An Essay on Termination of Transfers and Licenses

Originally written for the final project of the class MB-335-002 – International Industry Operations: Music Publishing, Professor Ed BlomquistBerklee College of Music

Introduction

The intention of the copyright protection is to give incentive and ability to create for all potential creators. One of the incentives for creation in the actual copyright framework is the economic exploitation derived from granting of transfers and licenses of the exclusive rights of authors, to other parties, in exchange for monetary compensation. The discussions of copyright in the musical field are focused on two different kinds of work – the copyright of the musical composition per se, and the copyright of the phonorecord (sound recording). Generally speaking, songwriters assign rights of a musical composition to publishers, while artists transfer their rights over their sound recordings to the record labels. Considering that a significant part of those transfers and licenses are made prior to the publication of works, when is difficult to predict its success, authors are usually tied to the unbalanced offer of transferees and licensees, and end up collecting a small benefit from their works.

The 1976 Copyright Act established equity right for authors to terminate transfers and licenses after a certain period of time. The intent of the legislator, at that time, was to give creator what is known as “a second bite at the apple,” that is, an opportunity to recapture and renegotiate their exclusive rights at a time in which the potential of the work is better known, therefore balancing the relative bargaining power of the parts involved. This study will present a review of these statutory provisions, explaining its origin, complexities, and formalities.

Origin

Copyright had different terms since its first regulation under the 1710 English Statue of Anne. In this first legislation a copyright was secured for fourteen years, with a right of renewal, if the author was living, for another term of fourteen years. The colonial statutes prior to the American Constitution secured different terms of fourteen or twenty-one years for copyright protection. In the U.S. Act of 1790 the same duration of copyright as in the English statute was adopted. This term was extended in 1831, for twenty-eight years, with a right of renewal for fourteen years, in a total of forty-two years[1]. Contrary to the 1886 Berne Convention for the Protection of Literary and Artistic Works, an international agreement that states that a copyright shall be secured to the life of author plus at least fifty years, The U.S. Copyright Act of 1909 preserved the first term of twenty-eight years with the option of a second term for more twenty-eight years totaling fifty-six years of copyright protection.

The objective of the two separate copyright terms were meant in essence to allow authors to recapture their rights for the second term, renegotiating it. Only the author or heirs could exercise the option of renewal, or otherwise the work would fall into public domain. However, the common practice between writers and publishers was to transfer the renewal term before it had vested, granting for publishers a full term copyright. In fact, in 1943, the Supreme Court decided in the Fred Fisher Music Company v. M. Witmark & Sons that “an author’s right to obtain a renewal and extension of his copyright is assignable by him by an agreement made before the expiration of the original copyright term.”[2] The dissenting opinion in the case addressed the Congress intention to reserve the renewal privilege for the personal benefit of authors and their families. Hence, this decision interpreted the recapture right as alienable, and the attempt to balance the relative bargaining power between writers and publishers was prejudiced. A family would only recapture the rights if the author died before the second term, annulling the renewal; otherwise the publisher would have the copyright for its entire duration.

A long process of revision of the copyright law started in 1955. Ten years after, a bill was drafted by the U.S. Copyright Office, and introduced in the senate in 1968. In 1972 sound recordings were recognized as copyrightable works and in 1976 a new Copyright Law was enacted. Because it presented drastic changes, the 1976 Copyright Act only became effective in January 1st, 1978. Alongside with the recognition of the fair use defense and the creation of a single federal system of protection for all original works of authorship whether they are published or unpublished, probably the most important change was the adoption of a single term for copyright protection.

The current term for copyright was established in the 1976 Copyright Act and then extended in 1998 by the Sonny Bono Copyright Term Extension Act. The general rule is that copyright endures for the life of author plus seventy years, if created on or after 1978; or for a maximum of ninety-five years from the date it was originally secured if created prior to 1978. Substituting the recapture right provided by the renewal term, Congress enacted the rights of termination of transfers and licenses, giving authors and heirs an opportunity to better exploit their original works.

Termination Rights

Termination rights are found in two sections of the 1976 Copyright Act. For works in which grants were executed on or after 1978 the specifications of the Section 203 of the 1976 Copyright Act should be applied. In the case of works created prior to 1978 and for which the grant was also executed before that date, the provisions of Section 304 (c) and (d) are applied.

