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In recent years, the right of publicity has come under a great deal of scrutiny related to its use and value. In perhaps the most high profile dispute related to the value of the right of publicity, the Internal Revenue Service and the estate of pop singer Michael Jackson valued Jackson’s right of publicity at more than $400 million and as little as $2,105, respectively. The U.S. Tax Court ultimately concluded that Jackson’s right of publicity was worth approximately $4.2 million.1 Similarly, on her death, the estate of pop star Whitney Houston valued the singer’s right of publicity at just under $200,000, while the IRS claimed it was worth more than $11.7 million.2 Finally, after the musician Prince’s passing, the IRS valued his name, image and likeness at $6.2 million, nearly double the value that his estate claimed.3 The parties in the Whitney Houston and Prince disputes ultimately settled with the IRS prior to going to court.
Outside of estate tax controversies, the right of publicity has been subject to various other significant disputes. For example, a variety of celebrities, including Kim Kardashian,4 Sofia Vergara and Katherine Heigl,5 have successfully pursued legal action against the unauthorized use of their right of publicity by companies engaging in social media marketing, which suggested false endorsements of the brands.
Further, in April 2020, after years of litigation and legislative hearings, the National Collegiate Athletic Association Board of Governors announced that beginning in 2021, student athletes would be able to earn money from the use of their right of publicity.6 Since these new rules have come into effect, hundreds, if not thousands, of student athletes have earned income from their names, images and likenesses.
As a result of the recent increase in disputes related to the use and value of the right of publicity, along with expanding opportunities to profit from this intangible asset, estate practitioners are increasingly considering the right of publicity for the purposes of planning and tax compliance.
What’s the Right of Publicity?
In general terms, the right of publicity is the right of an individual to control whether and how their identity is used for commercial purposes, for example, in an advertisement or promotion of a product or service. The right of publicity isn’t explicitly protected by federal law—rather, it’s a matter of state law. Currently, most states recognize the right of publicity either through statute or common law rights.7 Not surprisingly, as each state’s laws have developed independently from one another, there are often significant differences in the various states’ application of the right. However, every state that recognizes the right of publicity protects, at a minimum, an individual’s name and either their likeness or picture. New York and California, as home to more celebrities than any other state, receive the greatest amount of interest and attention. The New York statute protects an individual’s “name, portrait, picture, or voice,” while the California statute protects a person’s “name, voice, signature, photograph, or likeness.”
As an identifiable and legal form of property, the right of publicity is freely transferable or licensable under any conditions that two or more parties agree on. The right is also divisible, such that specific components of the right can be assigned while others retained. For instance, someone could sell the right of publicity to their name to an individual (or entity) while maintaining the right to control their image and likeness. In addition, if an individual’s right of publicity is infringed on, they may seek compensatory damages and punitive or exemplary damages in addition to injunctive relief. Stated simply, the right of publicity relates to the business value of the very identity or persona of an individual as a human being, and commercial damage may ensue if that identity is used in an unauthorized manner.
Legally, the right of publicity applies to every individual, not just those who are famous (or infamous). However, as a practical matter, disputes over the right of publicity usually involve celebrities because it’s their name, image and likeness that’s typically used in advertising and selling products or services. Because celebrities invest considerable time, energy and money into developing their public image, the right of publicity recognizes that it would be unfair not to compensate a celebrity for the use of their image or likeness to increase the sales, profits or profile of a product or service.
