1035-00003 · Flor de Luna Publishing, LLC · Analyses & Memos

memo-damages-assessment-strategy.docx DOCUMENT Litigation

2 / 12 ← → ✕

Contract analysis Extract to table

CALDERWOOD & HARKNESS LLP Attorneys at Law

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT

MEMORANDUM

TO: Christy Bauer, Lead Associate; Alan Ngo, Responsible Partner

FROM: Peter Vassiliev, Associate

DATE: June 22, 2023

RE: Fonseca v. Crescendo Digital Media, Inc. — Damages Assessment and Litigation Strategy Update

Matter No.: 1035-00003

I. PURPOSE

This memorandum summarizes the preliminary damages assessment prepared in coordination with Dr. Ellen Marchetti, CPA, CFF, of Lakeshore Forensic Accounting Group, LLC, who was retained as our forensic accounting expert on June 8, 2023, to quantify the economic harm suffered by Plaintiffs as a result of Crescendo Digital Media, Inc.'s ("Crescendo" or "Defendant") unauthorized exploitation of Mariana Fonseca's copyrighted musical works. Additionally, this memorandum provides an updated litigation strategy recommendation in light of several material developments since the case was filed, specifically:

• Crescendo's Answer and Affirmative Defenses, filed April 28, 2023, in which Defendant asserted twelve affirmative defenses to Plaintiffs' copyright infringement claims;

• The Early Neutral Evaluation ("ENE") conference held May 15, 2023, before Magistrate Judge Patricia L. Alvarez in the United States District Court for the Central District of California, at which Judge Alvarez provided preliminary feedback on the parties' respective positions; and

• The initial discovery production received from Crescendo, comprising over four thousand pages of documents, which has been reviewed by both our litigation team and Dr. Marchetti's forensic team.

This memorandum builds on Christy Bauer's March 20, 2023 memorandum analyzing the merits of the copyright infringement claims asserted on behalf of Plaintiffs Flor de Luna Publishing, LLC ("Flor de Luna") and Mariposa Sound Recordings, LLC ("Mariposa") against Crescendo. The March 20 memorandum concluded that Plaintiffs' infringement claims were strong on the merits, particularly given the clear expiration of the only license under which Crescendo had any arguable right to use the works. This memorandum now translates that merits analysis into a concrete damages framework and proposes a path forward toward resolution.

II. DAMAGES ANALYSIS

A. Data Reviewed

Dr. Marchetti's team at Lakeshore Forensic Accounting Group, LLC (200 South Wacker Drive, Suite 3100, Chicago, IL 60606) has conducted an extensive review of the financial and transactional data relevant to quantifying Plaintiffs' damages. The following categories of materials have been reviewed and analyzed as of the date of this memorandum:

1. Crescendo's initial discovery production — Bates Nos. CDM-000001 through CDM-004218, consisting of:

• Streaming logs from the Crescendo Stream platform, which detail on a track-by-track basis the number of streams attributable to each of Fonseca's compositions and sound recordings during the infringement period;

• Content management system ("CMS") records, which reveal how Crescendo categorized and tracked the licensing status of Fonseca's works — notably, the CMS tagged all of Fonseca's works as "cleared — blanket license," referencing the expired Peregrine Music Group, LLC license, discussed in greater detail below;

• Sublicense agreements with fourteen (14) commercial clients, including fitness chains, hospitality brands, and retail environments, under which Crescendo sublicensed curated playlists containing Fonseca's works for use in those clients' commercial premises and digital platforms; and

• Revenue reports for fiscal years 2019 through 2022, which document the revenue Crescendo derived from its streaming platform and sublicensing operations during the infringement period.

2. Historical royalty statements from Thornfield Music Administration, Inc. (catalog administrator; principal: Raymond O. Sato, President; 6363 Wilshire Boulevard, Suite 410, Los Angeles, CA 90048), which administers Fonseca's publishing catalog on behalf of Flor de Luna Publishing, LLC. These statements provide a baseline for the royalty income Fonseca should have received during the infringement period and permitted Dr. Marchetti to identify the gap between expected and actual royalty payments attributable to Crescendo's use of the works.

3. Publicly available market rate data for comparable digital licensing transactions in the streaming and business-to-business sublicensing space. Dr. Marchetti consulted industry rate databases, published licensing surveys, and publicly available terms from comparable platforms to establish the fair market value of the rights Crescendo exploited without authorization.

4. The expired Peregrine Music Group, LLC blanket license agreement, which was effective January 1, 2016, and expired by its express terms on December 31, 2018. Peregrine Music Group, LLC ("Peregrine") itself ceased operations in November 2018, approximately one month before the license's contractual expiration date. This agreement is the sole license upon which Crescendo bases its "good faith reliance" defense, and its terms are unambiguous with respect to the expiration date.

5. U.S. Copyright Office registration certificates for all forty-seven (47) compositions at issue (Registration Nos. PA 1-742-891 through PA 2-318-406) and all thirty-two (32) sound recordings at issue (Registration Nos. SR 0-891-220 through SR 1-104-773). Dr. Marchetti reviewed these certificates to confirm the scope of registered works and to verify the timeliness of registration for purposes of statutory damages and attorney's fees eligibility under 17 U.S.C. §§ 504(c) and 505.

B. Back-Royalties. The core of Plaintiffs' actual damages claim consists of the back-royalties that Crescendo should have paid for its use of Fonseca's copyrighted works during the infringement period. The relevant parameters are as follows:

• Infringement period: January 1, 2019, through December 31, 2022, comprising approximately forty-eight (48) months. This period begins the day after the Peregrine blanket license expired and continues through the end of the last full fiscal year for which data has been produced.

• Total streams of Fonseca's works during the infringement period: 18,426,331 streams, as reflected in Crescendo's own platform data produced in discovery. This figure encompasses all plays of the forty-seven compositions and thirty-two sound recordings across Crescendo's streaming platform, including streams generated by direct subscribers and streams delivered through Crescendo's sublicensed commercial channels.

• Number of sublicensed commercial clients: Fourteen (14) commercial entities to which Crescendo sublicensed curated playlists containing Fonseca's works, including fitness chains, hospitality brands, and retail environments.

• Total sublicense revenue attributable to the Fonseca catalog: $2,740,000 over the four-year infringement period. This figure was derived from Crescendo's revenue reports and the sublicense agreements produced in discovery, with Dr. Marchetti applying a pro-rata attribution methodology to isolate the revenue reasonably attributable to the inclusion of Fonseca's works in the sublicensed playlists.

Based on these inputs, Dr. Marchetti has prepared the following preliminary quantification of Plaintiffs' back-royalty damages:

Several important notes regarding the allocation and characterization of these damages are warranted:

First, the mechanical royalties figure of $412,600 is payable to Flor de Luna Publishing, LLC, which controls the composition copyrights for all forty-seven works at issue. These royalties compensate for the unauthorized reproduction and distribution of the underlying musical compositions through Crescendo's streaming platform and sublicensing operations.

Second, the master use royalties figure of $548,200 is payable to Mariposa Sound Recordings, LLC, which controls the master recording copyrights for the thirty-two sound recordings at issue. These royalties compensate for the unauthorized reproduction, distribution, and public performance of the master recordings. The master use royalty rate of $0.02975 per stream reflects the prevailing market rate for comparable master use licenses in the digital streaming space, as determined by Dr. Marchetti's analysis of publicly available licensing data and industry benchmarks.

Third, the performance royalties of $126,400 represent the estimated unremitted share of performance royalties that should have flowed through Thornfield Music Administration's administration arrangement but did not, because Crescendo never reported or paid on these uses. Under the normal course of business, a properly licensed platform would report its streams to the applicable performing rights organizations (BMI and ASCAP), which would in turn remit performance royalties to the publisher and songwriter. Because Crescendo treated the works as covered under an expired blanket license, it never made the required reports, and no performance royalties were paid. Dr. Marchetti derived this figure by analyzing the gap between Thornfield's expected performance royalty income from a platform of Crescendo's size and the actual royalties received during the infringement period.

