Background

Although a “termination” right did not previously exist under U.S. copyright law, this was not the first attempt by Congress to protect authors who may have assigned away their copyrights prior to knowing their true value. The prior law (the Copyright Act of 1909) provided for two separate terms of copyright, an original and renewal term, both lasting 28 years.¹ One of the purposes of this renewal term system was to provide the author with a second opportunity to market the work after its value had been established.² Under this renewal scheme, the copyright in the work would automatically revest in the author at the end of the original 28-year term, so long as certain formalities were followed. Unfortunately, this goal of providing a “second bite of the apple” to authors was largely eviscerated by assignees—such as music and book publishers—who simply included grants of both the original and renewal terms of copyright in the original copyright assignment obtained from the author. In 1943, the U.S. Supreme Court affirmed the assignability of future renewal rights and affirmed the legality of publishers obtaining authors’ future renewal term interests in their original agreements with the authors.³

In the 1976 revisions, Congress, among other things, sought to address this end-run around the intended purpose of the renewal term by creating a new “termination right” for authors that would not be assignable prior to it vesting back into the authors’ (or their heirs’) hands. With respect to works created after January 1, 1978, the Copyright Act now provides for a single term of copyright lasting for the life of the author plus 50 years (since extended by 20 years), and also provides the author with a nonalienable right to “terminate” a grant of copyright 35 years after the grant was executed.⁴ Works created in 1978 are thus now ripe for recapture by their respective authors.

Effectuating Termination

Pertinent language of the post-1978 termination provisions is as follows:

(a) Conditions for Termination.—In the case of any work other than a work made for hire, the exclusive or nonexclusive grant of a transfer or license of copyright or of any right under a copyright, executed by the author on or after January 1, 1978, otherwise than by will, is subject to termination under the following conditions:

(1) In the case of a grant executed by one author, termination of the grant may be effected by that author . . . . In the case of a grant executed by two or more authors of a joint work, termination of the grant may be effected by a majority of the authors who executed it . . . .

(3) Termination of the grant may be effected at any time during a period of five years beginning at the end of thirty-five years from the date of execution of the grant . . . .

(4) The termination shall be effected by serving an advance notice in writing . . . .

(A) The notice shall state the effective date of termination, . . . and the notice shall be served not less than two or more than ten years before that date. . . .

(5) Termination of the grant may be effected notwithstanding any agreement to the contrary . . . .

(b) Effect of Termination.—Upon the effective date of termination, all rights under [the Copyright Act] that were covered by the terminated grants revert to the author, . . . but with the following limitations:

(1) 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, but this privilege does not extend to the preparation after the termination of other derivative works . . . .

(4) A further grant, or agreement to make a further grant, of any right covered by a terminated grant is valid only if it is made after the effective date of termination. As an exception, however, an agreement for such a further grant may be made between [the author] and the original grantee . . . after the notice of termination has been served . . . .⁵

The nuts and bolts of termination appear to be fairly straightforward. Termination needs to be effectuated by a majority of the authors who executed the grant being terminated during a five-year period beginning at the end of 35 years from the date of the original grant (i.e., the 35th to the 40th year). The notice of termination must be served upon the grantee no less than two and no more than 10 years before the effective date of termination set forth in the notice. Where an author has died, the termination right goes to specified statutory descendants, rather than to his heirs, assuming spouses, children, or grandchildren exist.⁶

The effect of termination likewise appears to be straightforward. All copyright interests that were conveyed under the terminated grant revert back to each of the grantors-creators (even if only two out of three executing grantors signed the termination notice) with respect to rights in the United States only. If a worldwide grant was the subject of the original grant, all rights of the grantee outside of the United States would not be affected. Similarly, derivative works prepared under the authority of the original grant before its termination are not impacted by the termination, and may continue to be exploited under the terms of the original grant; however, terminating authors do recover the right to authorize the preparation of new derivative works.

If one of multiple coauthors effectuated termination, such terminating coauthor would become a co-owner of the copyright and would have the standard co-owner’s right to license the use of the underlying copyright on a nonexclusive basis, subject only to a duty to account to the co-owners. If the remaining authors did not terminate, the original grantees of those authors would likewise continue to have the right to grant nonexclusive licenses. After the effective date of termination, though, the right to grant exclusive licenses will require the authority and consent of all co-owners of the copyright—including all coauthors (or their subsequent assignees) who recaptured rights via the termination provisions of the Copyright Act.

