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>>“The sole right … shall return to the Authors”: Part II: Implementing Authors’ Recapture Rights Under the 1976 Copyright Act

“The sole right … shall return to the Authors”: Part II: Implementing Authors’ Recapture Rights Under the 1976 Copyright Act

Prof. Jane C. Ginsburg, Columbia University School of Law*
February 26, 2010

In our previous column (Dec. 8, 2009) we addressed the history and policy of authors’ reversion rights in U.S. copyright law, as well as the general outlines of the 1976 Act provisions on terminations of grants of copyright.  In this column, we will review the caselaw construing those provisions.

Grants of rights made under the aegis of the 1976 Act will have been concluded starting in 1978 and will be terminable beginning in 2013 (with the earliest notice period having begun in 2003).  As a result, courts have yet to interpret those provisions.  But extended renewal termination controversies under Section 304(c) began to arise with the effective date of the 1976 Act, and are likely to continue for as long as the right to reclaim the Section 304(c) or (d) extended renewal term remains enforceable, that is, until 2055.1

The cases calling for interpretation of Section 304(c) have fallen into three general categories: adequacy of notice given to grantees; scope of the derivative-works right exception to termination; and evasion of the inalienability principle embodied in the “notwithstanding any agreement to the contrary” proviso.  An article recently posted to ssrn, co-authored by another of The Media Institute’s IP Issues columnists, Peter S. Menell, extensively analyzes the last category of cases,2 so I will address them only cursorily here.

a.  Adequacy of notice to grantees:

The notice provisions of Section 304(c) are not author-friendly.  As the court in Siegel v. Warner Bros., concerning the recapture of rights in “Superman,” lamented, Section 304(c)’s “intricate provisions oftentimes create unexpected pitfalls that thwart or blunt the effort of the terminating party to reclaim the full measure of the copyright in a work of authorship.”3  The caselaw confirms this sobering assessment.  In Burroughs v. MGM,4 Edgar Rice Burroughs’s heirs sought to recapture film rights in the “Tarzan” books.  While the derivative-works exception insulated the grantees of rights in previously created motion pictures, the Burroughs heirs aimed to exercise control over future films incorporating the “Tarzan” characters.

The Second Circuit held that the termination notice’s “apparently inadvertent”5 failure to include five of 14 “Tarzan” titles rendered the termination ineffective even though the five omitted titles did not include the first appearances of the various Tarzan characters.  In theory, any rights conveyed in the five remaining titles should have been limited to the new matter contributed by those titles, the basic character attributes and adventures having been set out in the earlier works covered by the notice of termination.6 As a result, the terminated grantee seeking to make a new film should not have been entitled to rely on its remaining rights in the later works because any new film would inevitably incorporate character traits and plot elements contained in the earlier works in which the grantee no longer had rights.

The Second Circuit, however, citing no authority, proclaimed “when an author grants rights to a work that contains material protected by the author’s copyright in an earlier work, the grant implicitly authorizes the use of all material contained in the licensed work, including material that may be covered by the author’s prior copyrights.”7  The decision is especially devastating for authors of works in which the same characters appear in multiple sequels.  The court’s reasoning has the effect of nullifying the limitation on the derivative-works exception to already-created derivative works.  Section 304(c)(6)(A) specifies that the “privilege [to continue to exploit previously prepared derivative works] does not extend to the preparation after the termination of other derivative works based upon the copyrighted work covered by the terminated grant.”  But if derivative-works rights granted in later works in the series may continue to be exploited based on an “implicit” grant of rights in earlier works, then the character rights will not be retrieved until 56 years following the publication of the last pre-1978 sequel, or 35 years following a post-1978 grant of rights in the last sequel.

In Siegel v. Warner Bros., the termination notice served by the heirs of Jerome Siegel, one of the two creators of “Superman,” specified an effective date that failed, by a few days, to encompass the first published appearance of the Superman character in promotional announcements for the forthcoming first comic book featuring the character.  Though the timing of the notice did encompass the comic book, Warner Bros. claimed that the subsistence of its rights in the earlier advertisements preserved its rights in the essential visual and story elements of the character.