To contextualize the magnitude of these unpaid royalties: Fonseca's average annual royalty income from her full catalog — which comprises 214 compositions and 188 master recordings — over the period from 2018 through 2022 was approximately $1,820,000. The $1,087,200 in unpaid royalties attributable solely to the forty-seven compositions and thirty-two sound recordings exploited by Crescendo represents a significant portion of her expected income from that subset of works. This underscores the commercial significance of Crescendo's unauthorized use and the resulting harm to Plaintiffs.

C. Statutory Damages

All forty-seven (47) compositions at issue carry timely U.S. Copyright Office registrations, having been registered either within three months of first publication or prior to the commencement of infringement. This qualification is critical because it entitles Plaintiffs to elect statutory damages under 17 U.S.C. § 504(c) in lieu of actual damages and profits, and further entitles Plaintiffs to seek an award of attorney's fees under 17 U.S.C. § 505. Registration dates for the works at issue range from 1998 to 2021, and each registration has been confirmed as timely based on the publication dates reflected in the registration certificates.

The statutory damages range available to Plaintiffs is as follows:

• Non-willful infringement range: 47 works × $750 to $30,000 per work = $35,250 to $1,410,000

• Willful infringement range: 47 works × up to $150,000 per work = up to $7,050,000

A threshold issue in quantifying statutory damages is the counting question — specifically, how many separate "works" should be counted for purposes of computing the statutory award. In this analysis, we have counted only the forty-seven (47) compositions as separate "works" for statutory damages purposes. The thirty-two (32) sound recordings at issue are derivative of the underlying compositions, and courts in the Ninth Circuit have sometimes treated a composition and its corresponding sound recording as a single "work" for statutory damages purposes, on the theory that they share a common creative core. See, e.g., Xoom, Inc. v. Imageline, Inc., 323 F.3d 279, 285 (4th Cir. 2003) (discussing the "single work" doctrine in the context of compilations); cf. Bryant v. Media Right Prods., Inc., 603 F.3d 135, 141-42 (2d Cir. 2010).

However, if the Court were to count compositions and sound recordings separately — which is the better-reasoned approach and one that has support in several circuits — the number of works for statutory damages purposes could be as high as seventy-nine (79) (47 compositions + 32 sound recordings). Under that counting methodology, the maximum willful statutory damages exposure would increase to $11,850,000 (79 × $150,000 per work).

For settlement valuation purposes, we recommend using the conservative forty-seven-work count to ensure that our assessment is grounded in the most defensible figure. At the same time, we should preserve the argument for the higher count as litigation leverage, both in discovery and at the mediation table. The mere possibility that Crescendo faces exposure of nearly $12 million in statutory damages should concentrate the attention of Crescendo's litigation counsel and its board.

D. Attorney's Fees

Under 17 U.S.C. § 505, a court may award attorney's fees to the prevailing party in a copyright infringement action. While the award is discretionary, it is routinely granted to prevailing plaintiffs whose works were timely registered prior to infringement, and such awards are strongly favored in the Ninth Circuit. See Kirtsaeng v. Crowne Albany Industries, Inc., 579 U.S. 197 (2016) (holding that fee awards should generally be given to prevailing parties to encourage meritorious claims and deter infringement); Fantasy, Inc. v. Fogerty, 94 F.3d 553, 558-59 (9th Cir. 1996). Given the timely registration of all forty-seven compositions, Plaintiffs are well-positioned to recover their reasonable attorney's fees in the event of a judgment.

Based on current time records maintained by the Firm, the total lodestar through trial is projected at approximately $285,000. This projection accounts for anticipated work through the close of fact discovery, expert discovery, dispositive motions, pretrial preparation, and trial. The projection also incorporates the ten percent (10%) contingency uplift on any recovery, pursuant to the hybrid fee arrangement in place with the client. Under that arrangement, the Firm's billing rates are as follows: Partner rate of $725 per hour (reduced from the standard rate of $950 per hour); Associate rate of $475 per hour (reduced from the standard rate of $625 per hour); plus a contingency component of ten percent (10%) of gross recovery. The reduced hourly rates reflect the client's agreement to the contingency component, which aligns the Firm's incentives with the client's interest in maximizing recovery.

As of June 22, 2023, the current lodestar stands at approximately $155,000, reflecting work performed from the date of engagement through the present.

It is important to note that any fee recovery under § 505 would constitute a fee-shifting award against Crescendo, separate and distinct from the client's contractual fee obligation to the Firm under the engagement letter. In other words, a § 505 fee award would not reduce the client's obligation to pay the Firm; rather, it would serve as an additional component of the judgment against Crescendo, effectively reimbursing the client for a portion of its litigation costs.

E. Settlement Valuation

Drawing together the foregoing damages components, Dr. Marchetti and I recommend the following settlement framework for discussion:

For context, the pre-litigation demand set forth in the March 6, 2023 cease-and-desist letter was $2,312,200, which represented the upper bound of this range and was calculated as follows: $1,087,200 in back-royalties, plus $940,000 as a statutory enhancement reflecting willfulness, plus $285,000 in projected attorney's fees. That demand was calibrated to the top of the range in order to establish a strong anchoring position for subsequent negotiations.

Based on a realistic assessment of litigation risk, the time value of money, and the cost of continued litigation, I recommend a target settlement in the range of $1,500,000 to $1,700,000 in cash consideration, plus a prospective licensing arrangement to monetize Crescendo's continued use of the Fonseca catalog going forward. The rationale for each component is as follows:

Cash consideration. The $1,087,200 back-royalty floor provides the baseline for the cash component. This figure represents the minimum amount to which Plaintiffs are entitled based on the actual, quantifiable harm inflicted by Crescendo's unauthorized use. The statutory enhancement reflects the strength of the willfulness case, appropriately discounted for litigation risk and the time value of achieving a prompt settlement. A willfulness finding is likely — as discussed in Section III.B below, Crescendo's "good faith" defense is weak — but not certain, and the discount accounts for that residual uncertainty. The attorney's fees component should be at least partially recovered; given the strength of a § 505 fee-shifting motion, defense counsel will understand that these fees are a real and recoverable cost that Crescendo faces.

Prospective licensing arrangement. In addition to cash consideration, we recommend negotiating a prospective license for Crescendo's continued use of the Fonseca catalog. This recommendation is grounded in both commercial logic and strategic positioning:

• Crescendo has approximately 2.3 million subscribers and reported $189 million in revenue for fiscal year 2022. It is a substantial enterprise with a demonstrated and ongoing need for high-quality music content.

• Crescendo's platform generated 18.4 million streams of Fonseca's works over four years, demonstrating significant user demand for her content. Removing the works abruptly would cause disruption to Crescendo's playlists, subscriber experience, and commercial client relationships.

• A properly structured prospective license creates an ongoing revenue stream for Fonseca and her affiliated entities (Flor de Luna and Mariposa), converting a one-time settlement into a long-term commercial relationship. This is consistent with Fonseca's stated preference for monetizing her catalog rather than simply punishing the infringer.

We suggest the following terms for the prospective license, to be negotiated as part of the settlement: non-exclusive license; three (3)-year term with renewal options; per-stream royalty at market rate (approximately $0.035 per stream); a minimum annual guarantee; quarterly reporting obligations; audit rights exercisable upon reasonable notice; and automatic termination upon payment default. These terms are consistent with prevailing market practices for digital streaming licenses and would provide Fonseca with both guaranteed income and upside participation in the event of increased streaming volumes.

Finally, with respect to Crescendo's ability to pay: Crescendo raised a $75 million Series C financing round in 2021, led by Ridgeline Ventures Partners, LP (General Partner: Warren Hu). Crescendo is privately held and has not disclosed its current cash position, but its $189 million in FY 2022 revenue and the substantial Series C raise indicate that the company has the financial capacity to fund a seven-figure settlement without material distress. This is an important consideration in setting our settlement target, as it reduces the risk that Crescendo would resist settlement on ability-to-pay grounds.

III. LITIGATION STRATEGY UPDATE

A. Early Neutral Evaluation

The Early Neutral Evaluation conference was held on May 15, 2023, before Magistrate Judge Patricia L. Alvarez. Both parties appeared through counsel, and each side presented a summary of its liability and damages positions. Judge Alvarez's comments during the ENE conference were notable and, on the whole, highly favorable to Plaintiffs' position.