In order to provide original grantees with an ability to mitigate the impending loss of copyrights, the Copyright Act provides for at least two years’ notice of the effective date of a termination. This notice period also provides the original grantee with an exclusive right to negotiate with the author until the effective date of termination, as the statute expressly provides that any agreement to assign the recaptured rights entered into prior to the effective date of termination is invalid, except for those agreements entered into with the original grantee. Thus, the original grantee is given an exclusive period of negotiation in which it can attempt to come to terms on a new deal with the terminating author.

A Case of First Impression: Scorpio v. Willis

Given this statutory scheme, under which the year 2013 looms as the first year in which copyright terminations for 1978 copyright grants can become effective, the intellectual property and entertainment communities have been anxiously awaiting any case decisions that address the rights of authors who seek to terminate earlier grants.

In one of the first cases to interpret the copyright termination provisions applicable to post-1978 grants, Scorpio Music S.A. v. Willis,⁷ the United States District Court sitting in San Diego, California, flatly rejected a publisher’s creative, albeit meritless, challenge to the validity of a termination notice, finding that Victor Willis, the original lead singer and sole lyricist of the seminal late 1970s band the Village People, has the right, commencing in 2013, to recapture his interests in the copyrights to 33 songs that he coauthored, including the iconic hits “YMCA,” “Go West,” and “In the Navy.”

During the late 1970s, Willis assigned his copyright interests in those 33 compositions to publisher Can’t Stop Music, a division of Can’t Stop Productions, Inc. (Can’t Stop), through a series of identically worded publishing agreements, delineated by Can’t Stop as “Adaptation Agreements” (Willis Grants). While the musical aspects of the compositions were created by Jacques Morali and others, Willis claims to be the sole composer of the lyrics, and Willis separately conveyed his copyright interests in the compositions to Can’t Stop. Accordingly, each of the Willis Grants was solely between Can’t Stop and Willis, solely concerned Willis’s interests in the compositions, and was solely executed by Can’t Stop and Willis. Moreover, and notwithstanding the publisher’s sudden work for hire claim 35 years later, each of the Willis Grants contained the classic language of copyright conveyance, stating that Willis “hereby sells, assigns, transfers and delivers to Publisher, its successors, and assigns, the Adaptation [including the title and lyrics thereof] . . . together with the worldwide copyright thereof.” Each of the grants then provided for Willis to receive a percentage of the income generated from the exploitation of the songs, ranging from 12–20 percent of the publisher’s gross receipts.

In January 2011, 33 years later, Willis duly served a termination notice of the Willis Grants, providing Can’t Stop with the requisite two years’ notice of the effective dates of termination commencing in 2013. In response, Can’t Stop and its foreign affiliate, Scorpio Music, contended that Willis, as one of at least three credited coauthors of each of the compositions, could not serve a notice of termination without a majority of his coauthors joining in the termination. The publishers dismissed the fact that Willis had executed his grants separately and apart from the other credited writers, arguing that the statute nevertheless required a majority of the coauthors of a work for a notice of termination to be valid. The publishers further argued that Willis’s contributions to the songs were “works made for hire,” and thus he had no right to terminate the Willis Grants. Finally, the publishers claimed that even if Willis could terminate the grants, his recaptured copyright interests should be limited to the same 12–20 percent interests he had agreed to 35 years earlier. When Willis rejected these contentions, the publishers brought suit in San Diego, where Willis resides, seeking to have the termination notice declared either invalid in toto or limited in its breadth.

The court did not agree with the publishers’ novel theories. In a decision rendered on May 7, 2012, the court found that because Willis granted his copyright interests in the subject compositions separate and apart from his coauthors, he had standing and the right under 17 U.S.C. § 203 to unilaterally terminate his grants to the publisher. The court further found that “[u]pon termination, Willis would get back what he transferred—his undivided interest in the whole,” despite having agreed to a 12–20 percent income participation per composition.⁸ Thus, if Willis was one of two authors of a particular composition, he would recapture an undivided 50 percent interest in that composition, regardless of the share of income he had been offered and accepted in 1978.

Issues for Future Court Determination

Statute of Limitations Issues

Aside from the publishers’ rejected attempt to confine Willis to the 12–20 percent income participations that he agreed to when he was young, a more significant “authorship” issue remains to be decided by the court, namely, whether Willis can also successfully challenge the writing credits for the compositions that were likewise “established” when Willis had no real bargaining leverage, and thereby “get back what he transferred”—which, as Willis claims, is a one-half interest in the compositions at issue. The court’s May 7 decision alluded to this disagreement among the parties as to who were the actual coauthors of the compositions with Willis, but because the original complaint did not squarely put this issue before the court, the court granted the publishers leave to amend to seek declaratory relief as to any disputes concerning the true authorship of the compositions.

