Harmony or Discord?: As Copyright Transfer Termination Start-Date Looms, Artists and Companies Prepare for Legal Uncertainty

more+
less-

[author: John Stephens]

In 1978, many artists, such as the Rolling Stones, Dire Straits, Elvis Costello and Blondie, released chart-topping albums. If, in the past 3½ decades, they had transferred their copyrights, 2013 will offer a chance to regain them. Beginning January 1, 2013, artists and musicians who transferred copyright rights in the past 35 years will begin to have the ability to rescind those transfers under the Copyright Act of 1976.  Under § 203 of the Copyright Act (Title 17 of the U.S. Code), creators of copyrights on or after January 1, 1978 can terminate copyright transfers for their work that is at least 35 years old.  With proper notice and filling out the right paperwork, bands, singers, authors and other artists can reclaim and renegotiate the copyright transfers.  As expected, this fertile ground will bring lots of future litigation and both performers and producers getting ready for future legal battles.

The Copyright Act of 1976 and Section 203

The U.S. Constitution commands the federal government to affect copyright (Art. I, § 8, cl. 8), and Congress enacted the Copyright Act to do just that.  The Copyright Clause of the Constitution empowers the federal government to promote the progress of science and the “useful arts” (and somehow reality shows, romantic comedies and techno music), by securing authors’ and inventors’ exclusive right to their respective writings and discoveries.  Copyrights exist for only a limited time – lifetime of author plus 70 years (Copyright Extension Act of 1998, 112 Stat. 2827) – before they become a part of the public domain.  As intellectual property is one of the biggest U.S. exports, artists, authors and companies have a lot at stake in protecting and promoting their ideas and products.

As with any personal property, however, an author of a copyrighted work can sell, assign or license it to a third party. Many musical acts, for instance, usually transfer their copyrighted songs to its record company when they agree to a deal.  As these transfers of right became commonplace and boilerplate, however, artists lost the advantage in any effort to retain their ability to profit from their work.  Even today, few entertainers or musicians retain the copyrights on their work, and most have signed away rights to works having little to no idea of its potential value.

The U.S. government, in an antiquated show of action, amended the Copyright Act in 1976 to protect authors from disadvantageous transfers and unequal bargaining positions resulting from the inherent impossibility of determining a work’s value until later use.  Today, the Copyright Act of 1976 allows an author or originator of a copyright may terminate any grant, license, or assignment made on or after January 1, 1978, 35 years after the date of the transfer.  17 U.S.C. § 203 includes any exclusive or non-exclusive grant of a transfer or license of copyright or any right under that copyright, including the right to copy, sell, distribute, digitize or perform the work. 

Presently, though, the transfer ability under § 203 does not apply to derivative rights or derivative works already created, rights to exploit material outside the United States, or grants covered by non-U.S. law.  In addition, the section does not affect trademarks and publicity rights between artists and transferees, even if the contract that grants them is the same as the copyright(s).

Works for Hire Not Included

Importantly, 17 U.S.C. § 203 applies to “any work other than a work made for hire.”  Works for hire are creations prepared by a true employee (not an independent contractor) or works commissioned for specific purposes under 17 U.S.C. § 101. Despite popular belief, a contract provision calling a work a “work for hire” does not make it so; the commission of the work must fit the statutory definition. In the music industry, again as an example, most musicians do not qualify as “employees,” as they work largely independently from record companies and they pay to produce their work out of their advances. Many contemporary recording contracts specifically refer to the artist as an independent contractor and not an employee.  Works specifically commissioned by a record company, such as music compilations and soundtracks, do count as works for hire.

Terminating Copyright Transfers Under § 203

Only authors of copyright may terminate copyright transfers under the statute.  The Copyright Act does not define “authors” in 17 U.S.C. § 101, however.  Courts have required authors’ work be original and not derivative.  Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 346-47 (1991).  As any Arthur Conan Doyle fan who has ever watched an episode of “House, M.D.” knows, originality is liberally constructed and only requires “independent creation plus a modicum of creativity.”  Id. at 346.  Accordingly, the author of a work can include many people.  For a popular song, the composer(s), lyricist(s), vocalist(s), musician(s), producer(s), and even the engineer(s)/mixer(s), may claim authorship, though many of these persons waive that right once the artist hires them.

Once we know who or what the author of a copyright is, that person (or his/her estate, administrator, trustee or successor(s)) can terminate copyright transfers created on or after 1978 that are at least 35 years old.  Where there are multiple authors, a simple majority can terminate a transfer (in the case of two authors, both must agree).  If one of the joint authors signs a separate grant of copyright, only that author is necessary to terminate it. 

The Notice Requirement and the Window of Termination

Artists wishing to rescind copyright transfers must serve the grantee “not more than 10 years and not less than 2 years before the effective date of termination.”  As an example, an artist who created a copyright on January 1, 1978 transfers it to a company that same day.  Twenty-five years later, January 1, 2003, the artist can serve the company with notice that he or she will terminate the transfer of rights.  If the artist neglects to send the notice, he or she has until January 1, 2011 (two years before the right of termination begins) to do so.  On January 1, 2013, with proper notice, the artist will regain his or her copyright transfer rights to use independently or sell to another company.

For copyright transfers made post-1978, § 203(a) provides for a five-year window to terminate those rights.  Therefore, an artist can only terminate his/her copyright transfers from the 35th anniversary through the 40th year of the creation of the grant.  Many grants also allow the transferee to publish the copyright.  Artists subject to those contracts can terminate their respective copyright transfers either between a) the 35th and 40th anniversary of the date of publication or b) the 40th and 45th anniversary of the execution of the grant, whichever is earlier.  To refer back to the earlier example, the artist who transferred his or her copyright in 1978 has until 2018 to regain it (and must notify the grantee before 2016), or he or she can never have it back.

Adequate notifications of copyright transfer terminations must comply with 37 C.F.R. § 201.10.  These notices must include a) a statement that 17 U.S.C. § 203 governs the termination, b) the name and address of the grantee, c) the date of grant execution/publication date, d) the title of each work affected, e) the original copyright registration number(s), f) the effective date of termination and g) a statement identifying the grant transferred.  The artist must then serve the grantee and record their notice with the Copyright Office (which, naturally, charges a fee).

The First Terminations and Future Litigation

Because these copyright transfer terminations do not begin until January 1, 2013, courts have heard few cases on this topic.  One exception to this is Scorpio Music S.A. v. Willis, No. 11-CV-1157- BTM (RBB), 2012 WL 1598043 (S.D. Cal. May 7, 2012), which the Media Law Bulletin discussed in our June 2012 issue.  

As January 1 rapidly approaches, artists, authors and companies are preparing strategies now to face the first terminations.  Likely, however, most terminations will lead to settlements or renegotiations, particularly with the prospect of losing famous and still profitable catalogs looming over record labels.  (Thirty-five-year-old albums as of 2013 include Van Halen’s debut record and Foreigner’s “Double Vision.” The “Saturday Night Fever” soundtrack, which topped the Billboard charts for the first half of 1978, is a compilation and sadly not considered.)

Nevertheless, the first terminations of copyright transfers mark a potential sea change in the entertainment industry and to the relationship between artists and companies, although much litigation (and possible legislation) will no doubt follow.