The right to terminate is secured only to works that are not considered works made for hire. That happens because, according to the definition of work made for hire in the Section 101 of the Copyright Act, not the original creator, but the employer or commissioner is deemed the author of the work from the moment of its creation. Also, grants of transfers or licenses made by will are not subject of termination. In the case of a transfer by will, there is no termination interest transmitted by the author to the widow or widower, children, grandchildren or an executor, administrator, personal representative, or trustee. All rights are transmitted freely to the grantee.

Termination rights are not automatic. In order for termination become effective under both Sections, the majority of the authors, or statutory heirs must serve a notice upon the grantees, expressing the effective date of termination. There is a specific five-year period for each Section (203 and 304), in which the effective date of termination shall fall, that will be further explained in detail. In the absence of action, termination rights disappear after the closing of the five-year window, leaving rights in the work permanently in the hands of the grantee until statutory expiration of the copyright term, or the term of the grant.

After the effective date of termination, considering that all formalities were met, all rights derived from the U.S. Copyright Act revert to the author, authors and other persons owning termination interests. In order to terminate a transfer or license, the majority of the interested is needed, but the reversion is applied to all, including those owners who did not joining signing the notice of termination. However, termination do not affect any rights that may be derived from the work, such as trademark, or any other Federal, State or foreign rights. Furthermore, international licenses and transfers are not affected by termination, even if the grantee is the same for whom the rights were assigned in the United States.

Section 203

Grants of transfers or licenses of works executed on or after 1978 are subject of termination under the rules of the Section 203 of the 1976 Copyright Act. However, in favor of publisher, only grants that were executed by authors can be terminated.

The period in which the effective date of termination shall fall is a five-year window that starts at the end of thirty-five years from the date in which the grant was executed. However, if the grant covered the right of publication of the work, the 5-year period begins after thirty-five years of the publication, or forty years after the execution of the grant, whichever ends earlier. Any date that falls within the five-year period can be picked to be the effective date of termination.

The majority of the persons that have termination interests must serve a notice of termination to the grantee not less than two and no more than ten years before the effective date of termination.

Considering the general rule of thirty-five years after the execution of the grant, the following table presents examples of when the effective date of termination could fall, and the possible dates in which interested must serve a notice, given hypothetical dates in which grants were executed.

Section 203

Grant Executed in

5-Year Period for

Effective Date of Termination

Serve Notice

First Possible Date

Last Possible Date

Jan 1, 1978

Jan 1, 2013

Jan 1, 2018

Jan 1, 2003

Jan 1, 2016

Jan 1, 1979

Jan 1, 2014

Jan 1, 2019

Jan 1, 2004

Jan 1, 2017

Jan 1, 1980

Jan 1, 2015

Jan 1, 2020

Jan 1, 2005

Jan 1, 2018

Jan 1, 1981

Jan 1, 2016

Jan 1, 2021

Jan 1, 2006

Jan 1, 2019

Jan 1, 1982

Jan 1, 2017

Jan 1, 2022

Jan 1, 2007

Jan 1, 2020

Jan 1, 1983

Jan 1, 2018

Jan 1, 2023

Jan 1, 2008

Jan 1, 2021

Jan 1, 1984

Jan 1, 2019

Jan 1, 2024

Jan 1, 2009

Jan 1, 2022

Jan 1, 1985

Jan 1, 2020

Jan 1, 2025

Jan 1, 2010

Jan 1, 2023

Jan 1, 1986

Jan 1, 2021

Jan 1, 2026

Jan 1, 2011

Jan 1, 2024

Jan 1, 2011

Jan 1, 2046

Jan 1, 2051

Jan 1, 2036

Jan 1, 2049

As observed, terminations under the Section 203 will only start to be effective in 2013. However, notices for works created in 1986 can already be sent to grantees. The provisions under Section 203 are the general rules of termination for grants of new works now and further created.

Section 304 (c)

Grants of preexistent works that were made prior to 1978 are subject of termination under the section 304 (c) of the 1976 Copyright Act. The structure and formalities for this Section are very similar to the Section 203, with the exception that not only grants made by authors, but also grants made by their successors are subject of termination. However, for grants executed by persons other than the author, only these persons have the right to terminate. If the author executed the grant, the termination interest is owned by their statutory successors.

As opposed to Section 203, in which the time frame is set by the date of the grant, on Section 304 the termination window is set by the date in which copyright was originally secured. For grants under this provision the five-year period for the effective date of termination begins fifty-six years from the date copyright was originally secured, or beginning on January 1, 1978, whichever is later. Here, the notice must be served following the same rule as Section 203, in not less than two and no more than ten years before the effective date of termination.