The right of publicity in the United States was first recognized as separate and distinct in the 1953 case Haelan Laboratories Inc. v. Topps Chewing Gum, in which Judge Jerome Frank coined the phrase “right of publicity” by distinguishing it from the “right of privacy.”8 The U.S. Supreme Court later acknowledged the right of publicity as a separate and distinct commercial tort in the 1977 case Zacchini v. Scripps Howard Broadcasting Co.9 Two of the more famous cases involving the right of publicity involved the actress Marilyn Monroe. On her death in 1962, Marilyn left the majority of her estate to her acting coach, Lee Strasberg. When he died 20 years later, Lee left the bulk of his estate to his third wife, Anna. Anna subsequently asserted her exclusive right to control Marilyn’s likeness and image in two separate cases brought in California and New York. In each case, Anna sued corporations established by the surviving family members of photographers who took photographs of Marilyn during her life, including her famous Playboy spread and the publicity photograph for her film The Seven Year Itch, in which Marilyn stands on a New York subway grate wearing a flowing white dress. Ultimately, the courts ruled against Anna in both cases. This outcome prompted California’s recognition of post-mortem publicity rights.
Other famous individuals who’ve asserted their rights of publicity in various lawsuits include television personalities Johnny Carson and Vanna White, actors Dustin Hoffman and Woody Allen, singers Bob Marley and James Brown and athletes Muhammad Ali and Michael Jordan.
Estate-Planning Implications
Up until the landmark 1994 case Estate of Andrews v. United States, the common thinking in the estate-planning community was that a decedent’s right of publicity was of no value for the purposes of calculating federal estate taxes due on death and, therefore, didn’t need to be reported on the Form 706 estate tax return.10 Andrews, however, changed this thinking considerably.
V.C. Andrews was an international bestselling author of paperback novels in the “children in jeopardy” genre. At the time of her death in 1986, there was a signed and executed contract for V.C. to produce two manuscripts that provided $3 million in advanced royalty payments. At first, V.C.’s descendants decided not to use a ghostwriter to fulfill the contract due to fears that an unsuccessful ghostwriting effort would adversely affect sales of her previously published books, thereby reducing the anticipated stream of royalty income. Later, the estate did choose to use a ghostwriter to publish a book under the name “V.C. Andrews,” which turned out to be an enormous commercial success. Several other ghostwritten books followed, all of which were commercial successes in their own right.
However, when V.C. died, her estate didn’t list her name as among its assets and, consequently, none of the estate taxes it paid were based on the value of her name. The IRS didn’t agree with this position. It determined that the name V.C. Andrews and her likeness had measurable value based on the prior earnings of the decedent and the contract signed shortly before her death. The Internal Revenue Code defines the value of the gross estate as “the value at the time of… death of all property, real or personal, tangible or intangible, wherever situated.”11 Under the broad definition in the IRC, the right of publicity qualifies as an intangible property right.
In November 1990, the IRS issued a notice of deficiency, asserting that V.C. Andrews’ name was an asset of the estate with a value of $1,244,910.84 on the date of death and assessed deficient taxes in the amount of $649,201.77. The IRS valuation in this case centered around the known (that is, already contracted) and potential income from the novels that could be produced and written under her name. The estate subsequently agreed that the right of publicity was a valid asset that should have been included in V.C.’s estate on death, but they put forth a much lower valuation of the asset in response to the IRS’ notice of deficiency. Ultimately, the court adopted elements of both the IRS’ and the estate’s valuation in its findings and concluded on a value for V.C. Andrews’ name at date of death of approximately $700,000.
The Andrews case demonstrated that a descendible right of publicity should be included in a decedent’s gross estate for federal estate tax purposes. Moreover, a celebrity’s estate needs to acknowledge the asset in the estate, or it may not be able to exercise it later. However, doing so can present complications when this right, which is a highly illiquid asset, is the estate’s primary asset, and the value equals or exceeds the liquid assets available to pay the corresponding estate taxes. This could lead to the difficult circumstance in which the estate is either forced to use all of its liquid assets to pay the estate tax or—even worse for those estates that don’t wish to exploit their post-mortem rights of publicity—sell or license the right to generate funds to pay the tax. If a celebrity knows that their descendants may not wish to exploit the right of publicity, they may be able to transfer or sell those rights prior to death. Alternatively, the celebrity could make gifts to heirs early in their career when the value of the right is significantly lower. Any subsequent appreciation in the value of the right would thus escape the reach of a transfer tax.
