ABKCO MUSIC, INC., Plaintiff-Appellant-Cross-Appellee, v. HARRISONGSMUSIC, LTD.; HARRISONGS MUSIC, INC.; GEORGE HARRISON; APPLERECORDS, INC.; BROADCAST MUSIC, INC.; HANSEN PUBLICATIONS, INC.,Defendants, HARRISONGS MUSIC, LTD.; HARRISONGS MUSIC, INC.;GEORGE HARRISON, Defendants-Appellees-Cross-Appellants Nos. 90-9065, 90-9115 UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT 944 F.2d 971; 1991 U.S. App. LEXIS 20867; Copy. L. Rep. (CCH) P26,818 April 8, 1991, Argued September 5, 1991, Decided September 5, 1991, Filed SUBSEQUENT HISTORY: [**1] As Amended. PRIOR HISTORY: Plaintiff ABKCO Music, Inc. appeals from an Order and Judgment of the United StatesDistrict Court for the Southern District of New York (Owen, J.) entered November 8, 1990, which incorporates certain parts of an order and judgment dated June 26, 1987. Defendants Harrisongs Music, Ltd., Harrisongs Music, Inc., and George Harrison cross-appeal from the district court's Endorsed Memorandum decision and order entered March 30, 1990, and from an order and judgment dated November 2, 1990. COUNSEL: Gideon Cashman, New York, New York (Donald S. Zakarin, Charles B. McKenna, Pryor, Cashman, Sherman & Flynn, New York, New York, of Counsel) for Plaintiff-Appellant-Cross-Appellee Abkco Music, Inc. Joseph J. Santora, New York, New York (Michael S. Allen, Santora & Allen, New York,New York, of Counsel), for Defendants-Appellees-Cross-Appellants Harrisongs Music,Inc. JUDGES: Cardamone and Mahoney, Circuit Judges, and Fred I. Parker, District Judge.* Mahoney, Circuit [**2] Judge, concurring in part and dissenting in part. * Hon. Fred I. Parker, United States District Judge for the District of Vermont, sitting by designation. OPINIONBY: CARDAMONE OPINION: [*974] CARDAMONE, Circuit JudgeBright Tunes Music Corporation (Bright Tunes) held the copyright to a song entitled "He's So Fine" (HSF) composed by Ronald Mack. George Harrison, a former member of the musical group "The Beatles," had authored a song called "My Sweet Lord" (MSL). In 1971 Bright Tunes sued Harrison claiming that his song infringed the copyright of Mack's song. A trial court in 1976 agreed. Today, over 15 years later, the damages issue flowing from this infringement is still being litigated, giving true-meaning for those involved to the title of the Beatles' "It's Been a Hard Day's Night." Subsequent to the determinations to be made on the remand hereby directed, we fully expect the curtain to fall on this long-playing litigation. BACKGROUND The events leading up to this appeal are more fully set forth in the four prior opinions in this case, Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp. 177 (S.D.N.Y. 1976); [**3] ABKCO Music, Inc. v. Harrisongs Music, Ltd., 508 F. Supp. 798 (S.D.N.Y. 1981), aff'd with modification and remanded, 722 F.2d 988 (2d Cir. 1983); and ABKCO Music, Inc. v. Harrisongs Music, Ltd., 841 F.2d 494 (2d Cir. 1988) (per curiam), familiarity with which is assumed. We recount only those facts needed to resolve this appeal. In 1971 when Bright Tunes brought its copyright infringement suit against Harrisongs Music Ltd., Harrisongs Music, Inc. and George Harrison (Harrison Interests or Harrison), ABKCO Music, Inc. and its president and "moving spirit," Allen B. Klein, served as business manager for the Beatles and handled Harrison's business affairs. In an attempt to end the Bright Tunes' litigation Klein, acting for Harrison, offered to buy out Bright Tunes, the property of which consisted mainly of the "He's So Fine" copyright and the lawsuit against the Harrison Interests. Negotiations continued slowly over several years. [*975] In the meantime Klein and the Beatles had a falling out, ending their relationship and resulting in bitter litigation. In late 1975 and early 1976, the Harrison Interests and Bright Tunes renewed settlement [**4] negotiations and the Harrison Interests made an offer that counsel for Bright Tunes considered to be a good one. But Klein, without Harrison's knowledge, made an offer to buy Bright Tunes for an amount almost double that offered by the Harrison Interests. Bright Tunes, reasoning that Klein's offer likely indicated an accurate view of the value of the lawsuit because of hisinside knowledge of the Harrison Interests' business affairs, thereupon declined Harrison's lower offer. Klein's offer was also rejected, and the case then went to trial. Following a three-day bench trial in 1976, Judge Owen ruled in favor of Bright Tunes, finding that Harrison subconsciously plagiarized HSF, but reserved judgment on the issue of damages. 420 F. Supp. at 177. Klein's successful efforts to booby-trap the settlement negotiations is critical to an understanding of this lengthy litigation, and wasa significant factor in the direction subsequent court opinions have taken. The damages issue was not decided until 1981, in the meanwhile certain events in 1977, 1978 and 1980 should be recited. In June 1977 an infringement action in England[**5] by Peter Maurice Music Co., Ltd. (Maurice) -- the subpublisher of "He's So Fine" in all places other than the United States and Canada -- against the Harrison Interests was settled with the Harrison Interests agreeing to pay Maurice 40 percent of the past and future monies received through exploitation of the "My Sweet Lord" copyright in the United Kingdom and retaining 60 percent of those revenues (the UK settlement). The parties also agreed to use "their best endeavours" to secure similar settlements throughout the remainder of Maurice's territory. Maurice had obtained its interest in "He's So Fine" under a licensing agreement entered into in 1963 between it and Bright Tunes. Under the agreement, Maurice was obligated to pay Bright Tunes 50 percent of all amounts received from HSF, less sheet music royalties -- in exchange for the right to exploit that song worldwide, save for the United States and Canada. On April 13, 1978 ABKCO purchased all of Bright Tunes' interest in "He's So Fine," including the right to certain royalties and all rights assertable against infringing compositions for $ 587,000 (the 1978 acquisition). ABKCO adopted Bright Tunes' complaint and was substituted [**6] as the sole party plaintiff in the action against the Harrison Interests. Harrison asserted affirmative defenses and counterclaims against ABKCO and Klein for breaches of fiduciary duty relating to the purchase of the Bright Tunes' properties. The district court held an
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