On June 5, 2012, the publishers accepted the court’s overture and filed an amended complaint addressing the authorship dispute, albeit largely based upon the contention that Willis is barred by the Copyright Act’s three-year limitations period from now challenging the writing credits for the compositions at issue, in an attempt to avoid the merits of the dispute as to the true authors of the compositions. Section 507(b) of the Copyright Act states, “No civil action shall be maintained under the provisions of this title unless it is commenced within three years after the claim accrued.”⁹ Accordingly, the publishers contend that Willis is now precluded from challenging the authorship credits for the compositions. On August 1, 2012, Willis filed his answer to the amended complaint and interposed his own counterclaim for declaratory relief. In his answer and counterclaim, Willis contends that the Copyright Act’s general three-year statute of limitations does not preclude him from enforcing his statutory rights and recovering his copyright interests. Willis contends that his request for declaratory relief as to his authorship interests in the compositions is timely because, among other things:

• The claim, which only seeks prospective relief, did not accrue until Willis served the notice of termination, at which point his termination rights vested;
• The stated purpose and public policy of the termination provisions is to provide authors with the opportunity to recapture and remarket their works after 35 years of exploitation by the original grantee;
• Willis had no prior incentive or reason to investigate or challenge the credits for the compositions, as he was receiving the bargained-for consideration he had agreed to in the Willis Grants (12–20 percent of receipts) in exchange for the grant of his 50 percent copyright interests in the compositions, which grants did not name or otherwise refer to any other alleged coauthors of the compositions;
• Section 203(a) of the Copyright Act contains a specific limitations period applicable to termination, requiring notices of termination be served in a specific five-year window, after which the termination right is lost if not invoked; and
• Section 203 provides that where a notice is timely served within the five-year window, “all rights” that were covered by the terminated grant revert to the authors who executed the terminated grant.

Accordingly, given the parties’ divergent viewpoints as to the ability of the court to address the merits of the authorship dispute, the court will need to decide whether authorship and ownership issues related to the termination provisions of the Copyright Act accrue upon service of the notice of termination, upon the creation of the works at issue, or at some other point in time. Generally, the resolution of this dispute will result in Willis recapturing either 50 percent of the copyright in the compositions, which he claims were written solely by him and Jacques Morali, or a 33 percent interest in the compositions if prior coauthorship claims and credits of a third purported writer are deemed as a matter of law not subject to review.

Work Made for Hire Issues

Another significant, but unaddressed, issue raised by the Willis case concerns the work for hire defense initially brandished by the publishers when they received the termination notice. During oral argument, however, held prior to the court’s May decision, the publishers, in the face of compelling evidence to the contrary, withdrew their claim that Willis was a worker for hire, as the publishers had always treated Willis as a coauthor, crediting him as such and even listing him as an author on the copyright registrations they had filed 35 years earlier.

Moreover, the publishers likely realized that it would be extremely difficult to establish that Willis’s contributions—as a songwriter—to the compositions (as opposed to the Village People sound recordings, which are separate and distinct copyrightable works, and separately owned from the copyrights in the underlying musical compositions that are embodied in the sound recording) were works made for hire. Under the current Copyright Act, which governs works created after 1977, a “work made for hire” is statutorily defined as either:

(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 as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.¹⁰

The second clause did not apply to the Willis Grants as (i) musical compositions are not one of the specified categories for which work for hire could be claimed, and (ii) those grants simply did not contain any express language stating that the works were to be considered works made for hire. Quite to the contrary, the grants clearly assigned and transferred Willis’s copyright interests to Can’t Stop. Accordingly, in order for the publishers to win on their work for hire claim, they would have had to establish that Willis created the lyrics to the compositions as an employee of Can’t Stop, and further that the lyrics were prepared within the scope of Willis’s employment with Can’t Stop. The publishers had no factual basis on which to continue to pursue such a claim.

