Copyright Act §203: Could More Blockbusters Get Busted?
Article

Copyright Act §203: Could More Blockbusters Get Busted?

By Evynne Grover, AVP, Claims Practice Leader – Media Liability, QBE North America

This first appeared in The Communications Lawyer, which is published by the American Bar Association's Forum on Communications Law.

Producers of some of the most profitable movies of the 1980s have recently been informed that their rights to make sequels are being cut off.1 The rights-slayers are authors of copyrighted source material who are increasingly citing § 203 of the Copyright Act2 to terminate the grants and licenses they gave to movie studios that produced films based on their copyrighted source material.3 Impacted properties include The Terminator, Friday the 13th, and Die Hard.4 This disruption threatens to put an end-date on producers’ longstanding permission to make sequels, reshape the Hollywood landscape of sure-thing blockbuster franchises, create uncertainty in business deals, create a cloud on title that hampers the ability to obtain media errors and omissions insurance, and set in motion the next wave of copyright litigation.5

Section 203 permits an author who signed away rights to a creative work on or after January 1, 1978, to terminate that grant and cause the rights to revert back to the author, or the author’s heirs, giving the author or author’s heirs a fresh start in exploiting the creative work. “The termination right was expressly intended to relieve authors of the consequences of ill-advised and unremunerative grants that had been made before the author had a fair opportunity to appreciate the true value of his work product,”6 while acknowledging “the possible disruption such exercise of the termination right might bring to long-established business dealings and the chains of title involving affected properties.”7 This article will explore the history and intent of the statute, the applicable and potentially applicable case law, and practical implications, especially from the perspective of film producers.

History and Intent of § 203

The Copyright Act of 1909 provided copyright protection to an author in an initial 28-year term, which the author could then renew for another 28 year term.8 The 1909 Act permitted exercise of the renewal even if the author had granted the rights in the initial copyright term to a publisher, permitting an author who was “originally in a poor bargaining position, to renegotiate the terms of the grant once the value of the work ha[d] been tested.”9 “When an author produces a work which later commands a higher price in the market than the original bargain provided, the copyright statute is designed to provide the author the power to negotiate for the realized value of the work”10 as “[a copyright] is by its very nature incapable of accurate monetary evaluation prior to its exploitation.”11 However, authors frequently assigned the renewal rights to publishers, which undercut the purpose of the two-pronged term.12 Once the Supreme Court held that renewal rights were assignable during the initial copyright term, publishers began to insist that authors assign both their initial and renewal rights to them in one transfer, which effectively eliminated the renewal right,13  and that second chance.

When Congress overhauled the copyright law with the enactment of the Copyright Act of 1976,14  the dual-term structure was replaced by a single copyright term for works created on or after January 1, 1978, lasting the life of the author plus 50 years.15 Although there was no renewal opportunity, Congress took another stab at creating a statutory structure that enables authors and their heirs to get a second chance to control and exploit their copyrighted work.16 Sections 203 and 304 of the Copyright Act of 1976 create a framework for the author or certain enumerated heirs to terminate transfers of copyrights or licenses and get that second chance.

Section 203, titled “Termination of transfers and licenses granted by the author,” provides for termination of “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” for all works, other than works made for hire, under certain enumerated conditions.17 It was enacted as “a practical compromise that will further the objectives of the copyright law while recognizing the problems and legitimate needs of all interests involved.”18 Its detailed sections and subsections assert intricate commandments that may appear perfectly adequate in a vacuum.

Termination may be exercised at any time during a five-year period, beginning at the end of 35 years from the date of execution of the grant.19 However, if the grant covers the right of publication of the work, the five-year period begins at the earlier of 35 years from the work’s publication or 40 years from the execution of the grant,20 whichever term ends earlier,21 which was designed to account for the years that may elapse between the signing of a publication contract and the eventual publication of the work.22 The termination can be effected by the author or certain of the author’s statutory heirs according to a framework that lays out a road map for various iterations of heirs and joint work situations.23

Technical requirements of § 203 termination notices include service upon the grantee or the grantee’s successor of a writing listing the effective date of the termination, not less than 2 or more than 10 years before the effective date; recordation in the Copyright Office; and compliance with the Register of Copyrights.24 The termination right is unaffected by “any agreement to the contrary, including an agreement to make a will or to make any future grant”25 and thus “cannot be waived in advance or contracted away.”26

