ADA — A new chapter has opened in a two-decade-long legal saga over allegations of copyright infringement against the parent company of Amway Corp.
Major record labels, music industry groups and other parties first sued the direct-selling giant in 1996 — and then again in 2014 — for illegally using copyrighted music in commercials and other marketing material. The 2014 case remained ongoing until earlier this year, when Amway’s parent company, Alticor Global Holdings Inc. settled it out of court.
Now, Amway has filed a lawsuit against two of its insurance companies, Illinois-based Chartis Specialty Insurance Co. and Pittsburgh-based National Union Fire Insurance Co., after they declined to honor two insurance policies and compensate the company for its legal bills related to the cases, according to court documents.
Specifically, Amway alleges the insurance companies breached their contracts by refusing to accept claims on two commercial liability policies totalling $75 million, according to filing in April with the U.S. District Court for the Western District of Michigan.
Amway alleges it spent “well in excess of $5 million” in attorney fees and other expenses in defending the lawsuit and is now seeking the full $75 million offered under the insurance policies as damages. The company also is requesting the court award Amway further damages for additional attorney fees, a 12-percent interest fee for delaying payment on each policy and other punitive damages.
“The thing about the (copyright) lawsuit is that it’s over now,” said Joe Voss, a copyright attorney in Grand Rapids with Chicago-based Leavens, Strand & Glover, LLC. “What will be interesting to see is the assertions that the insurance companies make for why they denied these claims. We just have to wait.”
The insurance companies’ reasons for denying the claims remain unclear.
Both companies have until June 14 to submit responses to the lawsuit, according to court documents. A conference was scheduled for June 29, during which the parties will establish timelines and other information, and potentially begin to broker a settlement.
Amway did not respond to requests to comment for this report.
“There was a ton of money expended in the battle over the copyright-protected properties that were used to further the ends of the Amway business model,” Voss said. “This is the tail of that (battle). … From my perspective as an attorney working in the music-licensing space, you can’t ignore the settled world of copyright licensing for music.”
TRACING THE DISPUTE
Amway’s current lawsuit against its insurance companies traces its roots back to 1996 when Arista Records and other record labels sued the company and a number of its distributors for using copyrighted music in a series of commercials. That initial dispute was settled in 1998, according to reports.
As part of the settlement, the parties struck an agreement requiring the record companies to quickly notify Amway of cases of copyright infringement among its distributors — known as independent business owners (IBOs) — so the company could react in a timely manner.
In 2014, record companies including Sony Music Entertainment, Warner Bros. Records, Universal Music Group and Capitol Records LLC sued Amway after IBOs from around the world illegally used 650 copyrighted sound recordings in some 1,200 videos uploaded to the internet.
Amway quickly mounted a countersuit, alleging the labels breached the 1998 agreement to advise the company about the incidences of copyright infringement as they occurred.
In December 2016, the parties — including a number of Amway IBOs listed in the lawsuit — reached a “confidential” settlement. The lawsuits were dismissed in January 2017.
Throughout the most recent trademark case, Amway did not pay the legal costs or settlement costs on behalf of its IBOs, citing their status as independent contractors, according to court documents.
Voss of Leavens, Strand & Glover cites the 2014 case and Amway’s current lawsuit with its insurance companies as a high-profile example of the costs and losses to productivity that companies can incur if they breach copyright law.
“It’s settled law,” Voss said. “If you’re going to use copyright-protected compositions or sound recordings, you have to pay to use them. There are very few, if any, exceptions to that world. Amway got caught up in it because they create content as part of their business model all the time with these motivational videos and all of that. You can’t just ignore copyright law that protects songwriters. When the scale is big, it goes on for years and (costs) millions of dollars.”