Specifically, the U.S. Supreme Court, in Community for Creative Non-Violence v. Reid,¹¹ has delineated the following factors to be considered in determining whether clause (1) of the work for hire definition applies:

[1] the hiring party’s right to control the manner and means by which the product is accomplished; [2] the skill required; [3] the source of the instrumentalities and tools; [4] the location of the work; [5] the duration of the relationship between the parties; [6] whether the hiring party has the right to assign additional projects to the hired party; [7] the extent of the hired party’s discretion over when and how long to work; [8] the method of payment; [9] the hired party’s role in hiring and paying assistants; [10] whether the work is part of the regular business of the hiring party; [11] whether the hiring party is in business; [12] the provision of employee benefits; and [13] the tax treatment of the hired party.¹²

None of these factors weighed in the publishers’ favor. Moreover, the Second Circuit has also noted that of these Reid factors, five of them in particular should be given greater significance “because they will usually be highly probative of the true nature of the employment relationship”¹³ These five more significant factors are: (1) the provision of employee benefits, (2) the tax treatment of the hired party, (3) whether the alleged hiring party has the right to assign additional projects to the hired party, (4) the means and manner of creation, and (5) the skill required.

The publishers in the Willis case would not have been able to establish that any of these factors militated in favor of a finding that Willis wrote the lyrics to the musical compositions while he was “an employee” of Can’t Stop.

While songwriters, such as Willis, may not be susceptible to a work made for hire defense, it remains to be seen if the courts will give credence to a record company’s work for hire defense to a recording artist’s or producer’s attempt to terminate a post-1977 grant of copyright in sound recordings. Unlike with the creation of musical compositions, a record company could argue:

• It advances all recording costs associated with the creation of the subject sound recordings;
• It has the right to accept or reject the master recordings submitted to it by the recording artist;
• It has the right to select the studio where the recordings are recorded and the producers engaged on the projects;
• The recording agreement typically contains a clause wherein the artist purports to acknowledge that he or she is a worker for hire;
• Where the recording artist is not a songwriter, the record company often engages outside writers on the projects to create the underlying musical compositions; and
• Historically, since 1972 (when sound recordings were given federal copyright protection), the record companies have filed the “SR” copyright registrations for the sound recordings/masters created by the recording artists and denominated them to be “works made for hire.”

On the other hand, the recording artist may very well have the more persuasive arguments, including:

• “Sound recordings” is not one of the specified categories of works set forth in clause (2) of the “work for hire” definition, thereby likely making it necessary for the record company to satisfy the “employment” factors related to clause (1) of the definition;
• There is a great degree of skill and creativity on the part of the recording artists required in the recording of records;
• In actuality, the time and place where the recording process takes place is immaterial to the outcome of the final products, and, in any event, is often determined by the recording artist’s schedule and wishes;
• Many recording artists directly engage their own producers;
• Recording artists who write their own songs need not rely upon record company involvement in the creative aspects of making records;
• Standard recording agreements typically state that if the recording artist is not deemed to be a worker for hire, he or she assigns his or her copyright interests to the record company;
• The recording artist is not treated by the record company as an employee with respect to taxes or employee benefits;
• The record company typically does not have the right to assign additional projects to the recording artist; and
• Although the record company initially advances the costs and expenses associated with the creation of the sound recording, those costs and expenses are fully recoupable by the record company from the artist’s royalties.

The work made for hire issue will undoubtedly be addressed by the courts as record companies and other companies engaged in the exploitation of copyrighted works seek to retain ownership interests in those works for the entire term of copyright.

“Gap Grant” Issues

In addition to the issues raised in the Scorpio v. Willis litigation, numerous other issues will undoubtedly arise as the termination provisions are invoked. One procedural issue that has already been raised with the U.S. Copyright Office concerns so-called “gap grants,” in which a pre-1978 agreement conveys copyright rights in works that have yet to be created, such as a multiyear recording agreement signed in 1977 governing albums recorded and released in 1978 and 1979. The statute appears to contain a gap in coverage for such works, as § 203 of the Copyright Act applies to grants of copyright executed by the author on or after January 1, 1978, while § 304 of the Copyright Act applies to grants of copyright executed prior to January 1, 1978 (but only for copyrights “subsisting in either [their] first or renewal term on January 1, 1978”). The above recording agreement example appears to straddle the two provisions.

As notices of termination for such “gap grants” began to find their way to the Copyright Office for recordation, the need for a consistent position as to whether or not to accept such notices caused the Copyright Office to seek public comment as to a proposed amendment to its regulations that would permit such notices to be recorded in the Copyright Office, albeit without any precedential value attaching as to the validity of the notice.

The Copyright Office is proposing to amend its regulations governing notices of termination of certain grants of transfers and licenses of copyright under section 203 of the Copyright Act of 1976. The amendments are intended to clarify the recordation practices of the Copyright Office regarding the content of section 203 notices of termination and the timeliness of their service and recordation, including a clarification that the 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.¹⁴

While not taking a position with respect to the amendment to its regulations regarding recordation of notices of termination, the Copyright Office has also argued that Congress should amend the Copyright Act to make it clear that § 203, and not § 304, should apply to such gap grants, reasoning that it is the logical and proper interpretation of the statute.

