In Estate of Jackson v. Comm’r, T.C. Memo. 2021-48, the Tax Court held that the value of the image and likeness of Michael Jackson was $4,153,912, as opposed to the $161,307,045 asserted by the IRS in court, and as compared to the IRS’s original position during audit that the likeness and image of Jackson was worth $434,264,000. No doubt the value of all of the intangible estate property owned by Michael Jackson could easily be worth half a billion dollars. But the value of all of his intangible property was not the subject of these proceedings; the subject was primarily the value of Jackson’s likeness and image.
What is Likeness and Image Under California Law?
California law codifies the Right of Publicity (“ROP”) at Section 3344.1(a)(1), as follows:
[a]ny person who uses a deceased personality’s name, voice, signature, photograph, or likeness, in any manner, on or in products, merchandise, or goods, or for purposes of advertising or selling, or soliciting purchases of, products, merchandise, goods, or services, without prior consent from the person or persons [who have been given the right of consent], shall be liable for any damages sustained by the person or persons injured as a result thereof.
The importance of ROP was fully explained by the Tax Court (citations omitted):
The third right in music IP, and one that is very important in this case, is the right of publicity (ROP). It’s a right that’s not peculiar to musicians, but to celebrities generally. ROP is the right to control the commercial use of one’s identity. ROP generally consists of two separate components: ROP and associated trademarks. One’s ROP is a distinct legal category, “not just a ‘kind of’ trademark, copyright, false advertising or right of privacy.” ROP protects someone’s name, likeness, voice, signature, or photograph.
ROP originated in a right sometimes recognized at common law as the right of privacy. But the right of privacy was specifically a “right to be left alone.” Some celebrities don’t want to be left alone, but do want to have a say in how their image is used and who uses it. When celebrities began to bring these kinds of cases under privacy statutes or the common law, courts struggled with the “right of privacy” label. These celebrities didn’t really want privacy in the traditional sense of being left alone, and many of these cases were therefore dismissed. But if this was just a problem of nomenclature, it went away in Judge Jerome Frank’s Haelan Labs., Inc. v. Topps Chewing Gum, Inc., 202 F.2d 866 (2d Cir. 1953), where he coined the phrase “right of publicity.” This is the label that has stuck.
Is Image and Likeness Included in the Gross Estate?
Yes. As explained by the Tax Court:
And the first question we have to ask about this asset is whether it should be included in his gross estate at all. That might seem trivial here in a case where both parties spent a goodly sum on expert witnesses to appraise just how valuable a right it is. But it is a nontrivial question –remember that this right’s origin is in a common-law right of privacy. One might ponder that if image and likeness is included in a person’s gross estate, would it not practically require those heirs to exploit the image and likeness of the dead–whether or not that was the decedent’s wish. Might this–again as a practical matter–compel the invasion of privacy? This is something of a novel issue for us as we haven’t had a case directly addressing the taxability of the image and likeness.
But we don’t need to look to caselaw to answer this question. The plain language of the Code is enough. Section 2051 defines the taxable value of an estate as the value of the gross estate less deductions. The value of the gross estate includes “the value at the time of * * * death of all property, real or personal, tangible or intangible, wherever situated.” Sec. 2031(a). Since Jackson’s image and likeness is an intangible right that transfers after death, it must be included in his gross estate.
How is the Right to Publicity Valued?
The Tax Court first set forth the issues as framed by the Parties:
The novelty of valuing image and likeness led to a very large difference of opinion between the parties. The Estate reported Jackson’s image and likeness on its return as worth only $2,105. This might seem absurd when one recalls Jackson’s fame, but the Estate’s position was based on an appraisal from Moss Adams, a large and reputable accounting firm. And Moss Adams did focus entirely on the value of the Estate’s opportunity to license merchandise with Jackson’s image and likeness. It consciously abstained from valuing the cashflow from Jackson’s copyrights in his music, as both a performer and a composer. This appraisal was based on royalty statements, contracts, financial statements, and business plans. What Moss Adams discovered was that in the years before Jackson died and when he was in dire need of income, he had earned close to nothing from his image and likeness. This cannot be a surprise–allegations that a celebrity molested little boys might reasonably be thought to repel potential licensees in any society that has not become completely decadent. Those allegations had a dramatic effect on Jackson’s ability to win sponsorships and merchandising deals once they became public. The fact that he earned not a penny from his image and likeness in 2006, 2007, or 2008 shows the effect those allegations had, and continued to have, until his death.
With this valuation in hand, Moss Adams went to the Estate. The Estate was surprised. Moss Adams was, after all, 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. Moss Adams nevertheless gave this valuation to the Estate to rely on for the estate-tax return.
The Estate’s appraisal expert came up with a value of ROP at $161 million for the trial based on the many opportunities to monetize his ROP.
The Tax Court rejected the IRS’s expert’s opinion because the expert apparently conflated ROP with the Estate’s copyright assets, which are protected under Federal law as separate assets and should have been valued as such. As explained by the Tax Court:
The Commissioner would have us value Jackson’s image and likeness to include U.S. trademarks, state or common-law trademarks, copyrights, licensing rights, endorsement rights, franchising rights, and international trademarks. That’s not how that right is defined by California law.
Did Jackson’s Personal Life Reduce the Value of his ROP?
Yes. The Tax Court throughout its opinion focused on the legal and moral issues clouding Jackson’s reputation, and this seemed to be the primary reason for valuing the ROP of one of the most famous people in the world.
And there is the same problem that lurks everywhere in our analysis of the value of Jackson’s image and likeness–his poor reputation other than as an entertainer. Any projection that finds a torrent of revenue, and not just a trickle, from such a man’s image and likeness–especially one who in the last two years of his life was so unpopular he did not even have a Q score–is simply not reasonable.
[A Q score is the measure of the familiarity and appeal of a brand or celebrity.]