Section 304 (c)

Grant Executed in

5-Year Period for

Effective Date of Termination

Serve Notice

First Possible Date

Last Possible Date

Jan 1, 1955

Jan 1, 2011

Jan 1, 2016

Jan 1, 2001

Jan 1, 2014

Jan 1, 1956

Jan 1, 2012

Jan 1, 2017

Jan 1, 2002

Jan 1, 2015

Jan 1, 1957

Jan 1, 2013

Jan 1, 2018

Jan 1, 2003

Jan 1, 2016

Jan 1, 1958

Jan 1, 2014

Jan 1, 2019

Jan 1, 2004

Jan 1, 2017

Jan 1, 1959

Jan 1, 2015

Jan 1, 2020

Jan 1, 2005

Jan 1, 2018

Jan 1, 1960

Jan 1, 2016

Jan 1, 2021

Jan 1, 2006

Jan 1, 2019

Jan 1, 1961

Jan 1, 2017

Jan 1, 2022

Jan 1, 2007

Jan 1, 2020

Jan 1, 1962

Jan 1, 2018

Jan 1, 2023

Jan 1, 2008

Jan 1, 2021

Jan 1, 1963

Jan 1, 2019

Jan 1, 2024

Jan 1, 2009

Jan 1, 2022

Jan 1, 1964

Jan 1, 2020

Jan 1, 2025

Jan 1, 2010

Jan 1, 2023

Jan 1, 1965

Jan 1, 2021

Jan 1, 2026

Jan 1, 2011

Jan 1, 2024

Jan 1, 1966

Jan 1, 2022

Jan 1, 2027

Jan 1, 2012

Jan 1, 2025

Jan 1, 1967

Jan 1, 2023

Jan 1, 2028

Jan 1, 2013

Jan 1, 2026

Jan 1, 1968

Jan 1, 2024

Jan 1, 2029

Jan 1, 2014

Jan 1, 2027

Jan 1, 1969

Jan 1, 2025

Jan 1, 2030

Jan 1, 2015

Jan 1, 2028

Jan 1, 1970

Jan 1, 2026

Jan 1, 2031

Jan 1, 2016

Jan 1, 2029

Jan 1, 1971

Jan 1, 2027

Jan 1, 2032

Jan 1, 2017

Jan 1, 2030

Jan 1, 1972

Jan 1, 2028

Jan 1, 2033

Jan 1, 2018

Jan 1, 2031

Jan 1, 1973

Jan 1, 2029

Jan 1, 2034

Jan 1, 2019

Jan 1, 2032

Jan 1, 1974

Jan 1, 2030

Jan 1, 2035

Jan 1, 2020

Jan 1, 2033

Jan 1, 1975

Jan 1, 2031

Jan 1, 2036

Jan 1, 2021

Jan 1, 2034

Jan 1, 1976

Jan 1, 2032

Jan 1, 2037

Jan 1, 2022

Jan 1, 2035

Jan 1, 1977

Jan 1, 2033

Jan 1, 2038

Jan 1, 2023

Jan 1, 2036

Dec 31, 1977

Dec 31, 2033

Dec 31, 2038

Dec 31, 2023

Dec 31, 2036

The table above illustrates the applicability of the Section 304 (c) for hypothetical works for which grants were executed before 1978. According to the date that the copyright was originally secured, the 5-year window and the possible dates to serve a notice are identified. The table includes the last possible date for which Section 304 (c) can be applied (works that the copyright was secured in December 31, 1977).

Section 304 (d)

The Sonny Bono Copyright Term Extension Act included one more chance for authors and their successors to exercise termination rights for preexisting works for which grants were executed before 1978. If at the effective date of the Sonny Bono Act (October 27, 1998) the termination of 304 (c) has expired without being exercised this special termination allows authors or heirs to recapture their works for the last twenty years of copyright term. It means that the effective date of termination shall fall in a five-year period starting after the completion of seventy-five years from the date copyright was originally secured. The structure of notice is the same as on Section 304 (c).

The Following table presents hypothetical dates in which copyrights were originally secured, for works that could be subject for termination under Section 304 (d), given that (1) Grants for those works were made before 1978; (2) Termination rights under Section 304 (c) have not been exercised.