In particular, Judge Alvarez expressed clear skepticism regarding Crescendo's "good faith reliance" defense. She observed that a sophisticated digital media company with a dedicated legal department and a content management system specifically designed to track licensing status should have systems in place to identify and act upon license expirations. She noted that the failure to do so — over a period of four years — suggested a systemic breakdown in Crescendo's rights management processes that was difficult to characterize as "good faith" or "innocent."

Judge Alvarez further observed that the Peregrine blanket license had a fixed, unambiguous expiration date of December 31, 2018, which was plainly stated in the agreement. Moreover, she noted that Peregrine itself ceased operations in November 2018, approximately one month before the license's contractual expiration date. The cessation of Peregrine's business operations should have been an additional and highly conspicuous red flag for Crescendo's licensing team, prompting an immediate review of all works licensed through Peregrine. The absence of any such review is telling.

Judge Alvarez encouraged the parties to explore mediation as a means of resolving the dispute efficiently and without the need for protracted litigation. She did not issue any formal findings or recommendations, consistent with the advisory nature of the ENE process, but her comments were unambiguous in their direction and should be taken as a strong signal regarding the likely judicial reception of Crescendo's defenses.

From a strategic perspective, Judge Alvarez's ENE comments are a significant asset to Plaintiffs' settlement leverage. They confirm that Plaintiffs' theory of the case — that Crescendo's continued use of Fonseca's works after the Peregrine license expired was, at best, grossly negligent and, at worst, willful — resonates with the judicial officer assigned to the case. We should reference these comments, appropriately and without attribution to the ENE proceedings, in our mediation brief and settlement discussions.

B. Crescendo's Affirmative Defenses

Crescendo's Answer, filed April 28, 2023, asserts twelve (12) affirmative defenses. I have analyzed each defense and provide the following assessments:

1. Good faith / innocent infringement (17 U.S.C. § 504(c)(2)). This is Crescendo's principal defense and the one most likely to receive substantive attention from the Court. Crescendo argues that it reasonably relied on the expired Peregrine blanket license in continuing to use Fonseca's works, and that its infringement was therefore innocent within the meaning of § 504(c)(2), which permits a reduction of statutory damages to a minimum of $200 per work for innocent infringers. This defense is weak for several reasons. First, the Peregrine license expired by its express terms on December 31, 2018; there is no ambiguity about the expiration date, no evergreen clause, and no automatic renewal provision. Second, Crescendo is a sophisticated digital media company with a General Counsel — Priya Chandrasekaran — who is specifically responsible for rights management and content clearance. Third, the discovery production reveals that Crescendo's content management system continued to tag all of Fonseca's works as "cleared — blanket license" throughout the four-year infringement period, referencing the expired Peregrine agreement. This tagging suggests a systemic failure to review and update licensing records rather than the exercise of reasonable diligence. Fourth, Judge Alvarez's skepticism at the ENE conference, discussed above, reinforces this assessment. The good faith defense is unlikely to survive summary judgment on the current record.

2. Implied license. Crescendo argues that an implied license arose from the prior course of dealing between Fonseca (through Peregrine) and Crescendo, authorizing Crescendo's continued use of the works after the Peregrine license expired. This defense is weak. Implied licenses require evidence of the copyright holder's affirmative intent to grant a license. See Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 558-59 (9th Cir. 1990). Here, Fonseca took no affirmative action whatsoever to authorize Crescendo's continued use after the Peregrine license expired. Fonseca never communicated directly with Crescendo regarding any license. Moreover, the Peregrine license was expressly non-transferable and non-assignable; the rights it conveyed terminated with the agreement itself.

3. Estoppel. Crescendo argues that Fonseca's delay in discovering and asserting her infringement claims estops her from now pursuing them. This defense is weak. Fonseca had no obligation to monitor Crescendo's platform for unauthorized uses of her works. She discovered the infringement through a routine audit conducted by Thornfield Music Administration, Inc. in late 2022 and acted promptly thereafter by retaining counsel and issuing a cease-and-desist letter. There is no evidence that Fonseca was aware of the infringement prior to the Thornfield audit or that she took any action inconsistent with her present claims.

4. Laches. This defense is substantially similar to the estoppel argument and is equally weak. Fonseca engaged Calderwood & Harkness LLP on February 20, 2023, shortly after discovering the infringement, and sent the cease-and-desist letter on March 6, 2023 — less than four months after the Thornfield audit identified the unauthorized uses. There was no unreasonable delay. Moreover, laches is generally not available as a defense to claims for legal relief (i.e., damages) brought within the applicable statute of limitations. See Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014).

5. Failure to mitigate damages. Crescendo argues that Fonseca should have discovered the infringement sooner and taken steps to stop it, thereby mitigating her damages. This defense is weak. There is no affirmative duty on the part of a copyright holder to police a licensee's or former licensee's compliance with the terms of an expired agreement. Fonseca maintained an ongoing administration arrangement with Thornfield Music Administration, which discovered the issue during its regular auditing processes. The fact that Thornfield's audit cycle did not detect the unauthorized uses earlier does not give rise to a failure-to-mitigate defense; it merely reflects the reality that forensic audits of digital streaming platforms are complex and time-consuming.

6. Statute of limitations (17 U.S.C. § 507(b)). Crescendo argues that claims for infringement occurring prior to February 20, 2020 — three years before the matter was opened at the Firm — are time-barred under the three-year statute of limitations applicable to copyright claims. This defense warrants substantive attention but is ultimately weak on the facts and the law. Under the "Discovery rule" adopted by the Ninth Circuit in Roley v. New World Pictures, Ltd., 19 F.3d 479 (9th Cir. 1994), the three-year limitations period runs not from the date of infringement but from the date the plaintiff knew or should have known of the infringement. Fonseca became aware of Crescendo's unauthorized use in late 2022, during the Thornfield audit. Accordingly, all claims for the entire 2019–2022 infringement period should be timely under the discovery rule. Even if the Court were to reject the discovery rule and apply a "rolling" limitations theory — under which each act of infringement triggers a new three-year period — damages for the most recent three years (2020–2022) would still be recoverable. Those three years capture the vast majority of the 18.4 million total streams and the corresponding revenue, given the growth trajectory of Crescendo's platform during that period.

7–12. Remaining defenses. Crescendo's Answer also asserts the following additional affirmative defenses: First Amendment (Defense No. 7); unclean hands (Defense No. 8); copyright misuse (Defense No. 9); failure to state a claim upon which relief can be granted (Defense No. 10); lack of standing (Defense No. 11); and reservation of rights to assert additional defenses (Defense No. 12). None of these defenses merit substantive concern. They appear to be boilerplate pleading with no factual basis articulated in the Answer. The First Amendment does not protect the unauthorized commercial exploitation of copyrighted music. There is no evidence of unclean hands or copyright misuse by Fonseca. The standing question was addressed in the Complaint, which properly alleges ownership by Flor de Luna (compositions) and Mariposa (recordings), both of which are Fonseca-controlled entities with valid assignments. The failure-to-state-a-claim defense is functionally a Rule 12(b)(6) argument that was not raised by motion and is therefore waived for practical purposes at this stage.

Overall assessment: Only the good faith / innocent infringement defense and the statute of limitations defense warrant substantive attention, and both are weak on the facts and the law. This assessment is consistent with the analysis set forth in Christy Bauer's March 20, 2023 memorandum, which reached the same conclusion based on the pre-discovery record. The discovery production and the ENE conference have only reinforced the strength of Plaintiffs' position.

C. Discovery Status

Crescendo's initial discovery production, encompassing Bates Nos. CDM-000001 through CDM-004218, has been received and reviewed by our litigation team and by Dr. Marchetti's forensic accounting team at Lakeshore. The production includes the streaming logs, sublicense agreements with fourteen commercial clients, revenue reports for fiscal years 2019 through 2022, and content management system records described in Section II.A above.

