Here is the Case:

In 1952, singer Peggy Lee entered an agreement with Disney to work on the animated film Lady and the Tramp. Peggy Lee wrote six songs, sang three, and was the voice for four characters in the 1955 film. Lee was paid $3,500 for her participation. Disney retained all rights to revenues earned from distributing the movie to theatres and television broadcasting companies in domestic and foreign markets. Lee retained the right to residual payments at 12.5% for such items as phonographic recordings sold to the public.

Specifically, the contract gave Disney the right to distribute the film including the rights to "any other technology yet to be invented," but 12(b) of the agreement provided that

Anything herein to the contrary notwithstanding, it is agreed that nothing in this agreement contained shall be construed as granting to us (Disney) the right to make phonograph recordings and/or transcriptions for sale to the public, wherein results or proceeds of your services hereunder are used.

In 1987 Disney began distributing videocassettes of the film. Lee sued in March 1988, claiming she was entitled to $9 million. Specifically she claimed that she was entitled to 12.5% of the profits Disney generated from the sales of videocassettes of Lady and the Tramp on the basis that the distribution of the videocassettes was not authorized by the 1952 contract. Disney countered that the distribution of the videocassettes was authorized in the contract and that Lee was therefore entitled only to residual payments for her songs and voice performances, which would be capped (under union rules) at $381,000.

Disney introduced evidence that it was their "custom, practice and usage" not to allow profit participation deals for voice performers in animated movies, a policy which "evolved," according to the testimony of Roy Disney, "from the notion of absolute ownership, no strings attached...It stems from bad experiences Dad and Walt had in the '20s." Further, there was testimony from Jodi Benson, the voice of Ariel in The Little Mermaid (released in 1989), and Cheech Marin, a voice in Oliver & Co. (released in 1988), who each testified that Disney did not give voice actors profit participation deals.

Exhibit 1 Lady & the Tramp Project Income Statement

* For the year ended 12/31/87

Sales $ 72,236,000

Cost of Goods Sold 31,963,480

Marketing Expenses 3,487,316

General & Administrative 9,545,460

Profit before Tax $ 27,239,744

Assume thatLeeprevailsinthe lawsuit;calculatethe amountof Lee's damagesbasedon 12.5%of profits. Support your calculation with an explanation of your logic. What are the damages. Please expain clearly how you came up with this.

What i have so far is 27,239,744 * 0.125 = $ 3,404,968

I'm not sure if this is right.