Question : Bright Tunes Music Corp. (Bright Tunes) owned
Bright Tunes Music Corp. (Bright Tunes) owned the copyright to the song “He’s So Fine.” The company sued George Harrison, a Beatle, alleging that the Harrison composition “My Sweet Lord” copied “He’s So Fine.” At the time the suit was filed, Allen B. Klein handled the business affairs of the Beatles. Klein (representing Harrison) met with the president of Bright Tunes to discuss possible settlement of the copyright lawsuit. Klein suggested that Harrison might be interested in purchasing the copyright to “He’s So Fine.” Shortly thereafter, Klein’s management contract with the Beatles expired. Without telling Harrison, Klein began negotiating with Bright Tunes to purchase the copyright to “He’s So Fine” for himself. To advance these negotiations, Klein gave Bright Tunes information about royalty income for “My Sweet Lord”—information that he had gained as Harrison’s agent. The trial judge in the copyright case ultimately found that Harrison had infringed the copyright on “He’s So Fine” and assessed damages of $1,599,987. After the trial, Klein purchased the “He’s So Fine” copyright from Bright Tunes and with it, the right to recover from Harrison for the breach of copyright. Issue: Did Klein violate his fiduciary duty to Harrison by using confidential information after the agency relationship terminated? Holding: Yes, Klein was in violation because an agent has a duty not to use confidential knowledge acquired in his employment to compete with his principal. This duty continues after the agency terminates. Excerpts from Judge Pierce’s Decision: There is no doubt that the relationship between Harrison and Klein prior to the termination of the management agreement was that of principal and agent, and that the relationship was fiduciary in nature. An agent has a duty not to use confidential knowledge acquired in his employment in competition with his principal. This duty exists as well after the employment is terminated as during its continuance. On the other hand, use of information based on general business knowledge or gleaned from general business experience is not covered by the rule, and the former agent is permitted to compete with his former principal in reliance on such general publicly available information. The evidence presented herein is not at all convincing that the information imparted to Bright Tunes by Klein was publicly available. While the initial attempt to purchase the copyright to “He’s So Fine” was several years removed from the eventual purchase on Klein’s own account, we are not of the view that such a fact rendered Klein unfettered in the later negotiations. Taking all of these circumstances together, we agree that Klein’s conduct did not meet the standard required of him as a former fiduciary. Required: a. What did Klein do wrong? b. Klein felt he had been unfairly fired by the Beatles. What if he had simply told Bright Tunes information about “My Sweet Lord” out of spite, not to benefit himself? c. Suppose that, during his employment by the Beatles, Klein develops relationships with all the top music industry executives. After he leaves the Beatles, he represents other music groups, negotiating contracts, etc. If it weren’t for his relationship with the Beatles, no one would return his phone calls, but now he has a thriving business. Has he violated his fiduciary duty to the Beatles by using information he learned while working for them to represent other groups?