The late actor Robin Williams implemented a unique and creative strategy related to the use of his right of publicity on his death. Before his death, Robin put in place a restriction on the use of his image, or any likeness of his image, for 25 years after his death. More specifically, he filed a deed that states that his image can’t be used in any film or publicity until 2039 and passed on the rights to his name, signature, photograph and likeness to the Windfall Foundation, set up in his name.12
Valuation Issues
Even if beneficiaries choose not to exploit a celebrity’s right of publicity, descendible property rights to post-mortem publicity is an asset that still needs to be valued for federal estate tax purposes at its fair market value (FMV) at the time of death. The “highest and best use” standard measures the full market potential of an asset regardless of how the beneficiaries will actually use the publicity rights. In valuing such assets, the practitioner should consider the three main approaches to valuation: (1) income; (2) market; and (3) cost. In most cases, the income approach and the market approach will be the most appropriate methods to estimate the FMV of publicity rights. The cost approach, which relies on the underlying concept that an investor would pay no more for an asset than it would cost to recreate a similar asset from scratch or replace the asset with an acceptable, non-infringing alternative, is generally inappropriate because it would be nearly impossible to calculate the amount “invested” by an individual to establish and support their personal brand during their lifetime. Further, the notion that a right of publicity asset can be recreated or replaced with an acceptable, non-infringing alternative may not be realistic.
The most common method to value a celebrity’s persona involves a combination of the income and market approaches. Under this methodology, the value of a celebrity’s persona is based on the present value of the stream of income that could be realized from this right. This is determined by projecting the expected future benefits from the ability to continue to exploit the celebrity’s persona and discounting these benefits back to their present value using a rate of return that reflects the risk involved in realizing the benefits. These benefits may involve streams of income from existing contracts, licensing and sponsorship agreements, as well as from anticipated agreements. The latter source of income is far more difficult to estimate as it’s both potentially long lasting and subject to changing consumer preferences. Numerous assumptions will need to be made in attempting to project the future benefits, including the amount of income to be expected and the duration of the income. The amount of income will be influenced by the appropriate royalty rate, which will depend on both the celebrity’s popularity and the item involved (for example, photographs, clothing or reproductions). In many cases, future royalty rates may be estimated based on rates achieved by the celebrity in past deals or similar agreements achieved by other celebrities. By considering actual royalty rates or comparable rates in the determination of future rates, the valuation also incorporates the application of the market approach.
Of even greater difficulty may be estimating the post-mortem duration of income from the celebrity’s status. Although beyond the scope of this article, this may be accomplished through the use of a “lifing” or “survival” curve, which estimates the remaining useful economic life of an asset or the amount of time the asset is expected to survive and continue producing income. To estimate remaining useful life, appraisers often study the lives of similar intangible assets by selecting a population of comparable assets and analyzing the turnover, or “decay,” of these assets over time. For instance, for licensing agreements involving a celebrity’s likeness, the appraiser may look at the pattern of royalty income over time. “Potential Survival Curve,” this page, illustrates this type of analysis.
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In addition, as we’ve noted previously, the recognition, application and protection of the right of publicity varies greatly from state to state. As such, the legal landscape must be considered in making assumptions and estimates for use in the valuation analysis. For instance, the appraiser must consider whether the rights in question are actually descendible in the individual’s state of residence and, if so, how long they last post-mortem. Not all states recognize a post-mortem right of publicity, and for those that do, the number of years that post-death rights are recognized varies significantly. Indiana and Oklahoma, for instance, provide recognition of the right of publicity for 100 years following the death of an individual, while Tennessee limits the right to just 10 years. Kentucky, Nevada and Texas all recognize the right for 50 years post-death and California for 70 years.13
Finally, it may be necessary to consider that death may actually cause a surge in an entertainer’s popularity and the associated income from the licensing of their image or likeness. This phenomenon was most clearly illustrated with the estate of Michael Jackson, which received an intense amount of interest (and a large surge in income) following his death.