It is clear to the Copyright Office that sections 304(c) and (d) are inapplicable on their face, because they require a subsisting copyright as of January 1, 1978. Gap Grants by definition involve works created on or after this date. At the same time, the applicability of section 203 is confusing. It requires the grant to have been executed on or after January 1, 1978, but it does not explain what execution means or whether execution of the grant is (or at very least can be) different from the execution of a larger contract. Thus Gap Grants raise a very technical question: Is it possible for an author to execute a grant prior to creating the work of authorship?¹⁵

Accordingly, the Copyright Office recommended that § 203 of the Copyright Act be amended to include the following provision: “For purposes of this section, and without prejudice to the operation of any other provision in Title 17, the date of execution of the grant is no earlier than the date on which the work is created.”¹⁶

The answer as to which section applies to gap grants is far from semantic. For example, for a 1977 agreement governing 1978 works, the year 2013 would be the first available year to effectuate termination if § 203 applies (35 years after 1978). If, however, it is found that § 304 applies, termination could not be effected until 2034 (56 years after the date copyright was originally secured, assuming publication and registration in 1978).¹⁷ It is thus not surprising that proponents for current copyright owners, such as RIAA, contend that § 304 should apply to these works. Barring congressional amendment, it is likely that the issue will be resolved by the courts.

Additional Potential Disputes

As with the renewal term system before it, enterprising copyright owners will undoubtedly look for other ways to diminish, or even circumvent, an author’s right to recapture his or her copyrights, as the Scorpio case attests. Accordingly, a myriad of additional issues will inevitably be decided by the courts over the next few years, including:

• Will recording artists or other classes of creators be deemed workers for hire for whom no termination right exists?
• Will the statute of limitations bar litigating authorship credits/splits, which are not reflective of the actual coauthorship contributions of each writer, but which have been in effect for 35 years?
• Should gap grants be considered post-1977 grants for which termination can now be effected under § 203?
• What exactly does the terminating author get back?
• Can the original grantee grant long-term derivative work licenses just before the effective date of termination to undermine the intended purposes of the statute?
• What effect, if any, will termination have upon exclusive licenses that may have been granted by the original grantee prior to the effective date of termination, and which license purports to grant exclusive rights beyond the effective date of termination?
• Can a non-U.S. citizen terminate a United States grant of copyright in a worldwide grant, and if so, does the grantee have to have filed a U.S. copyright registration in order to do so?
• If a record, movie, or television producer were to terminate his or her grant of copyright, what would he or she recapture and what would he or she receive as his or her pro-rata share of the subject copyright from future commercial exploitation of the subject copyright?

Conclusion

In sum, the future has in store many critical decisions for copyright practitioners. The resolution of these issues, such as Willis’s ongoing effort to reclaim the totality of the copyright interests he bargained away in the late 1970s, will have enduring impacts on all industries that rely upon the creations of songwriters, artists, photographers, directors, designers, and other authors for the goods and services they market.

Endnotes

1. 17 U.S.C. § 24 (1909).

2. See 3 Nimmer on Copyright § 9.02 (citing H.R. Rep. No. 60-2222, at 14 (1909)).

3. Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643 (1943).

4. 17 U.S.C. § 203. With respect to pre-1978 copyrights, the Copyright Act continued the renewal term system, but added an additional 19 years of copyright protection to the renewal term (since extended further), and provides authors with a commensurate right to terminate grants 56 years after copyright was originally secured, which is codified in 17 U.S.C. § 304 and largely mirrors the provisions of § 203.

5. 17 U.S.C. § 203.

6. Id. § 203(a)(2)(A)–(D).

7. No. 11cv1557 (BTM), 2012 WL 1598043 (S.D. Cal. May 7, 2012).

8. Id. at *5.

9. 17 U.S.C. § 507(b).

10. Id. § 101 (emphasis added).

11. 490 U.S. 730, 750–51 (1989).

12. Id. at 751 (footnotes omitted).

13. Aymes v. Bonelli, 980 F.2d 857 (2d Cir. 1992).

14. Gap in Termination Provisions, 75 Fed. Reg. 72,771 (Nov. 26, 2010).

15. U.S. Copyright Office, Analysis of Gap Grants under the Termination Provisions of Title 17, at ii (2010), available at http://www.copyright.gov/reports/gap-grant%20analysis.pdf.

16. Id. at iii.

17. See 17 U.S.C. § 304(c)(3).