The court agreed that as much of the character as was presented in the announcements remained unaffected by the termination.  But, the court continued, the announcements included none of the storyline or character traits, and even the visual depiction was incomplete:

The Court thus concludes that defendants may continue to exploit the image of a person with extraordinary strength who wears a black and white leotard and cape. What remains of the Siegel and Shuster’s Superman copyright that is still subject to termination (and, of course, what defendants truly seek) is the entire storyline from Action Comics, Vol. 1, Superman’s distinctive blue leotard (complete with its inverted triangular crest across the chest with a red ‘‘S’’ on a yellow background), a red cape and boots, and his superhuman ability to leap tall buildings, repel bullets, and run faster than a locomotive, none of which is apparent from the announcement.8

The Siegel court correctly construed the relationship between the copyright in a work containing a character’s first appearance and the copyright in each subsequent work containing additional iterations of the character.  “Superman” may be unusual in that the first published works (the promotional announcements) did not convey all the essential elements of the character’s appearance and story.  The heirs’ recapture, while incomplete, was nonetheless sufficiently substantial to oblige Warner Bros. to account to the heirs for profits generated by at least some of the exploitations of the Superman copyright.

b.  Scope of the derivative-works exception to termination:

The 1976 Act termination right returns fewer rights to the author than did the renewal term reversion because “a derivative work prepared under authority of the grant before its termination may continue to be utilized under the terms of the grant after its termination,” while the “new estate” of the renewal term freed the author (if she had not previously assigned her renewal term rights) or her statutory heirs from all prior grants.9  Without the continued use exception, derivative works grantees, principally motion picture producers, would have opposed, and likely defeated, an inalienable termination right.  While the exception secured the investment made in the creation of derivative works, the Supreme Court interpreted the statute to benefit not only derivative works producers but also (and at the cost of authors) the intermediaries, generally publishers, who license them.

In Mills Music v. Snyder,10 the heirs of the composer of the aptly named song “Who’s Sorry Now?” served a notice of termination on the music publisher.  The music publisher had, pursuant to the now-terminated grant, licensed several record producers to make sound recordings of the song.  Under the exception, it was clear that the record producers could continue to sell the recordings they had already made.  At issue were the royalty payments: Would the record producers now pay 100 percent of the royalties to the composer’s heirs, or would they continue to pay 50 percent to the publisher, even though the publisher no longer held any rights in the song?

A 5-to-4 Supreme Court majority construed “the terms of the grant” to cover both the composer’s grant of rights to the music publisher, and the publisher’s grants of derivative-works rights to the record producers.  As a result, the publisher would continue to receive its prior share of the royalties.  While the derivative-works licenses in Mills Music split the royalties evenly, so that the author continued to be remunerated, the Court’s reasoning would seem to apply even when the licensing intermediary keeps most or all of the royalties.11  The decision has been widely criticized as inconsistent with legislative intent;12 subsequent decisions of lower courts appear to endeavor to limit the potential damage.

In Woods v. Bourne,13 the Second Circuit considered the post-termination distribution of royalties in arrangements of the song “When the Red Red Robin Comes Bob Bob Bobbin’ Along” as sold in sheet music and as publicly performed in sound recordings.  The court rejected the terminated publisher’s reliance on Mills Music for two reasons.  First, with respect to royalties earned from the radio broadcasts and other public performances of the recorded songs, the court held that the exception “protects only authorized uses made by derivative work copyright owners, or their licensees.”14  Because, at the time of the decision, there was no public performance right in a sound recording, the public performances whose royalties were at issue could not be authorized uses with respect to the sound recordings; rather, they implicated only rights in the underlying musical composition.

