 while the IRS valued them at $469m; and
- The Jackson Estate valued Michael Jackson’s master recordings at $11.9m while the IRS valued the recordings at $91m.
So as far as the Jackson Estate is concerned, Michael Jackson’s brand name and image had died before the superstar’s death. Before his death, Michael Jackson’s assets were famished and lean, claims the Jackson Estate. This, according to the Jackson Estate, is due to the latter allegations against Michael Jackson, the surrounding controversies, and the twilight effect that every celebrity suffers after their peak. But the IRS sees it differently. It is always green on the other side.
The Court rules, holding that the IP assets were overvalued by IRS, and consequently entitles the Jackson Estate to pay significantly less tax.
While the IRS’s jaw must have dropped when the Jackson Estate’s counsel dropped the $2,105 bomb in court, I imagine Judge Mark Holmes shaking his head at counsel. It was unreasonable and unacceptable. As far as Judge Mark Holmes was concerned, it’s Michael Jackson we are talking about here, not Jackson Michael! The Judge is amused to hear that the Jackson Estate would be “valuing the image and likeness of one of the best known celebrities in the world — the King of Pop — at the price of a heavily used 20-year-old Honda Civic”.
In reaching its decision, the court considered the exploitation of Michael Jackson’s brand name in all the previous licensing agreements and the revenues generated under each of these agreements. The court also considered merchandising agreements, trademark licenses, and the sales of tour merchandise involving the use of Michael Jackson’s brand. The court found that these licenses, sales, and merchandize had underperformed. They failed to generate significant revenue streams.
Apart from the above, the court also considered three other things. One, the pop music industry had become relatively lean. Two, the length of the remaining music copyright. And three, the value of the assets assuming they were to be sold by a hypothetical willing seller and a willing buyer in a sale-and-purchase negotiation.
The court reached a ruling on Monday 3 May 2021. It valued the likeness and image of Michael Jackson at the time of his death at $4.15 million. Altogether, the court put the value of the three disputed aspects of Michael Jackson’s worth, his Estate, and name and likeness at $111m.
This significant reduction represents a victory for the Jackson Estate, after a long legal battle since 2013.
Takeaways for IP Owners, including Artistes
- IP is intangible asset: Particularly in today’s knowledge-driven economy, IP is an asset. While accountants may currently struggle with financial accounting standards for IP in the balance sheet, as an IP owner you want to be sure that you are continually investing in what is potentially your best asset. From Amazon to Google, Coca Cola to Disney, Louis Voulton to Samsung, these are some of the world’s most valuable brands, worth billions of dollars. This is brand value alone!
- Build your brand reputation early: Your brand reputation is everything. If you are intentional about building your brand, it can become one of your most invaluable assets. So beyond just having a name, invest in it as a brand. Names are just names until you make them work for you. Whether an artiste, graphics designer, software developer, sportsman, etc, invest in your brand name. Of course, building brand reputation goes beyond merely designing a great logo or choosing your favourite colour. Building a brand is a combination of various elements, including brand perception, experience, protection, and monetization. Get it right. After years of trading your knowledge, skills, goods, services, your real value will come down to your brand reputation. Nothing more. When your reputation is in decline, so will the brand value. This is one of the reasons why the best time to start the brand journey is now.
- Understand the power of IP licensing: When you decide to license your brand, be sure to consider all factors. Licensing is a serious business. Did you notice how the court in the IRS v. Jackson case considered the licensing records of Michael Jackson? Yes. The court needed to determine the value Michael Jackson or the Jackson Estate had been putting to the brand. The court considered the relevant industry, the market demand, and other economic variables. So when next you are considering a licensing agreement—especially as a licensor—be sure to know what you are about to get into. It may determine the future value of the brand, subject matter of the license.
In IP matters, it’s never too early because IP matters to business and development, any day. It’s great to be back!