The most significant finding from the production is the CMS data confirming that Crescendo tagged all forty-seven (47) compositions and all thirty-two (32) sound recordings as "cleared — blanket license" throughout the entire four-year infringement period, referencing the expired Peregrine Music Group, LLC license agreement. Critically, there is no evidence in the production of any internal review or re-clearance effort at any point during the infringement period. No emails, memos, or internal communications suggest that anyone at Crescendo — including General Counsel Priya Chandrasekaran or any member of the licensing or content teams — conducted a review of the Peregrine license's status, inquired about Peregrine's cessation of operations, or took any steps to verify that Crescendo's continued use of the Fonseca catalog was authorized. This absence of evidence is itself powerful evidence, and it will be central to our willfulness argument.

Dr. Marchetti's forensic analysis of the production is ongoing. A full expert report prepared in compliance with Federal Rule of Civil Procedure 26(a)(2)(B) is in preparation and is expected to be finalized within sixty (60) days. The report will set forth Dr. Marchetti's methodology, data sources, calculations, and opinions regarding the quantification of Plaintiffs' damages.

It should also be noted that further discovery may reveal additional infringing uses or revenue streams not yet accounted for in the preliminary damages assessment. For example, Crescendo's sublicense agreements suggest the possibility of additional commercial uses — such as synchronization in promotional videos or incorporation into fitness class programming — that may have generated revenue not captured in the current production. We will pursue targeted discovery requests to explore these potential additional sources of damages.

D. Recommendation: Proceed to Mediation

Based on the strength of Plaintiffs' damages case, the weakness of Crescendo's defenses, and the favorable signals from the ENE conference, I recommend that we accept the informal suggestion of Crescendo's counsel — Denise K. Whitford of Hargrove, Pennington & Cao LLP — to schedule mediation before a neutral third party.

Timing rationale. Mediation at this stage of the litigation — after initial discovery has been produced and reviewed, and after Dr. Marchetti has completed her preliminary forensic analysis, but before expert depositions, summary judgment briefing, and trial preparation — is optimal for several reasons. First, we now have sufficient data to present a credible, well-supported damages case to Crescendo and to a mediator. The back-royalty figure of $1,087,200 is grounded in Crescendo's own data, which lends it significant credibility. Second, Crescendo's litigation costs will only increase as the case progresses into expert discovery and dispositive motions, creating a strong incentive for Crescendo to resolve the matter now. Third, early resolution minimizes additional fees and costs for the client, consistent with our obligation to pursue efficient case management. Fourth, Judge Alvarez's encouragement of mediation at the ENE conference provides cover for both sides to engage in settlement discussions without appearing to concede weakness.

Mediator recommendation. I suggest retaining Ashgrove Equity Partners Dispute Resolution Services, LLC (1901 Avenue of the Stars, Suite 1050, Los Angeles, CA 90067) to administer the mediation, and specifically requesting the Honorable Gerald T. Nakashima (Ret.) as mediator. Judge Nakashima served for twenty-two years on the Superior Court of California, Los Angeles County, and has extensive post-retirement experience mediating complex intellectual property disputes, with a particular focus on music industry copyright matters. His familiarity with the industry dynamics, licensing structures, and damages methodologies at issue in this case will enable a more productive and efficient mediation session than would be possible with a generalist mediator.

Target mediation date. I recommend scheduling the mediation within thirty (30) days — approximately mid-July 2023. This timeline allows sufficient time to prepare a comprehensive mediation brief while maintaining the litigation momentum that favors Plaintiffs.

Pre-mediation preparation. In advance of the mediation, we should prepare a confidential mediation brief setting forth the liability case, the damages analysis summarized in this memorandum, and Plaintiffs' settlement position. The brief should be designed to educate Judge Nakashima on the facts and law, while also serving as a persuasive document that can be shared with Crescendo's counsel in advance (or, alternatively, submitted to the mediator on a confidential, counsel-only basis). We should coordinate with Dr. Marchetti to finalize the back-royalty calculations and, if possible, to prepare summary exhibits or demonstratives that can be presented during the mediation session.

Settlement posture for mediation. I recommend entering mediation with an opening demand of $2,312,200, consistent with the pre-litigation demand set forth in the March 6, 2023 cease-and-desist letter. This figure anchors the negotiation at the upper end of our settlement range and establishes continuity with the pre-litigation position. However, the team should have authority to negotiate within the $1,500,000–$1,700,000 cash range, plus the prospective licensing arrangement described in Section II.E above. The prospective license should be presented not merely as an add-on to the cash settlement but as a core component of the resolution — one that serves the interests of both parties by creating ongoing value and avoiding the disruption of content removal.

Attorney's fees component. We should anticipate that defense counsel will push back hardest on the attorney's fees component of the demand, as defense-side counsel frequently resist fee-shifting claims in settlement negotiations. I recommend holding firm at a $195,000 minimum for the attorney's fees component, given the strength of a § 505 fee-shifting motion on the merits (timely registration, clear infringement, likely willfulness finding) and the current lodestar of $155,000, which will continue to grow through mediation. Demonstrating to Crescendo's counsel that Plaintiffs have a realistic path to fee recovery at trial will discourage attempts to eliminate this component from the settlement.

IV. CONCLUSION AND NEXT STEPS

In summary, Plaintiffs' damages case against Crescendo Digital Media, Inc. is strong and well-supported by the evidence produced to date. The quantified back-royalty floor of $1,087,200 — derived from Crescendo's own platform data and verified by Dr. Marchetti's forensic analysis — provides a solid baseline for settlement negotiations. The statutory damages exposure Crescendo faces is substantial, reaching up to $7,050,000 for willful infringement of forty-seven works under the conservative counting methodology (or up to $11,850,000 if compositions and recordings are counted separately). Crescendo's twelve affirmative defenses are, on the whole, weak, and the two defenses that warrant substantive attention — good faith reliance and statute of limitations — are undermined by both the factual record and Judge Alvarez's skeptical comments at the ENE conference.

The litigation posture strongly favors Plaintiffs at this juncture, and the present moment represents an optimal window for settlement. Accordingly, I recommend proceeding to mediation before the Honorable Gerald T. Nakashima (Ret.) at Ashgrove Equity Partners Dispute Resolution Services, LLC, within the next thirty days, with a target settlement in the $1,500,000 to $1,700,000 cash range plus a prospective non-exclusive license for Crescendo's continued use of the Fonseca catalog.

I respectfully request authorization from Alan Ngo to take the following next steps:

1. Contact Hargrove, Pennington & Cao LLP (Denise K. Whitford) to schedule mediation and confirm mutual agreement to the process;

2. Engage Ashgrove Equity Partners Dispute Resolution Services, LLC and request the Honorable Gerald T. Nakashima (Ret.) as mediator, with a target mediation date in mid-July 2023;

3. Begin preparation of the confidential mediation brief, incorporating the liability analysis from Christy Bauer's March 20, 2023 memorandum and the damages analysis set forth herein; and

4. Coordinate with Dr. Ellen Marchetti and Lakeshore Forensic Accounting Group, LLC to finalize the damages presentation, including summary exhibits and demonstratives suitable for use during the mediation session.

I am available to discuss this memorandum and the foregoing recommendations at any time. Please let me know how you would like to proceed.

