Pleasrdao v. Shkreli is a case in the Eastern District of New York that pits some of hip hop’s most renowned artists against someone already convicted of securities fraud. Defendant Martin Shkreli’s name might sound familiar because of some white collar crimes for which he was incarcerated in the 2010s, but this case stems from his purchase and sale of the famous Once Upon a Time in Shaolin by The Wutang Clan.
Central to the case is the rarity of the album, which is famous for having only been pressed into one copy. According to the original purchase agreement signed by Shkreli, he (as the buyer) was obligated to never make any additional copies of the album.
Unfortunately for Shkreli, he did not enjoy the benefits of his acquisition for very long. Two years after the sale, he was incarcerated for securities fraud and saddled with a substantial money judgment. The Department of Justice required him to forfeit assets that would equate to the $7.2 million judgment, and those assets included Once Upon a Time in Shaolin, which he had purchased for $2 million. The DOJ re-sold the album to this plaintiff (an experiential entertainment center) for $4 million.
After Shkreli was released from prison, he went on X, formerly known as Twitter, and bragged in interviews about how he had disseminated the album directly to at least 50 people via email and live-streamed it to at least 4,900 people. As for evidence of his misdeeds, in response to plaintiff’s innocuous post on X, Shkreli responded, “LOL I have the MP3s U moron.”
After blocking Shkreli on X, the plaintiff sued for enforcement of the forfeiture order; violations of the Defense of Trade Secrets Act (DTSA); tortious interference with prospective economic advantage; and recovery of chattel/replevin. Shkreli brought a motion to dismiss, which was denied in part and granted in part.
The plaintiff claimed that defendant Shkreli breached the forfeiture order by diminishing the value of the asset that the plaintiff bought. Plaintiff also claimed that it was an intended beneficiary of the forfeiture order, despite not having been a victim of Shkreli’s fraud. The court disagreed, and granted that part of Shkreli’s motion to dismiss because (a) the forfeiture order prevented Shkreli from diminishing the value of his assets only before their sale (in order to maximize recovery of the cash from such assets), not after such sale; and (b) plaintiff was not an intended beneficiary of the forfeiture deal.
The court did not dismiss the claims for trade secret violations under the DTSA. The first element to bringing such a claim is whether there was an attempt to maintain secrecy. The court found that the plaintiff had been diligent about preserving the secrecy of the album, including the hiring of armed security guards whenever the work was moved between locations. The second element is that the information derives independent economic value from not being generally known. In this case limiting the number of people who could control and listen to the only copy created an enormous amount of economic value.
The court repeatedly noted that in other, prior cases, some unreleased songs by Prince and Janet Jackson were unsuccessfully alleged to have been trade secrets, but in those cases the songs were never released. Once Upon a Time in Shaolin was in fact released, but with the peculiar limitation that only one copy of it was ever made.
Interestingly, the court found that the Copyright Act preempted the plaintiff’s claims of tortious interference and unjust enrichment, even though registering the work would have made the secrecy around it impossible. It was still a musical work, the court said, and therefore subject to copyright. (That’s often a problem with preemption: something may be subject to copyright law, but not enforceable under copyright law because it’s not registered, or because the statute of limitations had passed, for example.)
In contrast, the claim for recovery of stolen or wrongfully detained property survived preemption because plaintiff had the exclusive rights to own the only physical copy of the album —even though the purchase agreement provided that the buyer was entitled to only 50% of the underlying rights in the music of the album. (Again, copyright preemption prevented that claim for Fifty Cents on the dollar…)
This appears to be the first time that the DTSA has prevented dismissal of a claim involving music, albeit for a unique work. The uniqueness of Once Upon a Time in Shaolin is also what continues to make it valuable, but unfortunately for the owner, enforcing that uniqueness required trusting the album’s prior owners. And in this case, Shkreli as the prior owner was most untrustworthy. I don’t know whether anyone contemplated that after sale of the asset, this criminal defendant would intentionally diminish its value. Something to consider the next time you pay $4 million for a recording…