Congress inserted a number of key limitations that protect the rights of grantees served with a termination notice.27 Most relevant is that a notice of termination does not cancel a grantee’s rights to exploit derivative works prepared under authority of the grant before termination.28 While a derivative work prepared by the grantee based on the now-terminated copyright grant or license “may continue to be utilized under the terms of the grant after its termination,” no further derivative works may be prepared.29 Thus, a studio that has invested 35 years of money and marketing into a film can continue to reap the benefits of that film, but it cannot base further works upon the original source material.

In addition, while “[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 the termination,”30 Congress created “[a]n exception, in the nature of a right of ‘first refusal.’”31 Specifically, it permits the original grantee or successors to enter into an agreement for such further grant at any time “after the notice of termination has been served.”32 Lastly, Congress clarified that a termination affects only the U.S. copyright interests covered by the grants and has no impact on “any other Federal, State, or foreign laws,”33 thus minimizing the scope of concerns of the original grantees.

The “work made for hire” exception acts as a further limitation,34 recognizing that “in the case of works made for hire the employer is considered the author of the work and is regarded as the initial owner of copyright unless there has been an agreement otherwise.”35 Section 101 of the 1976 Copyright Act codified a “work made for hire” in pertinent part as “(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 . . . if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.”36

Analysis Under § 203 Requires Discussion of § 304

There is very little case law construing § 203 termination because “opportunities to execute termination notices under § 203 started to accrue ‘for the first time on January 1, 2013.’”37 Due to the limited pool of § 203 case law, examination of § 203 will be viewed in part through the prism of case law analyzing termination under § 304, which pertains to the duration of copyrights that were already in existence on January 1, 1978, and the termination of transfers and licenses permitted for works that were in their renewal term on that date.38 In fact, “[m]ost existing case law on copyright termination pertains to § 304(c) because opportunities to terminate copyright grants became ripe under this statute earlier than grants subject to § 203.”39

As § 304, titled “Duration of copyright: Subsisting copyrights,” applies to copyrights existing on January 1, 1978, that were subject to the two-prong renewal structure, it is more expansive than § 203. Section 304 extended the life of existing copyrights initially by 19 years for a total of 75 years, and per 1998 amendment by another 20 years to a total of 95 years,40 and tackled the intricacies of renewal by the various categories of heirs and parties that could carry out the renewal. Section 304(c) is “a close but not exact counterpart” of § 203.”41 This subsection, titled “Termination of Transfers and Licenses Covering Extended Renewal Term,” provides for termination of “the exclusive or nonexclusive grant of a transfer or license of copyright of the renewal copyright or any right under it, executed before January 1, 1978, by any of the persons designated by subsection (a)(1)(C) of this section, otherwise than by will” for all works, other than works made for hire, under certain enumerated conditions.42 The author or certain successors could terminate between 56 and 61 years after the work was copyrighted, or for a period of 5 years after January 1, 1978, whichever was later.43

The 1998 amendment added a further termination opportunity for copyrights still in their renewal term in 1998 where the § 304(c) termination right had already expired unexercised.44 Thus, § 304(c) differs from § 203 insofar as the scope of the rights that can be terminated, the timing of the initial grant at issue, and who may effect termination. However, the conditions and limitations of § 304(c) are similar to those provided in § 20345 and “identical words used in different parts of the same Act are intended to have the same meaning.”46

Case Law and Evolving Issues Under § 203

As the ability to terminate grants and licenses from the late 1970s and early 1980s ripens, the courts have been tasked with resolving a number of legal disputes, some resulting in settled law, and others currently in flux and suggesting further questions. Many of the key reported decisions pertain to termination of copyrights for musical compositions and sound recordings.47 Below is a sampling of relatively recent cases involving copyright termination that highlight the technical maze the courts must navigate, provide some key rulings to date, and foreshadow the issues that filmmakers should ponder.