Respectfully submitted,

Peter Vassiliev Associate, intellectual Property Calderwood & Harkness LLP

Category	Calculation	Amount
Mechanical royalties (streaming)	Statutory mechanical rate of $0.0091/stream × 18,426,331 streams	$167,680
Mechanical royalties (sublicensing)	Pro-rata share of $2,740,000 sublicense revenue at industry-standard 9% mechanical rate	$244,920
Subtotal — Mechanical royalties	$412,600
Master use royalties (streaming)	Comparable master license rate of $0.02975/stream × 18,426,331 streams	$548,183 (rounded to $548,200)
Performance royalties (estimated unremitted)	Based on BMI/ASCAP analogues and Thornfield gap analysis of unremitted performance royalties	$126,400
Total back-royalties	$412,600 + $548,200 + $126,400	$1,087,200
Component	Amount
Back-royalties (floor)	$1,087,200
Statutory enhancement (willfulness premium, negotiated)	$337,800 to $940,000
Attorney's fees and costs	$195,000 to $285,000
Settlement range	$1,620,000 to $2,312,200

CALDERWOOD & HARKNESS LLP Attorneys at Law
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT
MEMORANDUM
TO: Christy Bauer, Lead Associate; Alan Ngo, Responsible Partner
FROM: Peter Vassiliev, Associate
DATE: June 22, 2023
RE: Fonseca v. Crescendo Digital Media, Inc. — Damages Assessment and Litigation Strategy Update
Matter No.: 1035-00003
I. PURPOSE
This memorandum summarizes the preliminary damages assessment prepared in coordination with Dr. Ellen Marchetti, CPA, CFF, of Lakeshore Forensic Accounting Group, LLC, who was retained as our forensic accounting expert on June 8, 2023, to quantify the economic harm suffered by Plaintiffs as a result of Crescendo Digital Media, Inc.'s ("Crescendo" or "Defendant") unauthorized exploitation of Mariana Fonseca's copyrighted musical works. Additionally, this memorandum provides an updated litigation strategy recommendation in light of several material developments since the case was filed, specifically:
• Crescendo's Answer and Affirmative Defenses, filed April 28, 2023, in which Defendant asserted twelve affirmative defenses to Plaintiffs' copyright infringement claims;
• The Early Neutral Evaluation ("ENE") conference held May 15, 2023, before Magistrate Judge Patricia L. Alvarez in the United States District Court for the Central District of California, at which Judge Alvarez provided preliminary feedback on the parties' respective positions; and
• The initial discovery production received from Crescendo, comprising over four thousand pages of documents, which has been reviewed by both our litigation team and Dr. Marchetti's forensic team.
This memorandum builds on Christy Bauer's March 20, 2023 memorandum analyzing the merits of the copyright infringement claims asserted on behalf of Plaintiffs Flor de Luna Publishing, LLC ("Flor de Luna") and Mariposa Sound Recordings, LLC ("Mariposa") against Crescendo. The March 20 memorandum concluded that Plaintiffs' infringement claims were strong on the merits, particularly given the clear expiration of the only license under which Crescendo had any arguable right to use the works. This memorandum now translates that merits analysis into a concrete damages framework and proposes a path forward toward resolution.
II. DAMAGES ANALYSIS
A. Data Reviewed
Dr. Marchetti's team at Lakeshore Forensic Accounting Group, LLC (200 South Wacker Drive, Suite 3100, Chicago, IL 60606) has conducted an extensive review of the financial and transactional data relevant to quantifying Plaintiffs' damages. The following categories of materials have been reviewed and analyzed as of the date of this memorandum:
1. Crescendo's initial discovery production — Bates Nos. CDM-000001 through CDM-004218, consisting of:
• Streaming logs from the Crescendo Stream platform, which detail on a track-by-track basis the number of streams attributable to each of Fonseca's compositions and sound recordings during the infringement period;
• Content management system ("CMS") records, which reveal how Crescendo categorized and tracked the licensing status of Fonseca's works — notably, the CMS tagged all of Fonseca's works as "cleared — blanket license," referencing the expired Peregrine Music Group, LLC license, discussed in greater detail below;
• Sublicense agreements with fourteen (14) commercial clients, including fitness chains, hospitality brands, and retail environments, under which Crescendo sublicensed curated playlists containing Fonseca's works for use in those clients' commercial premises and digital platforms; and
• Revenue reports for fiscal years 2019 through 2022, which document the revenue Crescendo derived from its streaming platform and sublicensing operations during the infringement period.
2. Historical royalty statements from Thornfield Music Administration, Inc. (catalog administrator; principal: Raymond O. Sato, President; 6363 Wilshire Boulevard, Suite 410, Los Angeles, CA 90048), which administers Fonseca's publishing catalog on behalf of Flor de Luna Publishing, LLC. These statements provide a baseline for the royalty income Fonseca should have received during the infringement period and permitted Dr. Marchetti to identify the gap between expected and actual royalty payments attributable to Crescendo's use of the works.
3. Publicly available market rate data for comparable digital licensing transactions in the streaming and business-to-business sublicensing space. Dr. Marchetti consulted industry rate databases, published licensing surveys, and publicly available terms from comparable platforms to establish the fair market value of the rights Crescendo exploited without authorization.
4. The expired Peregrine Music Group, LLC blanket license agreement, which was effective January 1, 2016, and expired by its express terms on December 31, 2018. Peregrine Music Group, LLC ("Peregrine") itself ceased operations in November 2018, approximately one month before the license's contractual expiration date. This agreement is the sole license upon which Crescendo bases its "good faith reliance" defense, and its terms are unambiguous with respect to the expiration date.
5. U.S. Copyright Office registration certificates for all forty-seven (47) compositions at issue (Registration Nos. PA 1-742-891 through PA 2-318-406) and all thirty-two (32) sound recordings at issue (Registration Nos. SR 0-891-220 through SR 1-104-773). Dr. Marchetti reviewed these certificates to confirm the scope of registered works and to verify the timeliness of registration for purposes of statutory damages and attorney's fees eligibility under 17 U.S.C. §§ 504(c) and 505.
B. Back-Royalties. The core of Plaintiffs' actual damages claim consists of the back-royalties that Crescendo should have paid for its use of Fonseca's copyrighted works during the infringement period. The relevant parameters are as follows:
• Infringement period: January 1, 2019, through December 31, 2022, comprising approximately forty-eight (48) months. This period begins the day after the Peregrine blanket license expired and continues through the end of the last full fiscal year for which data has been produced.
• Total streams of Fonseca's works during the infringement period: 18,426,331 streams, as reflected in Crescendo's own platform data produced in discovery. This figure encompasses all plays of the forty-seven compositions and thirty-two sound recordings across Crescendo's streaming platform, including streams generated by direct subscribers and streams delivered through Crescendo's sublicensed commercial channels.
• Number of sublicensed commercial clients: Fourteen (14) commercial entities to which Crescendo sublicensed curated playlists containing Fonseca's works, including fitness chains, hospitality brands, and retail environments.
• Total sublicense revenue attributable to the Fonseca catalog: $2,740,000 over the four-year infringement period. This figure was derived from Crescendo's revenue reports and the sublicense agreements produced in discovery, with Dr. Marchetti applying a pro-rata attribution methodology to isolate the revenue reasonably attributable to the inclusion of Fonseca's works in the sublicensed playlists.
Based on these inputs, Dr. Marchetti has prepared the following preliminary quantification of Plaintiffs' back-royalty damages:
Several important notes regarding the allocation and characterization of these damages are warranted:
First, the mechanical royalties figure of $412,600 is payable to Flor de Luna Publishing, LLC, which controls the composition copyrights for all forty-seven works at issue. These royalties compensate for the unauthorized reproduction and distribution of the underlying musical compositions through Crescendo's streaming platform and sublicensing operations.
Second, the master use royalties figure of $548,200 is payable to Mariposa Sound Recordings, LLC, which controls the master recording copyrights for the thirty-two sound recordings at issue. These royalties compensate for the unauthorized reproduction, distribution, and public performance of the master recordings. The master use royalty rate of $0.02975 per stream reflects the prevailing market rate for comparable master use licenses in the digital streaming space, as determined by Dr. Marchetti's analysis of publicly available licensing data and industry benchmarks.
Third, the performance royalties of $126,400 represent the estimated unremitted share of performance royalties that should have flowed through Thornfield Music Administration's administration arrangement but did not, because Crescendo never reported or paid on these uses. Under the normal course of business, a properly licensed platform would report its streams to the applicable performing rights organizations (BMI and ASCAP), which would in turn remit performance royalties to the publisher and songwriter. Because Crescendo treated the works as covered under an expired blanket license, it never made the required reports, and no performance royalties were paid. Dr. Marchetti derived this figure by analyzing the gap between Thornfield's expected performance royalty income from a platform of Crescendo's size and the actual royalties received during the infringement period.