But what was the underlying musical composition?  The composer’s heirs contended it was the piano-vocal version, from which subsequent arrangements were adapted.  The publisher argued that the initial iteration of the song in the “lead sheet” constituted the “work” that was the subject of the “grant.”  The lead sheet was “a very simple, hand-written rendering of the lyrics and melody of the composition without harmonies or other embellishments.  [The publisher argued that it] modified the lead sheet by adding harmonies and other elements to create a commercially exploitable piano-vocal arrangement that qualifies as a derivative work.”15

In that event, if all the commercially exploited versions of the song were derivative works, then none would be terminable, and under Mills Music, the publisher would keep its share of the royalties from the continued sale of the sheet music.  Thus, as its second basis for distinguishing Mills Music, the court affirmed the district court’s ruling that the “work” was the piano-vocal version, and, moreover, that most of the arrangements derived from the piano-vocal version lacked sufficient originality to constitute derivative works.

If the works for which the royalties were owed were not derivative works, then the derivative-works exception would be irrelevant.  Applying the Second Circuit’s “distinguishable variation” standard of requisite creativity for derivative works,16 the court distinguished originality from the mere skill or “special training” that characterized the “cocktail pianist variations of the piece that are standard fare in the music trade by any competent musician.”17

In its endeavor to prevent the derivative-works exception from swallowing the songwriter’s termination right, the court may have applied an unduly high standard of creativity, a suspicion supported by the court’s favorable citation to Gracen v. Bradford Exchange.18  Gracen’s suggestion that a higher standard of originality is required for derivative works than for underlying works has since been discredited in its own circuit.19  On the other hand, the Woods court’s reference to “standard fare in the music trade” may be consistent with prior Second Circuit decisions that reject the originality of variations that are necessary to implement the adaptation of a work from one medium to another.  For example, in Batlin v. Snyder, the Court disregarded the changes the copyright claimant introduced in producing a plastic version of a public-domain cast iron “Uncle Sam” bank on the ground that the variations were trivial or necessitated by the medium transformation.

In Woods, the Second Circuit may have felt confident in affirming the trial court’s assessment that most of the arrangements were trivial because the trial judge was not only a respected jurist but also an opera composer20 (although the court of course did not allude to this additional competence).  The disqualification of the alleged derivative works means not only that the terminated intermediary publisher will not receive royalties for the continued exploitation of the arrangements, but that the terminating author (or his subsequent grantee) will determine whether and when the arrangements may henceforth be exploited. 21

In Fred Ahlert Music Corp. v. Warner-Chappell Music,22 the Second Circuit adapted Mills Music’s interpretation of “under the terms of the grant” in the author’s favor.  Addressing whether the licensor of pre-termination derivative works could authorize different exploitations of the derivative work post termination, the court ruled that the grantor of a mechanical license to make a sound recording of the song “Bye-Bye Blackbird” was not later entitled to license that derivative work for the soundtrack and soundtrack album of the film “Sleepless in Seattle” once the songwriter had reclaimed his rights for the extended renewal term.

The Second Circuit emphasized that, in Mills Music, the Supreme Court interpreted “the grant” as “the entire set of documents that created and defined each licensee’s right to prepare and distribute [the] derivative work[]”.23  Thus, the court determined that “the grant” at issue combined the songwriter’s original grant to the music publisher with the publisher’s subsequent grant to the record producer:

Although the original grant would presumably authorize this new use [in connection with the motion picture], plainly Warner’s license to A&M does not….  This grant does not authorize any additional releases of the … derivative [recording], much less its inclusion on a movie soundtrack.  Just as Warner continues [by virtue of Mills Music] to benefit from the terms of the second grant, pursuant to which it receives royalties from sales of the [derivative recording] …, it is bound by those terms of the second grant which limit its exploitation of the Song to sales of that phonorecord.24

Because the music publisher had not, pre-termination, authorized additional uses of the licensed derivative work, it was now too late to engage in new exploitations, and the rights to license and receive royalties from those exploitations reverted to the author (or his statutory heirs).  Whether Fred Ahlert effectively cabins Mills Music may turn on whether, during the minimum two-year period between service of the notice of termination and the effective date of the termination,25 the grantee may engage in a flurry of licensing to cover the exploitations the grantee did not previously authorize.  If “the effect of Mills Music … is to preserve during the post-termination period the panoply of contractual obligations that governed pre-termination uses of derivative works by derivative work owners or their licensees,”26 then perhaps intermediary grantees may elude the effect of Fred Ahlert by expanding the “panoply” before the effective date of the termination.27