Section 304 (d)

Copyright Secured in

5-Year Period for

Effective Date of Termination

Serve Notice

First Possible Date

Last Possible Date

Jan 1, 2032

Jan 1, 2007

Jan 1, 2012

Jan 1, 1997

Jan 1, 2010

Jan 1, 2033

Jan 1, 2008

Jan 1, 2013

Jan 1, 1998

Jan 1, 2011

Jan 1, 2034

Jan 1, 2009

Jan 1, 2014

Jan 1, 1999

Jan 1, 2012

Jan 1, 2035

Jan 1, 2010

Jan 1, 2015

Jan 1, 2000

Jan 1, 2013

Jan 1, 2036

Jan 1, 2011

Jan 1, 2016

Jan 1, 2001

Jan 1, 2014

Jan 1, 2037

Jan 1, 2012

Jan 1, 2017

Jan 1, 2002

Jan 1, 2015

Oct 26, 1937

Oct 26, 2012

Oct 26, 2017

Oct 26, 2002

Oct 26, 2015

Considering that termination rights under must have been expired at the effective date of the Sonny Bono Act, the last possible date in which a work could be originally secured in order to this termination be applied is October, 26 1937.

Notice of Termination

The notice of termination requires special formalities to be effective, and therefore produce the desired reversionary effects. The requirements for notices of termination are found both in the 1976 Copyright Act and in the Code of Federal Regulations, under the Section 201.10 of the Title 37: Patents, Trademarks and Copyrights.

The notice must be served upon the grantee or grantee’s successor in title no less than two and no more than ten years before the effective date of the termination. The notice can be served personally or by first-class mail sent to an address, which, after reasonable investigation (Copyright Office, PRO’s), is found to be the last know address of the grantee or successor in title. If served by first-class mail, the date of the service is considered the date in which the notice was deposited with the U.S. Postal Service.

After being served, a copy of the notice shall be recorded in the Copyright Office, indicating the date and manner of service, and requires a payment of a fee for document recordation. There is no specific form provided by the Copyright Office for notices of termination, just an exact copy of the served notice is needed. If the Copyright Office identifies that the notice of termination was untimely served, or has any other formal failure, the document is not indexed as notice of termination, but as a “document pertaining to copyright,” and a court decision would determine the effectiveness of the notice.

To be formally adequate the notice must contain a specification of the section applied to termination [203, 304 (c), 304 (d)], the name of all grantees and/or successor in title whose rights are being terminated, accompanied by address for each one, to where the notice is being sent. The title of the work, its authors, date and name of persons who executed the grant must also be indicated, if possible, accompanied by the original copyright registration number. Also it is important to clearly identify the effective date of termination, which must fall within the 5-year period, elected by the signers of the notice of termination.

The majority of persons that have termination interests, or their duly authorized agents, must sign the notice. Each of these persons must be clearly listed, indicating their relationship to the author, indicating that they represent more than one-half of the termination interest. A brief statement explaining a potential lack of any of this information and affirming that, to their best knowledge, the notice is signed by all persons whose signatures necessary to terminate the grant. In the case of termination under Section 304 (c) or (d), for a grant executed by a person or persons other than the author, the notice must be signed by all of the surviving persons, or their duly authorized agents.

Gap Grants

Under exclusive songwriting agreements, writers agree to assign all rights of songs they write in a specific period of time to their publishers, usually in exchange of an advance. This common practice in the publishing world generates important issues regarding termination of transfers. Since terminations are based on the execution of a grant, a discussion if the grant was executed on the date in which the agreement was signed or when the work was created becomes extremely important to define when this grant can be terminated.

Furthermore, there are certain works for which grants were signed prospectively by authors before 1978, but the works only came into existence after January 1st, 1978. That was the case for the country composer Charlie Daniels, whose 1979 song “The Devil Went Down to Georgia” was written under a 1976 agreement. The issue was whether or not the grant could be terminated, as the provisions of Section 203 are applicable only for grants executed after 1978, and Section 304 is not applicable because it requires a subsisting copyright in 1978.

These so called “gap grants” were the subject of recent analysis by the Copyright Office. After receiving comments from different stakeholders, the study concluded that a grant can only be considered executed when a work come into existence. 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 subject of the grant was created after 1978. Although the Copyright Office will register such notices of termination this is a matter that will ultimately be resolved on courts.

Sound Recordings

As sound recordings only became recognizable as copyrightable works in 1972, no grant has reached the five-year period of termination. In fact, the first sound recordings that may be subject of termination are the ones created in 1978, for which the window for termination will open in 2013, according to Section 203. Sound recordings from 1972 to 1977 are subject of termination under Section 304 and will only be possibly terminated in 2028, at the earliest.

However, application of termination provisions for sound recording rights is an issue that will provide a fertile ground for litigation in the following years. Typical agreements between artists and record labels considered the sound recordings created as works made for hire. Under this doctrine the record label is considered the original author of the work and not the artist, and therefore there are no rights of termination, as works made for hire are excluded from the termination provision.