A Valuable Asset
A celebrity’s name, image and likeness may produce considerable income for the individual both during life and after death. As such, the right to commercially exploit this persona can be an extremely valuable asset. In the relatively recent past, it was common practice to ignore this right in determining the value of a decedent’s estate for federal estate tax reporting purposes. However, since the Andrews decision, estate practitioners must consider the value of this asset and do what they can to protect the estate from the potentially unwelcome circumstance of needing to use liquid assets to pay taxes on the value of illiquid property or having to sell or license the property against their will to generate cash to satisfy the taxes. More recent estate tax disputes related to the value of Michael Jackson’s, Whitney Houston’s and Prince’s right of publicity have brought the issue of the right of publicity valuation into an even brighter spotlight. Whether it be through the gifting of the right of publicity to beneficiaries before death, or determination of the value of this asset on death, estate practitioners should consider a well-documented and supportable valuation of this right to be a critical component of the pre-death estate-planning strategy and the post-death federal estate tax reporting requirements of a celebrity client.
Endnotes
1. Estate of Michael J. Jackson, Deceased, John G. Branca, Co-Executor and John McClain, Co-Executor v. Commissioner, T.C. Memo. 2021-48 (May 3, 2021).
2. Jennifer E. Rothman, “Whitney Houston Estate Settles with IRS over Right of Publicity Valuation” (Jan. 5, 2018), www.stout.com/en/insights/article/right-publicity-often-overlooked-asset-estate-planning; Amanda DiChello, “Fights Over Celebrities’ and High Profile Individuals’ Post-Morten Rights of Publicity Highlight Need to Protect and Consider Intangible Assets In Estate and Tax Planning” (Jan. 14, 2019), www.stout.com/en/insights/article/right-publicity-often-overlooked-asset-estate-planning.
3. Corey Irwin, “Prince Estate Settles Valuation Dispute With the IRS” (Dec. 9, 2021), https://ultimateprince.com/prince-estate-settlement-irs/.
4. Marc J. Rachman and Brooke Erdos Singer, “Was Missguided Misguided? Kim Kardashian West Obtains $2.7 Million Judgment in Right of Publicity and Trademark Suit” (Jan. 1, 2019), www.mondaq.com/unitedstates/trademark/833650/intellectual-property-litigation-alert-was-missguided-misguided-kim-kardashian-west-obtains-27-million-judgment-in-right-of-publicity-and-trademark-suit.
5. Mark S. VanderBroek, “Understanding False Endorsement and Right of Publicity Claims in a Digital Age” (July 15, 2018), www.nelsonmullins.com/idea_exchange/insights/understanding-false-endorsement-and-right-of-publicity-claims-in-a-digital-age.
6. “NCAA Opens the door for Student-Athlete Right of Publicity Endorsement Deals,” Intellectual Property Center, LLC (April 29, 2020), https://theipcenter.com/2020/04/student-athletes-earning-money-from-rights-of-publicity/.
7. Jennifer E. Rothman, “Rothman’s Roadmap to the Right of Publicity,” https://rightofpublicityroadmap.com/.
8. Haelan Laboratories Inc. v. Topps Chewing Gum, 202 F.2d 866 (2d Cir. 1953).
9. Zacchini v. Scripps Howard Broadcasting Co., 433 U.S. 562, 573 (1977).
10. Estate of Andrews v. United States, 850 F. Supp. 1279 (E.D. Va. 1994).
11. Internal Revenue Code Section 2031(a).
12. Hannah Ellis-Peterse, “Robin Williams went above and beyond to stop his image being used” (March 31, 2015), www.theguardian.com/film/2015/mar/31/robin-williams-restricted-use-image-despite-existing-us-laws.
13. Supra note 7.