Copyright Infringement’s Blurred Lines: Allocating Overhead in the Disgorgement of Profits

In Williams v. Bridgeport Music, Marvin Gaye’s estate alleged that the popular song “Blurred Lines” infringed Gaye’s 1977 song “Got to Give It Up.” As part of the remedy for the infringement, the Gaye estate sought to disgorge the profits derived from defendants’ infringement, but the parties disagreed about how to calculate those profits. Specifically, they disagreed about whether the infringing song’s revenues should be offset by the infringers’ $7 million in overhead costs allocable to the song. The district court determined that the infringers’ ability to offset overhead costs would depend on whether their infringement was willful; it held that inadvertent infringers are entitled to offset overhead, while willful infringers are not. A few months later, however, in Oracle America, Inc. v. Google, Inc., a different district judge in the Ninth Circuit explicitly disagreed with the Williams court in reaching a different conclusion. As these examples illustrate, this issue—whether to reduce disgorgement awards to account for overhead costs in copyright infringement cases—has vexed courts. Some courts, such as the Second Circuit, have held that infringement-related overhead should always be factored in to reduce disgorged profits. Other courts, such as the Seventh Circuit, have held that overhead should never be factored in. Still others have held that it should be factored in only if the defendant’s infringement was willful. In this Article, I argue that all of these holdings are wrong. Specifically, I argue that overhead should reduce the defendant’s profit calculation only when the defendant can prove that, but for the infringement, it would have utilized the assets represented by the overhead in some other revenue-generating fashion. Although there may be a rough correlation between this analysis and an analysis of the defendant’s willfulness, the focus on willfulness emphasizes the wrong consideration, resulting in much of the confusion that permeates the current law. Part of this confusion stems from a disagreement regarding the purpose of the disgorgement remedy. Some argue that disgorgement is coercive, others that it is punitive, and still others that it is compelled by notions of corrective justice. I contend in this Article that corrective justice best accounts for the features of copyright disgorgement. I also argue that only by considering the defendant’s conduct through a noninfringing counterfactual can we achieve disgorgement’s goal, as described in Sheldon v. Metro-Goldwyn Pictures Corp., of a “rational separation of net profits so that neither party may have what rightfully belongs to the other.