Some thoughts on copyright termination – beyond the simple notice

Much has been written regarding the complexity of copyright termination. As part of an ABA webinarTermination of Copyright Grants Presented by the YLD Entertainment & Sports Industry Committee. I’ve agreed to comment on some of the hidden issues. There are very good examples and overviews of the general termination scheme, so this column focuses on the supplemental topics. Among the best overviews is: The Right to Terminate: a Musicians’ Guide to Copyright Reversion.

My co-panelist created some excellent slides. These were prepared primarily by Ramona P. DeSalvo with some additional material by Chrissie Scelsi.

  • Here is my list of concepts to remember:
  • There are three distinct categories of copyright terminations:
    • Those in their first or renewal term under the 1909 Act §304(c)
    • Those in their 20-year Copyright Term Extension under §304(d)
    • Those works transferred and created under the 1976 Act §203
    • Each of the three has slightly different implications for the copyrighted work. Be sure to use the correct rules for the correct termination.
  • Why §304(c): 17 U.S.C. § 304(c)(3) “allows an author or certain statutory successors to terminate a transfer in a pre-existing copyright after its 56th year, or at the beginning of its 19-year extended renewal term”[1] provided by passage of the 1976 Copyright Act.
  • Why §304(d): 17 U.S.C. § 304(c)(3) allows an author or certain statutory successors to terminate a transfer in a pre-existing copyright which did not take advantage of termination under §304(c) to do so at the beginning of its 20-year additional renewal term provided by passage of the Sonny Bono Copyright Term Extension Act. An author can use either provision in §304 but not both.
  • The Gap. Congress inadvertently left out terminations for assignments entered prior to Jan. 1, 1978 for works created after Jan. 1, 1978. The Copyright Office held a rulemaking and decided: “[the Copyright] Office will accept for recordation under section 203 a notice of termination of a grant agreed to before January 1, 1978, as long as the work that is the subject of the grant was not created before 1978. Whether such notices of termination fall within the scope of section 203 will ultimately be a matter to be resolved by the courts.”
    • Works in subsistence prior to Jan. 1, 1978 will be covered by §304(c)-(d).
    • This covers copyright output contracts that may have been executed much earlier than 1976 but the works kept coming – such as series novels, composer output agreements and others.
  • Work for hire excluded from termination. It is axiomatic both because the right vests in the employer as author (not assignee) and because the economic interests designed to protect authors from harsh bargaining are congressionally excluded from consideration.
    • Work for hire has two entirely independent categories of works:  “(1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use [in any of nine categories] if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.”
    • The comic book industry, in particular, is struggling to determine when independent comic creators were hired as employees and shifted the ownership of their creations. Similarly, some composer agreements are work for hire agreements. This determination is very fact specific.
    • Specially commissioned works must meet the definitional test. Sound recordings are not within the nine enumerated categories, so they will only be made as works for hire only if the producer in whom the copyright vests is an employee making the recording within the scope of her employment. Although the labels continue to fight this, but the law is settled.
  • Penalty provisions are agreements to the contrary. In his treatise, David Nimmer anticipated the controversy surrounding the Ray Charles estate. Ray Charles tried to get his 12 children to agree to take $500,000 each under the estate in exchange for not challenging the copyright dispositions. The court treated the agreement not to challenge as applying only to the probate, allowing a claim for copyright termination to proceed. (The court also found the claim to likely fail because of the work for hire nature of Ray Charles music composition agreements.) But Nimmer posits the contract that includes a $100 million liquidated damage award if termination occurs. Nimmer is undoubtedly correct that the court would strike down such a penalty provision.
  • Other transfers not terminated. The termination rights do not terminate the right to continue exploiting a derivative work. Most copyright transfers include a number of other provisions, and these provisions would not be terminated. Among them:
    • Use of the title of a work.
    • Right to use name, likeness and biography to promote a work.
    • Rights and obligations regarding credits for the work.
    • Trademark licenses associated with the work, including band names, logos and similar indicia.
    • These rights may not terminate even if the copyright grant is terminated and generally should not do so, absent express language, particularly where the original assignee continues to have the right to exploit derivative rights under the grant.
  • Agreements for other assets are likely not agreements to the contrary. Consistent with the rights not terminated, if the licensee of the copyrighted work bargains for trademarks and publicity rights on an exclusive basis, some may seek to make those express provisions extend beyond the copyright. Unlike penalty provisions discussed by Mr. Nimmer, these provisions may well restrict what the author can do with rights other than the copyright even after the copyright has been terminated and restored to the author.
    • Exclusive transfers of trademarks may give the publisher control over band names.
    • Exclusivity agreements could limit the ability of an author to participate in the making of a new derivative work – such as a new film version of a novel.
  • An agreement to transfer the copyright post termination will not be valid if negotiated before a valid termination notice is affected.[2]
    • Statute specifically allows renegotiation between author and original licensee which as the effect of resetting the 35-year clock for §203 transfers.
    • If it is not the author, however, then the re-negotiation becomes quite complex.
  • Testamentary transfers are not affected by any of the termination rights.
    • Grants by will are not included in §203. But inter vivos trusts are not excluded!
    • Nimmer explains that “the class of those who may claim as recipients of the terminated rights is determined as of the date the termination notice is served.” So taking advantage of the 10 year maximum notice may result in locking in the terminating class. Effective for senior authors; procedurally tricky for managing the per stirpes rights in a large family.
  • Will provisions that use terms such as copyright or royalty may not be explicit enough to include termination rights.
    • Courts are inconsistent regarding the tension between the statutory distribution of the termination right and the estate planning function.[3] Estate planning is therefore increasingly complex. A trust, and even the estate, is a different legal entity.
    • Termination rights are not themselves a testamentary asset. The statute sets out the control of the right. Like the renewal interest under the 1909 Act, it is merely an expectancy.
    • Termination notices sent out prior to death remain effective. And the rights recaptured copyright should be identified in the will.
  • Loan out companies might manage unruly families. For authors worried about the tension between the testamentary disposition and the statutory disposition, there may be one final trick. Through use of a loan-out company, an author may become a work for hire of her own business. The business assets can then be transferred in any legal manner and the work for hire nature of the relationship should extinguish termination rights in the unruly legatees. It isn’t much, but it may be better than nothing.

[1] See Bourne Co. v. MPL Communications, Inc., 675 F. Supp. 859, 861 (S.D.N.Y. 1987).

[2] See Bourne Co. v. MPL Communications, Inc., 675 F. Supp. 859, 861 (S.D.N.Y. 1987).

[3] See Ray Charles Found. v. Robinson, 2013 U.S. Dist. LEXIS 21273 (C.D. Cal. 2013); Penguin Group (USA) Inc. v. Steinbeck, 537 F.3d 193 (2d Cir. 2008); Milne v. Stephen Slesinger, Inc., 430 F.3d 1036, 1046 (9th Cir. 2005).