A related issue concerns the interpretation of the phrase “a derivative work prepared under authority of the grant before its termination….” (emphasis supplied): must the derivative work have been fully created before termination, or will the derivative work escape termination so long as its creation has been undertaken before the effective date of termination?  If “prepared” encompassed derivative works begun but not yet completed, then one might anticipate that grantees would rush to initiate the creation of the maximum number of derivative works during the minimum two-year period between the notification and the effective date of termination.  While the notice period may well have been intended to allow grantees of non-derivative works rights to wind down their exploitation in anticipation of termination, the termination right would be considerably compromised if the notice period also enabled grantees to wind up to engage in further development of derivative works.  No decisions yet appear to confront this issue.28

c.  Inalienability: “any agreement to the contrary”:

The termination right remains available to the author or her heirs “notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant.”29  The Second Circuit has held that a subsequent agreement to recharacterize as a “work for hire” an author’s creation of “Captain America” for a series of comic books was an impermissible “agreement to the contrary” because grants of rights in works made for hire are not terminable.  The determination long after the work’s creation that it was “for hire” thus constituted an impermissible agreement that the creator would have no termination rights.30

But it appears that not every agreement whose effect is to deprive the author or the statutory heir of the opportunity to terminate a grant is an “agreement to the contrary” within the meaning of Section 304(c)(5).  The Second and Ninth circuits have issued conflicting decisions when the parties to an initial pre-1978 grant (or their successors) agreed post-1978 to rescind the grant and enter into a new agreement.31 Because the initial agreement would have been terminable under Section 304(c), but the new agreement would not (nor would it be under Section 203), the question arose whether the new agreement was “contrary” to Section 304(c).

Because Peter S. Menell and David Nimmer have recently and thoroughly critiqued the rescind-and-rollover decisions, I will offer only a few observations.  The Ninth Circuit appears to distinguish a successful revocation and novation from one that violates the “any agreement to the contrary” proscription based on its evaluation of the extent to which the author benefits from the new arrangement and is aware that the conclusion of a new agreement will deprive her of a future termination opportunity.  The Ninth Circuit thus may understand “agreement to the contrary” not to mean contrary to the exercise of the termination right, but contrary to the policy underlying the termination right.

Similarly, the Second Circuit explained that under its interpretation of an “agreement to the contrary,” “authors or their statutory heirs holding termination rights are still left with an opportunity to threaten (or to make good on a threat) to exercise termination rights and extract more favorable terms from early grants of an author’s copyright,” but that the statute does not suggest that they “are entitled to more than one opportunity, between them, to use termination rights to enhance their bargaining power or to exercise them.”32

But the statute says: “termination of the grant may be effected notwithstanding any agreement to the contrary….” (emphasis supplied); it does not add “unless the agreement confers the kind of benefits as the author or her heirs would have received had they effected the termination.”  The rescission-and-rollover technique, if valid, not only postpones exercise of the termination right by another 35 years, but may prevent effecting the termination altogether.  This is because, as to post-1977 grants, only those made by the author are terminable; heirs who regrant rights in lieu of termination thereby lose their statutory termination rights.

Moreover, how are courts to judge whether the surrender of the termination right yielded sufficiently more favorable terms to remain consonant with congressional policy?  Arguably the present value of a modest increase in royalties might be worth as much, if not more, to the author or her heirs than the future value of retrieving all her rights (except as to already-created derivative works).  But in that event we may sense a depressing déjà vu: a return to the world of Fred Fisher v. Witmark, in which Justice Frankfurter contended that authors needn’t be protected against themselves, and that they could rationally choose to assign the renewal term for a small consideration before its vesting, rather than gamble on a greater return at the end of 28 years.33


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