Artists argument that sound recordings cannot be considered works made for hire, as they are not typical employers of record labels nor sound recordings fall in one of the nine types of works listed on the statutory definition of work for hire. In 1999 Congress amended the definition of works made for hire and included sound recordings as a category eligible for that status, but the amendment was repealed with retroactive effect less than a year later. Record labels would argument that a sound recording can be considered work for hire, as it may fall in the category of compilation, collective work, or even in some cases audiovisual works.

Even if sound recordings were not considered as works made for hire, still there is a burdensome problem to resolve. As sound recordings typically involve many different people, each of them artists, musicians, producers and engineers, contributing in part to the creative process, the discussion of who may be considered the author, and therefore, able to exercise termination rights would still need to be discussed.

Derivative Works

Limiting the extension of the termination provision, the original grantee remains with the right to utilize any derivative work prepared under authority of the grant. This is due “both to encourage investment by derivative work proprietors and to assure the public retain access to the derivative work.”[3] However, after the effective date of termination, the original grantee cannot prepare any new derivative works based on that work.

Known as the derivative work exception, this ruling was object of discussion in several court cases. The Supreme Court, on Mills Music v. Snyder[4], decided that sound recordings were derivative works, and the rights over them would remain with Mills Music – the terminated publisher. New sound recordings however, would be entitled to Mr. Snyder’s heirs. On Woods v. Bourne Co.[5] the terminated publisher alleged that every copy of printed music was based on the original lead sheet, and that would be a derivative work, but the court affirmed that lead sheets were not derivative works, thus the new versions of printed music belonged to the new publisher, for whom the works were assigned after termination.

Agreement to the contrary

In order to avoid what occurred in the previous legislation, in which the recapture right was considered alienable by an interpretation of the Supreme Court, and therefore practically ineffective, Congress stipulated, “Termination of the grant may be effected notwithstanding any agreement to the contrary…” That means that termination rights are inalienable and cannot be waived by authors or heirs in any previous agreements.

“Agreements of the contrary” were the subject of recent court decisions addressing the Section 304 termination provision. In the cases of Milne v. Stephen Slesinger, Inc. (9th Cir. 2005, Winnie the Pooh Character) and Penguin Group (USA) Inc. v. Steinbeck (2nd Cir. 2008, works of John Steinbeck), the courts decided that the renegotiation of the agreement during the termination window revoked the original grants and were not deemed to be “agreements to the contrary,” denying therefore, the possibility of termination.

However, in the Classic Media, Inc. v. Mewborn, (9th Cir. 2008, Lassie Works) the court preserved the termination rights considering a post-1978 assignment as an “agreement to the contrary” and therefore “attending the congressional intent to give the benefit of the additional renewal term to the author and his heirs”.

Negotiation Period

After the service of a notice, and before the effective date of termination, the group that signed the notice can only negotiate those rights with the grantee or successor in title for whom the notice was served. In effect, this period is a period of renegotiation, in which the grantee has the preference to make a deal with those persons who sent the notice, and maintaining their right to exploit the works, until the rest of the grant term, or new term. An agreement in this period would not be considered an agreement to the contrary and would cancel future rights of termination, for those who served the notice.

If the terminated grantee is not interested in renegotiate rights over the terminated work, all original authors and/or successors, and not only those who served the notice, receive their rights back after the effective date of termination. Only after that date a new grant, with other party may be made, and it has to be signed by those who served the notice, or their successors.

Conclusion

As we approach 2013, discussions about the termination provisions are becoming more relevant. The Future of Music Coalition recently affirmed “as more copyrights become eligible to revert back to creators, we may find that the artists themselves exploit their works in novel ways that could be beneficial to the overall health of the music marketplace.” The efficacy of termination provisions depends on intricate formalities that are very difficult to meet in practical reality. However, as many creators of extremely valuable works and their heirs are stuck on unbalanced agreements, definitely terminations rights will play an active part in the copyright litigation scenario over the next years.


[1] Elder, Samuel J. “Duration of Copyright.” The Yale Law Journal 14.8 (1905): 417-23. The Yale Law Journal Company, Inc. Web. 10 Apr. 2011. <http://www.jstor.org/stable/781474&gt;.

[3] Lohmann, Virginia E. “The Errant Evolution of Termination of Transfer Rights and the Derivative Works Exception”, 48 Ohio St. L.J. 897, 912 (1987)

[4] 105 SCT 638 [1985]

[5] 603 F.2d 978 (2nd Circ. 1995)

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