IP Law Daily, TRADE SECRETS NEWS—Martin Shkrel faces lawsuit for allegedly copying and sharing a one-of a kind album by hip-hop group Wu-Tang Clan, (Jun 17, 2024)

By Linda Panszczyk, J.D.

The lawsuit alleges trade secret claims, tortious interference with prospective economic advantage; and unjust enrichment and also seeks enforcement of the court‘s 2018 forfeiture order.

Martin Shkreli, an American investor and former pharmaceutical executive who was convicted in 2017 of securities fraud, is facing a lawsuit in a New York federal district court for allegedly copying and sharing recordings from a one-of-a-kind recording by the one of the world's most famous hip hop groups, Wu-Tang Clan (WuTang) called “Once Upon a Time in Shaolin." PleasrDAO, an international entity that collects and publicly displays culturally significant media and materials with the intent of creating ecosystem experiences that encourage participation and interaction throughout the U.S. and other countries, has brought this action against Shkreli for violations under the Defend Trade Secrets Act (DTSA), as well as misappropriation of confidential information/trade secrets; tortious interference with prospective economic advantage; and unjust enrichment. PleasrDAO also seeks enforcement of the court’s forfeiture order entered in United States v. Shkreli, No. 15-cr-00637 (E.D.N.Y. Mar. 26, 2018), in which the court ordered Shkreli to satisfy a $7.4 million forfeiture order, as part of his sentencing following his securities fraud conviction. Among the assets Shkreli forfeited pursuant to the order was his interest in the Wu-Tang album, which Shkreli purchased in 2015 for $2 million, in what the Guinness Book of World Records has called the most expensive musical work ever sold. Shkreli was released from federal prison in May 2022 (PleasrDAO v. Shkreli, No. 1:24-cv-04126-PKC-MMH (E.D.N.Y. filed June 10, 2024)).

Background. PleasrDAO bought the album in two transactions in 2021 and 2024, for approximately $4,000,000, and $750,000, respectively, for the physical asset and the exclusive digital rights. The album was supposed to constitute the sole existing copy of the record, music, data and files, and packaging. It now appears, according to the complaint, however, that Shkreli improperly retained copies of the data and files at the time of the forfeiture and has released and/or intends to release them to the public. Such actions would cause PleasrDAO to incur significant monetary and irreparable harm and give rise to numerous claims for relief under the forfeiture order and common law, the complaint alleges.

From 2007 to 2013, Wu-Tang recorded Once Upon a Time in Shaolin, a secret 31- track album featuring guest appearances from notable musicians, celebrity actors, and professional athletes. Consistent with their intent for the Album to be a historically unique musical compilation, Wu-Tang leader Robert “RZA” Diggs and producer Tarik “Cilvaringz” Azzougarh (the “producers”) sold the album adorned in an ornate, boxed set, which included, among other things, the only existing hard copy of the record album burned onto a single, two-disc set. According to the album's creators, it was intended as a protest to what they saw as the devaluation of music in the digital era. Unlike conventional commercial album releases, Wu-Tang produced only one copy of the Album.

When Shkreli bought the album from the producers, the producers and Shkreli executed a Purchase Agreement, dated September 3, 2015, to effectuate the sale (the Original Purchase Agreement). Among other things, the Original Purchase Agreement imposed several restrictive covenants on Shkreli, including prohibiting Shkreli, for 88 years following the sale, from duplicating, replicating, or exploiting the album for any reason other than for “exhibition or playing" in “spaces not customarily used as venues for large musical concerts,” or advertising or promoting the same. To the extent that Shkreli did exhibit or play the album and earned net profits, the producers were entitled to a portion of the profits.

2018 forfeiture order. As part of Shkreli’s sentencing following his conviction, in 2018, the court ordered him to satisfy a $7.4 million forfeiture order, requiring him to forfeit his interests in, and all proceeds traceable to, certain Substitute Assets, including the album Once Upon A Time in Shaolin’ by the Wu Tang Clan, up to the amount of the Forfeiture Money Judgment.

The forfeiture order imposed several conditions on Shkreli, including that he (1) be enjoined from taking any action that would have the effect of diminishing, damaging and/or dissipating the Substitute Assets, or any funds and/or assets that may be used to satisfy the Forfeiture Money Judgment; (2) be “restrained, enjoined and prohibited from taking any action that would affect the availability, marketability or value of the Substitute Assets; and (3) “take all reasonable steps, and bear all costs necessary, to ensure that all the Substitute Assets are preserved and maintained in good and marketable condition, and are not damaged, diluted or diminished in value as a result of any actions taken or not taken by the defendant and his representatives.

Requested relief. PleasrDAO asks that the court enter judgment against Shkreli on the complaint as follows: (1) Injunctive relief against Shkreli, including a temporary restraining order, preliminary injunction, and permanent injunction prohibiting Shkreli from possessing, using, disseminating, or selling any interests in the Album, or in any way causing further damage to PleasrDAO respecting the Album; (2) An order compelling Shkreli to provide an inventory and accounting of (i) the copies of the Album data and files he retained, (ii) the individuals to whom he distributed those data and files, and (iii) the profits traceable to his retention and distribution of those files, and/or an order compelling Shkreli to submit to an examination regarding the same, and/or, an order authorizing PleasrDAO to examine Shkreli for the purpose obtaining information regarding the location of his retained and distributed copies of the Album and its data and files; (3) An order seizing all of Shkreli’s remaining copies of the Album’s data and files; (4) An award of monetary damages in an amount to be determined at trial; (5) Restitution or disgorgement of profits earned as a result of any unjust enrichment; (6) An award of exemplary damages; (7) An award of attorney fees, and costs and expenses; and (8) Any other relief that the court deems just and proper. PleasrDAO also sought a jury trial on the complaint.

The Case is No. 1:24-cv-04126-PKC-MMH.

Judge: Matkov, M.

Attorneys: Robert Carnes (Reed Smith LLP) for PleasrDAO. Edward Andrew Paltzik (Bochner PLLC) for Martin Shkreli.

Companies: PleasrDAO

News: TradeSecrets NewYorkNews