To contextualize the magnitude of these unpaid royalties: Fonseca's average annual royalty income from her full catalog — which comprises 214 compositions and 188 master recordings — over the period from 2018 through 2022 was approximately $1,820,000. The $1,087,200 in unpaid royalties attributable solely to the forty-seven compositions and thirty-two sound recordings exploited by Crescendo represents a significant portion of her expected income from that subset of works. This underscores the commercial significance of Crescendo's unauthorized use and the resulting harm to Plaintiffs.
C. Statutory Damages
All forty-seven (47) compositions at issue carry timely U.S. Copyright Office registrations, having been registered either within three months of first publication or prior to the commencement of infringement. This qualification is critical because it entitles Plaintiffs to elect statutory damages under 17 U.S.C. § 504(c) in lieu of actual damages and profits, and further entitles Plaintiffs to seek an award of attorney's fees under 17 U.S.C. § 505. Registration dates for the works at issue range from 1998 to 2021, and each registration has been confirmed as timely based on the publication dates reflected in the registration certificates.
The statutory damages range available to Plaintiffs is as follows:
• Non-willful infringement range: 47 works × $750 to $30,000 per work = $35,250 to $1,410,000
• Willful infringement range: 47 works × up to $150,000 per work = up to $7,050,000
A threshold issue in quantifying statutory damages is the counting question — specifically, how many separate "works" should be counted for purposes of computing the statutory award. In this analysis, we have counted only the forty-seven (47) compositions as separate "works" for statutory damages purposes. The thirty-two (32) sound recordings at issue are derivative of the underlying compositions, and courts in the Ninth Circuit have sometimes treated a composition and its corresponding sound recording as a single "work" for statutory damages purposes, on the theory that they share a common creative core. See, e.g., Xoom, Inc. v. Imageline, Inc., 323 F.3d 279, 285 (4th Cir. 2003) (discussing the "single work" doctrine in the context of compilations); cf. Bryant v. Media Right Prods., Inc., 603 F.3d 135, 141-42 (2d Cir. 2010).
However, if the Court were to count compositions and sound recordings separately — which is the better-reasoned approach and one that has support in several circuits — the number of works for statutory damages purposes could be as high as seventy-nine (79) (47 compositions + 32 sound recordings). Under that counting methodology, the maximum willful statutory damages exposure would increase to $11,850,000 (79 × $150,000 per work).
For settlement valuation purposes, we recommend using the conservative forty-seven-work count to ensure that our assessment is grounded in the most defensible figure. At the same time, we should preserve the argument for the higher count as litigation leverage, both in discovery and at the mediation table. The mere possibility that Crescendo faces exposure of nearly $12 million in statutory damages should concentrate the attention of Crescendo's litigation counsel and its board.
D. Attorney's Fees
Under 17 U.S.C. § 505, a court may award attorney's fees to the prevailing party in a copyright infringement action. While the award is discretionary, it is routinely granted to prevailing plaintiffs whose works were timely registered prior to infringement, and such awards are strongly favored in the Ninth Circuit. See Kirtsaeng v. Crowne Albany Industries, Inc., 579 U.S. 197 (2016) (holding that fee awards should generally be given to prevailing parties to encourage meritorious claims and deter infringement); Fantasy, Inc. v. Fogerty, 94 F.3d 553, 558-59 (9th Cir. 1996). Given the timely registration of all forty-seven compositions, Plaintiffs are well-positioned to recover their reasonable attorney's fees in the event of a judgment.
Based on current time records maintained by the Firm, the total lodestar through trial is projected at approximately $285,000. This projection accounts for anticipated work through the close of fact discovery, expert discovery, dispositive motions, pretrial preparation, and trial. The projection also incorporates the ten percent (10%) contingency uplift on any recovery, pursuant to the hybrid fee arrangement in place with the client. Under that arrangement, the Firm's billing rates are as follows: Partner rate of $725 per hour (reduced from the standard rate of $950 per hour); Associate rate of $475 per hour (reduced from the standard rate of $625 per hour); plus a contingency component of ten percent (10%) of gross recovery. The reduced hourly rates reflect the client's agreement to the contingency component, which aligns the Firm's incentives with the client's interest in maximizing recovery.
As of June 22, 2023, the current lodestar stands at approximately $155,000, reflecting work performed from the date of engagement through the present.
It is important to note that any fee recovery under § 505 would constitute a fee-shifting award against Crescendo, separate and distinct from the client's contractual fee obligation to the Firm under the engagement letter. In other words, a § 505 fee award would not reduce the client's obligation to pay the Firm; rather, it would serve as an additional component of the judgment against Crescendo, effectively reimbursing the client for a portion of its litigation costs.
E. Settlement Valuation
Drawing together the foregoing damages components, Dr. Marchetti and I recommend the following settlement framework for discussion:
For context, the pre-litigation demand set forth in the March 6, 2023 cease-and-desist letter was $2,312,200, which represented the upper bound of this range and was calculated as follows: $1,087,200 in back-royalties, plus $940,000 as a statutory enhancement reflecting willfulness, plus $285,000 in projected attorney's fees. That demand was calibrated to the top of the range in order to establish a strong anchoring position for subsequent negotiations.
Based on a realistic assessment of litigation risk, the time value of money, and the cost of continued litigation, I recommend a target settlement in the range of $1,500,000 to $1,700,000 in cash consideration, plus a prospective licensing arrangement to monetize Crescendo's continued use of the Fonseca catalog going forward. The rationale for each component is as follows:
Cash consideration. The $1,087,200 back-royalty floor provides the baseline for the cash component. This figure represents the minimum amount to which Plaintiffs are entitled based on the actual, quantifiable harm inflicted by Crescendo's unauthorized use. The statutory enhancement reflects the strength of the willfulness case, appropriately discounted for litigation risk and the time value of achieving a prompt settlement. A willfulness finding is likely — as discussed in Section III.B below, Crescendo's "good faith" defense is weak — but not certain, and the discount accounts for that residual uncertainty. The attorney's fees component should be at least partially recovered; given the strength of a § 505 fee-shifting motion, defense counsel will understand that these fees are a real and recoverable cost that Crescendo faces.
Prospective licensing arrangement. In addition to cash consideration, we recommend negotiating a prospective license for Crescendo's continued use of the Fonseca catalog. This recommendation is grounded in both commercial logic and strategic positioning:
• Crescendo has approximately 2.3 million subscribers and reported $189 million in revenue for fiscal year 2022. It is a substantial enterprise with a demonstrated and ongoing need for high-quality music content.
• Crescendo's platform generated 18.4 million streams of Fonseca's works over four years, demonstrating significant user demand for her content. Removing the works abruptly would cause disruption to Crescendo's playlists, subscriber experience, and commercial client relationships.
• A properly structured prospective license creates an ongoing revenue stream for Fonseca and her affiliated entities (Flor de Luna and Mariposa), converting a one-time settlement into a long-term commercial relationship. This is consistent with Fonseca's stated preference for monetizing her catalog rather than simply punishing the infringer.
We suggest the following terms for the prospective license, to be negotiated as part of the settlement: non-exclusive license; three (3)-year term with renewal options; per-stream royalty at market rate (approximately $0.035 per stream); a minimum annual guarantee; quarterly reporting obligations; audit rights exercisable upon reasonable notice; and automatic termination upon payment default. These terms are consistent with prevailing market practices for digital streaming licenses and would provide Fonseca with both guaranteed income and upside participation in the event of increased streaming volumes.
Finally, with respect to Crescendo's ability to pay: Crescendo raised a $75 million Series C financing round in 2021, led by Ridgeline Ventures Partners, LP (General Partner: Warren Hu). Crescendo is privately held and has not disclosed its current cash position, but its $189 million in FY 2022 revenue and the substantial Series C raise indicate that the company has the financial capacity to fund a seven-figure settlement without material distress. This is an important consideration in setting our settlement target, as it reduces the risk that Crescendo would resist settlement on ability-to-pay grounds.
III. LITIGATION STRATEGY UPDATE
A. Early Neutral Evaluation
