World-renowned photographer Arthur Grace began his photojournalism career in the 1970s working for numerous prominent publications, including United Press International (UPI), the New York Times and Newsweek. In the 1990s, he turned his attention to photographing celebrities and celebrity events. During his career, he received numerous awards and was even nominated for a Pulitzer Prize.
In 1974, Grace retained Sygma, which had offices in Paris and New York, to act as licensing agent for his photographs. Unfortunately, they did not have a written agreement, and there was no understanding as to how Grace’s transparencies would be stored or cataloged by Sygma; nor was there any agreement as to how or when the images would be returned.
Regrettably, Sygma’s recordkeeping was deplorable. When Sygma was acquired by Corbis Corporation in 1999, it became clear that Sygma had not cataloged, inventoried or tracked Grace’s images in any way. Grace, too, failed to keep records of the transparencies he had sent to Sygma.
When Grace terminated his relationship with Sygma in 2001, he requested the return of all of his images. Since Sygma’s records were virtually nonexistent, it was unable to locate all the Grace images, though it returned the transparencies it could identify.
Because Sygma was unable to return Grace’s images, Grace filed suit to recover the value of the lost transparencies, claiming that 67,473 of his images were missing. Sygma disagreed with that figure. Neither party could establish the number of images lost, nor could they identify how many were unique and how many were outtakes or duplicates. Also some images appeared to be double counted and others never given to Sygma. Additionally, the expert used by Grace to establish value was criticized by the district court as evasive, nonresponsive and his testimony as nonsensical. The expert did not even review the amount of licensing revenue actually earned from the Grace images. The district court did, nevertheless, award Grace damages of $472,000 for the lost transparencies based on its conclusion that 40,000 images were lost. Grace appealed this judgment, claiming he was entitled to more.
The United States Court of Appeals for the Second Circuit recognized the difficulty faced by the trial court in trying to determine the value of lost images when neither party to the case kept records. While it complimented the district court’s legal analysis, the appellate court felt that some guidance would be appropriate in a case such as this where the trial court is forced to deal with so many unknowns.
The challenge presented was the determination of the value of the lost images when neither the number nor the quality of those images could be established. The appellate court held that Sygma’s liability for lost images must, nevertheless, be the reasonable value of the lost images as of the date of the loss.
Generally the complaining photographer has the burden of proof in establishing the value of any lost images. However, in a case such as this where the wrongdoer has made it impossible to determine the number or quality of images lost, then some other method of establishing damages must be used. That method may not be based on speculation or conjecture but must have some support in the record.
The appellate court suggested that the district court use the following methodology to determine the amount Sygma owed Grace. First, the district court should ascertain as nearly as possible the number of lost images. The Second Circuit noted that both parties believed that the number of lost images exceeded the number used by the district court, though there was no agreement as to the actual number. Sygma claimed that the number of lost images was 46,448 at most; whereas Grace claimed at trial that the number of lost images was more than 67,000 and on appeal that it was at least 43,367.
The appellate court next suggested that the trial court factor in the photographer’s past earnings in order to determine value. The court said that the collection’s earning capacity should be based on the highest year’s earnings Grace experienced while his images were in Sygma’s custody. Grace’s best earnings were in 1979 when he earned $21,258.81 from licensing revenue.
Next, said the court, it would be necessary to ascertain the ratio of lost images to the total number of Grace’s images turned over to Sygma, that is, to divide the number of lost images by the total number of images entrusted to Sygma. The court said that for purposes of illustration only, it would use the number of images Sygma believed it lost (46,448). It, therefore, added that number to the 33,013 non-lost (or returned) images, for a total of 79,461. It then divided the number of lost images (46,448) by the number of total images (79,461), providing a ratio of 58 percent.
Multiplying this by the highest earnings Grace experienced per year provides a calculation of the revenue generated by the lost images. The Second Circuit acknowledged that basing lost revenue from those missing images on Grace’s highest earning year may be incorrect, since no one knows when Sygma actually lost the images, but noted that it was Sygma’s fault that its records were nonexistent.
The court then suggested that, having figured out the earning potential for the lost images, the trial court should determine the number of years the images would have been viable. Here, too, the calculation may not be 100 percent accurate since some historical images may no longer have any market potential; yet, others might, and the Grace collection contained many images of celebrities as well. One method for determining the number of years the images would have commercial value was to look at the number of remaining years for the copyright in the images.
The appellate court also pointed out that the value of the lost images could not be calculated by merely multiplying the amount attributed to the lost images’ earning potential each year multiplied by the number of remaining years available for those images. Rather, the parties must establish a present value for the earning stream that could be generated from licensing or otherwise exploiting the images. That is to say, the present value of $1,000 in five years, using even a two percent annual interest rate, will be significantly less than $1,000.
In addition, the district court was instructed to compute prejudgment interest on the amount ultimately determined to be the proper value for the lost images from the date they were lost until the date payment was actually made to the photographer.
The appellate court remanded the case to the district court, which heard oral argument on the issue of damages on October 18, 2007. Applying the methodology suggested by the appeals court, the district court held on January 30, 2008, that Grace was entitled to $677,684.79, representing lost past income of $300,959.82 for loss of the 45,000 images the parties agreed were lost plus prejudgment interest on that amount totaling $237,728.97. In addition, the court awarded Grace $138,996 for the present value of annual payments of $16,233 for the next 11.46 years.
This case presents a number of important lessons for photographers. To begin with, the entire problem could have been avoided if Grace had kept good records of the number of transparencies turned over to Sygma. The fact that there was no written agreement between the parties meant that each party must trust the integrity, skill and records of the other. If the parties had entered into a written agreement, the contract could have provided the photographer with the right to review Sygma’s records from time to time in order to determine whether it was keeping accurate records, and the value of lost photographs could also have been agreed upon in advance. The district court noted that Sygma had such a clause in its contracts with licensees, that is, a clause providing for $1,500 liquidated damages for lost transparencies, though the district court stated that such a high figure was legitimate only when dealing with unique and irreplaceable images.
There are also lessons from the trial. The trial court’s conclusion that Grace’s expert was not credible underscores the importance of working with experts who will evaluate all relevant factors and who understand what method of calculating value has been articulated in the jurisdiction in question.
The issues raised by this case are relevant to all members of the photography community. Many stock labs and advertising agencies are digitizing their images. When this occurs, it is customary to return transparencies or negatives and, at that time, photographers may learn that a problem exists. Several photographers represented by my office, who have had transparencies returned, were either provided with some images belonging to others or they did not receive back all of the images they initially submitted, or both. In one case, a photographer believes that approximately 655 transparencies he initially provided an advertising agency are missing.
My office has been involved in many lost images cases, and the task of establishing value is difficult. Care should be taken when the relationship begins to work out a written agreement that both parties are prepared to live with regarding the value of any images lost, as well as a method of verifying the accuracy of payments made. It is also important for photographers to keep good records. By working with experienced attorneys and using good business practices, the problems that arose in the Grace v. Sygma case can be avoided. ca