The Early Neutral Evaluation conference was held on May 15, 2023, before Magistrate Judge Patricia L. Alvarez. Both parties appeared through counsel, and each side presented a summary of its liability and damages positions. Judge Alvarez's comments during the ENE conference were notable and, on the whole, highly favorable to Plaintiffs' position.
In particular, Judge Alvarez expressed clear skepticism regarding Crescendo's "good faith reliance" defense. She observed that a sophisticated digital media company with a dedicated legal department and a content management system specifically designed to track licensing status should have systems in place to identify and act upon license expirations. She noted that the failure to do so — over a period of four years — suggested a systemic breakdown in Crescendo's rights management processes that was difficult to characterize as "good faith" or "innocent."
Judge Alvarez further observed that the Peregrine blanket license had a fixed, unambiguous expiration date of December 31, 2018, which was plainly stated in the agreement. Moreover, she noted that Peregrine itself ceased operations in November 2018, approximately one month before the license's contractual expiration date. The cessation of Peregrine's business operations should have been an additional and highly conspicuous red flag for Crescendo's licensing team, prompting an immediate review of all works licensed through Peregrine. The absence of any such review is telling.
Judge Alvarez encouraged the parties to explore mediation as a means of resolving the dispute efficiently and without the need for protracted litigation. She did not issue any formal findings or recommendations, consistent with the advisory nature of the ENE process, but her comments were unambiguous in their direction and should be taken as a strong signal regarding the likely judicial reception of Crescendo's defenses.
From a strategic perspective, Judge Alvarez's ENE comments are a significant asset to Plaintiffs' settlement leverage. They confirm that Plaintiffs' theory of the case — that Crescendo's continued use of Fonseca's works after the Peregrine license expired was, at best, grossly negligent and, at worst, willful — resonates with the judicial officer assigned to the case. We should reference these comments, appropriately and without attribution to the ENE proceedings, in our mediation brief and settlement discussions.
B. Crescendo's Affirmative Defenses
Crescendo's Answer, filed April 28, 2023, asserts twelve (12) affirmative defenses. I have analyzed each defense and provide the following assessments:
1. Good faith / innocent infringement (17 U.S.C. § 504(c)(2)). This is Crescendo's principal defense and the one most likely to receive substantive attention from the Court. Crescendo argues that it reasonably relied on the expired Peregrine blanket license in continuing to use Fonseca's works, and that its infringement was therefore innocent within the meaning of § 504(c)(2), which permits a reduction of statutory damages to a minimum of $200 per work for innocent infringers. This defense is weak for several reasons. First, the Peregrine license expired by its express terms on December 31, 2018; there is no ambiguity about the expiration date, no evergreen clause, and no automatic renewal provision. Second, Crescendo is a sophisticated digital media company with a General Counsel — Priya Chandrasekaran — who is specifically responsible for rights management and content clearance. Third, the discovery production reveals that Crescendo's content management system continued to tag all of Fonseca's works as "cleared — blanket license" throughout the four-year infringement period, referencing the expired Peregrine agreement. This tagging suggests a systemic failure to review and update licensing records rather than the exercise of reasonable diligence. Fourth, Judge Alvarez's skepticism at the ENE conference, discussed above, reinforces this assessment. The good faith defense is unlikely to survive summary judgment on the current record.
2. Implied license. Crescendo argues that an implied license arose from the prior course of dealing between Fonseca (through Peregrine) and Crescendo, authorizing Crescendo's continued use of the works after the Peregrine license expired. This defense is weak. Implied licenses require evidence of the copyright holder's affirmative intent to grant a license. See Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 558-59 (9th Cir. 1990). Here, Fonseca took no affirmative action whatsoever to authorize Crescendo's continued use after the Peregrine license expired. Fonseca never communicated directly with Crescendo regarding any license. Moreover, the Peregrine license was expressly non-transferable and non-assignable; the rights it conveyed terminated with the agreement itself.
3. Estoppel. Crescendo argues that Fonseca's delay in discovering and asserting her infringement claims estops her from now pursuing them. This defense is weak. Fonseca had no obligation to monitor Crescendo's platform for unauthorized uses of her works. She discovered the infringement through a routine audit conducted by Thornfield Music Administration, Inc. in late 2022 and acted promptly thereafter by retaining counsel and issuing a cease-and-desist letter. There is no evidence that Fonseca was aware of the infringement prior to the Thornfield audit or that she took any action inconsistent with her present claims.
4. Laches. This defense is substantially similar to the estoppel argument and is equally weak. Fonseca engaged Calderwood & Harkness LLP on February 20, 2023, shortly after discovering the infringement, and sent the cease-and-desist letter on March 6, 2023 — less than four months after the Thornfield audit identified the unauthorized uses. There was no unreasonable delay. Moreover, laches is generally not available as a defense to claims for legal relief (i.e., damages) brought within the applicable statute of limitations. See Petrella v. Metro-Goldwyn-Mayer, Inc., 572 U.S. 663 (2014).
5. Failure to mitigate damages. Crescendo argues that Fonseca should have discovered the infringement sooner and taken steps to stop it, thereby mitigating her damages. This defense is weak. There is no affirmative duty on the part of a copyright holder to police a licensee's or former licensee's compliance with the terms of an expired agreement. Fonseca maintained an ongoing administration arrangement with Thornfield Music Administration, which discovered the issue during its regular auditing processes. The fact that Thornfield's audit cycle did not detect the unauthorized uses earlier does not give rise to a failure-to-mitigate defense; it merely reflects the reality that forensic audits of digital streaming platforms are complex and time-consuming.
6. Statute of limitations (17 U.S.C. § 507(b)). Crescendo argues that claims for infringement occurring prior to February 20, 2020 — three years before the matter was opened at the Firm — are time-barred under the three-year statute of limitations applicable to copyright claims. This defense warrants substantive attention but is ultimately weak on the facts and the law. Under the "Discovery rule" adopted by the Ninth Circuit in Roley v. New World Pictures, Ltd., 19 F.3d 479 (9th Cir. 1994), the three-year limitations period runs not from the date of infringement but from the date the plaintiff knew or should have known of the infringement. Fonseca became aware of Crescendo's unauthorized use in late 2022, during the Thornfield audit. Accordingly, all claims for the entire 2019–2022 infringement period should be timely under the discovery rule. Even if the Court were to reject the discovery rule and apply a "rolling" limitations theory — under which each act of infringement triggers a new three-year period — damages for the most recent three years (2020–2022) would still be recoverable. Those three years capture the vast majority of the 18.4 million total streams and the corresponding revenue, given the growth trajectory of Crescendo's platform during that period.
7–12. Remaining defenses. Crescendo's Answer also asserts the following additional affirmative defenses: First Amendment (Defense No. 7); unclean hands (Defense No. 8); copyright misuse (Defense No. 9); failure to state a claim upon which relief can be granted (Defense No. 10); lack of standing (Defense No. 11); and reservation of rights to assert additional defenses (Defense No. 12). None of these defenses merit substantive concern. They appear to be boilerplate pleading with no factual basis articulated in the Answer. The First Amendment does not protect the unauthorized commercial exploitation of copyrighted music. There is no evidence of unclean hands or copyright misuse by Fonseca. The standing question was addressed in the Complaint, which properly alleges ownership by Flor de Luna (compositions) and Mariposa (recordings), both of which are Fonseca-controlled entities with valid assignments. The failure-to-state-a-claim defense is functionally a Rule 12(b)(6) argument that was not raised by motion and is therefore waived for practical purposes at this stage.
Overall assessment: Only the good faith / innocent infringement defense and the statute of limitations defense warrant substantive attention, and both are weak on the facts and the law. This assessment is consistent with the analysis set forth in Christy Bauer's March 20, 2023 memorandum, which reached the same conclusion based on the pre-discovery record. The discovery production and the ENE conference have only reinforced the strength of Plaintiffs' position.
C. Discovery Status
Crescendo's initial discovery production, encompassing Bates Nos. CDM-000001 through CDM-004218, has been received and reviewed by our litigation team and by Dr. Marchetti's forensic accounting team at Lakeshore. The production includes the streaming logs, sublicense agreements with fourteen commercial clients, revenue reports for fiscal years 2019 through 2022, and content management system records described in Section II.A above.
The most significant finding from the production is the CMS data confirming that Crescendo tagged all forty-seven (47) compositions and all thirty-two (32) sound recordings as "cleared — blanket license" throughout the entire four-year infringement period, referencing the expired Peregrine Music Group, LLC license agreement. Critically, there is no evidence in the production of any internal review or re-clearance effort at any point during the infringement period. No emails, memos, or internal communications suggest that anyone at Crescendo — including General Counsel Priya Chandrasekaran or any member of the licensing or content teams — conducted a review of the Peregrine license's status, inquired about Peregrine's cessation of operations, or took any steps to verify that Crescendo's continued use of the Fonseca catalog was authorized. This absence of evidence is itself powerful evidence, and it will be central to our willfulness argument.
Dr. Marchetti's forensic analysis of the production is ongoing. A full expert report prepared in compliance with Federal Rule of Civil Procedure 26(a)(2)(B) is in preparation and is expected to be finalized within sixty (60) days. The report will set forth Dr. Marchetti's methodology, data sources, calculations, and opinions regarding the quantification of Plaintiffs' damages.
It should also be noted that further discovery may reveal additional infringing uses or revenue streams not yet accounted for in the preliminary damages assessment. For example, Crescendo's sublicense agreements suggest the possibility of additional commercial uses — such as synchronization in promotional videos or incorporation into fitness class programming — that may have generated revenue not captured in the current production. We will pursue targeted discovery requests to explore these potential additional sources of damages.
D. Recommendation: Proceed to Mediation
Based on the strength of Plaintiffs' damages case, the weakness of Crescendo's defenses, and the favorable signals from the ENE conference, I recommend that we accept the informal suggestion of Crescendo's counsel — Denise K. Whitford of Hargrove, Pennington & Cao LLP — to schedule mediation before a neutral third party.
Timing rationale. Mediation at this stage of the litigation — after initial discovery has been produced and reviewed, and after Dr. Marchetti has completed her preliminary forensic analysis, but before expert depositions, summary judgment briefing, and trial preparation — is optimal for several reasons. First, we now have sufficient data to present a credible, well-supported damages case to Crescendo and to a mediator. The back-royalty figure of $1,087,200 is grounded in Crescendo's own data, which lends it significant credibility. Second, Crescendo's litigation costs will only increase as the case progresses into expert discovery and dispositive motions, creating a strong incentive for Crescendo to resolve the matter now. Third, early resolution minimizes additional fees and costs for the client, consistent with our obligation to pursue efficient case management. Fourth, Judge Alvarez's encouragement of mediation at the ENE conference provides cover for both sides to engage in settlement discussions without appearing to concede weakness.
Mediator recommendation. I suggest retaining Ashgrove Equity Partners Dispute Resolution Services, LLC (1901 Avenue of the Stars, Suite 1050, Los Angeles, CA 90067) to administer the mediation, and specifically requesting the Honorable Gerald T. Nakashima (Ret.) as mediator. Judge Nakashima served for twenty-two years on the Superior Court of California, Los Angeles County, and has extensive post-retirement experience mediating complex intellectual property disputes, with a particular focus on music industry copyright matters. His familiarity with the industry dynamics, licensing structures, and damages methodologies at issue in this case will enable a more productive and efficient mediation session than would be possible with a generalist mediator.
Target mediation date. I recommend scheduling the mediation within thirty (30) days — approximately mid-July 2023. This timeline allows sufficient time to prepare a comprehensive mediation brief while maintaining the litigation momentum that favors Plaintiffs.
Pre-mediation preparation. In advance of the mediation, we should prepare a confidential mediation brief setting forth the liability case, the damages analysis summarized in this memorandum, and Plaintiffs' settlement position. The brief should be designed to educate Judge Nakashima on the facts and law, while also serving as a persuasive document that can be shared with Crescendo's counsel in advance (or, alternatively, submitted to the mediator on a confidential, counsel-only basis). We should coordinate with Dr. Marchetti to finalize the back-royalty calculations and, if possible, to prepare summary exhibits or demonstratives that can be presented during the mediation session.
Settlement posture for mediation. I recommend entering mediation with an opening demand of $2,312,200, consistent with the pre-litigation demand set forth in the March 6, 2023 cease-and-desist letter. This figure anchors the negotiation at the upper end of our settlement range and establishes continuity with the pre-litigation position. However, the team should have authority to negotiate within the $1,500,000–$1,700,000 cash range, plus the prospective licensing arrangement described in Section II.E above. The prospective license should be presented not merely as an add-on to the cash settlement but as a core component of the resolution — one that serves the interests of both parties by creating ongoing value and avoiding the disruption of content removal.
Attorney's fees component. We should anticipate that defense counsel will push back hardest on the attorney's fees component of the demand, as defense-side counsel frequently resist fee-shifting claims in settlement negotiations. I recommend holding firm at a $195,000 minimum for the attorney's fees component, given the strength of a § 505 fee-shifting motion on the merits (timely registration, clear infringement, likely willfulness finding) and the current lodestar of $155,000, which will continue to grow through mediation. Demonstrating to Crescendo's counsel that Plaintiffs have a realistic path to fee recovery at trial will discourage attempts to eliminate this component from the settlement.
IV. CONCLUSION AND NEXT STEPS
In summary, Plaintiffs' damages case against Crescendo Digital Media, Inc. is strong and well-supported by the evidence produced to date. The quantified back-royalty floor of $1,087,200 — derived from Crescendo's own platform data and verified by Dr. Marchetti's forensic analysis — provides a solid baseline for settlement negotiations. The statutory damages exposure Crescendo faces is substantial, reaching up to $7,050,000 for willful infringement of forty-seven works under the conservative counting methodology (or up to $11,850,000 if compositions and recordings are counted separately). Crescendo's twelve affirmative defenses are, on the whole, weak, and the two defenses that warrant substantive attention — good faith reliance and statute of limitations — are undermined by both the factual record and Judge Alvarez's skeptical comments at the ENE conference.
The litigation posture strongly favors Plaintiffs at this juncture, and the present moment represents an optimal window for settlement. Accordingly, I recommend proceeding to mediation before the Honorable Gerald T. Nakashima (Ret.) at Ashgrove Equity Partners Dispute Resolution Services, LLC, within the next thirty days, with a target settlement in the $1,500,000 to $1,700,000 cash range plus a prospective non-exclusive license for Crescendo's continued use of the Fonseca catalog.
I respectfully request authorization from Alan Ngo to take the following next steps:
1. Contact Hargrove, Pennington & Cao LLP (Denise K. Whitford) to schedule mediation and confirm mutual agreement to the process;
2. Engage Ashgrove Equity Partners Dispute Resolution Services, LLC and request the Honorable Gerald T. Nakashima (Ret.) as mediator, with a target mediation date in mid-July 2023;
3. Begin preparation of the confidential mediation brief, incorporating the liability analysis from Christy Bauer's March 20, 2023 memorandum and the damages analysis set forth herein; and
4. Coordinate with Dr. Ellen Marchetti and Lakeshore Forensic Accounting Group, LLC to finalize the damages presentation, including summary exhibits and demonstratives suitable for use during the mediation session.
I am available to discuss this memorandum and the foregoing recommendations at any time. Please let me know how you would like to proceed.
Respectfully submitted,
Peter Vassiliev Associate, intellectual Property Calderwood & Harkness LLP
Category | Calculation | Amount
Mechanical royalties (streaming) | Statutory mechanical rate of $0.0091/stream × 18,426,331 streams | $167,680
Mechanical royalties (sublicensing) | Pro-rata share of $2,740,000 sublicense revenue at industry-standard 9% mechanical rate | $244,920
Subtotal — Mechanical royalties | $412,600
Master use royalties (streaming) | Comparable master license rate of $0.02975/stream × 18,426,331 streams | $548,183 (rounded to $548,200)
Performance royalties (estimated unremitted) | Based on BMI/ASCAP analogues and Thornfield gap analysis of unremitted performance royalties | $126,400
Total back-royalties | $412,600 + $548,200 + $126,400 | $1,087,200
Component | Amount
Back-royalties (floor) | $1,087,200
Statutory enhancement (willfulness premium, negotiated) | $337,800 to $940,000
Attorney's fees and costs | $195,000 to $285,000
Settlement range | $1,620,000 to $2,312,200

CALDERWOOD & HARKNESS LLP Attorneys at Law

MEMORANDUM

I. PURPOSE

II. DAMAGES ANALYSIS

III. LITIGATION STRATEGY UPDATE

IV. CONCLUSION AND NEXT STEPS

Record

Parties

Dates

Amounts