  • A dispute over rights to the song “Santa Claus Is Comin’ to Town” allowed the Court of Appeals for the Second Circuit to ruminate over a series of contracts under the various provisions of § 203 and § 304, determine whether a contract superseded an earlier contract to bring the source of rights into § 203 territory, calculate termination periods, and evaluate termination notice effectiveness.48 The songwriter’s heirs asked the court to rule on the effectiveness of termination notices served on a music publisher whose predecessor49 obtained the rights.50 In 1934, the songwriter granted the copyright to the publisher, and separately granted the publisher the renewal rights in 1951.51 Shortly after sending the publisher a termination notice under § 304(c) in 1981, which rights derived from the 1951 renewal, the songwriter renegotiated with the publisher and granted the publisher all rights known or existing and all reversionary and termination interests.52 Encouraged by 1998 amendments adding a new termination right, the songwriter’s heirs served a termination notice on the publisher under § 304(d) in 2004 purporting to terminate the 1951 agreement, leading to negotiations and agreement that § 203 provided the appropriate scheme.53 In 2007, the songwriter’s heirs served a termination notice under § 203 (later revealed to be unrecorded) purporting to terminate the 1981 agreement.54 Further negotiations stalled, and the publisher argued that the termination rights had already been exercised by the 1981 agreement.55 In 2012, the songwriter’s heirs served another termination notice under § 203 in the event the 1981 agreement was deemed to cover the right of a publication of the work, which would have made the 2007 notice premature.56 The heirs filed suit to obtain a judicial ruling as to the validity and enforceability of their copyright termination notice.

    The court evaluated the language of the 1981 agreement under New York contract law pursuant to a choice of law provision in the 1981 agreement and determined that the parties intended for it to supersede, and substitute, for the 1951 agreement.57 Thus, the court held that the 1981 agreement replaced the 1951 agreement as the source for the publisher’s rights in the song, the heirs could terminate it under the applicable § 203,58 and that the 2007 termination notice was effective to terminate the 1981 agreement in 2016.59

    The court also highlighted that the grantee is the only entity permitted to enter into a new rights agreement with the author before the effective date of a termination (during the window of time after service of the notice of termination), per the “existing-grantee exception,” which is intended to give the grantee “some advantage over others in obtaining the terminated rights.”60

  • When an Italian composer sought to terminate his prior assignment of the copyrights to scores for six Italian films that had been commissioned in the late 1970s and early 1980s, the grantee music publisher contested the termination on the ground that the scores were commissioned pursuant to the Italian law equivalent of works made for hire and thus not subject to the § 203 termination.61 The Court of Appeals for the Second Circuit held that Italian law does not recognize an allocation of authorship comparable to a work made for hire and that the assignment was subject to § 203 termination.62 The court also pointed out that the dispute involved only “the rights to reproduce the music in new recordings, to perform the music, or to sell the music for use in other films” and not the “use [of] the scores in the motion picture 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.’”63
  • A dispute between the heirs of singer/songwriter Ray Charles and the sole beneficiary of Charles’s estate, the Ray Charles Foundation, gave rise to an examination of standing to challenge copyright termination notices, and their validity and effectiveness.64 Charles conveyed his copyrights to a music publisher in the 1950s and renegotiated his copyright grants in 1980 pursuant to an agreement that provided him an advance payment and royalties.65 Charles set up the foundation for charitable purposes funded solely by royalties from his works.66 In 2002, Charles entered into agreements with a number of his heirs to fund a trust in exchange for their waiver of further claims against his estate. In 2010, a number of heirs filed multiple notices under § 203 and § 304(c) to terminate pre- and post-1978 grants authorized by Charles with respect to multiple compositions.67 The foundation sued to challenge the termination notices on grounds including that the compositions were works made for hire and the 1980 agreement satisfied the right of termination.68 The heirs argued that the foundation was without standing as it was really asserting the rights of the publisher and that authors and their heirs are intended beneficiaries of § 203, not grantees.69

    The court deemed the foundation’s lawsuit ripe, accepting as true the foundation’s representation that it felt the effects of the termination notices “in a concrete way” because the notices “created an enormous cloud over the future copyright ownership” of the works and made it “very difficult, if not impossible, to exploit the valuable copyrighted assets.”70 In addition, the court held that requiring different suits after each termination date had passed would be “an inefficient use of judicial resources.”71 Interestingly, the court noted that by the time of the district court’s order, the purported termination dates for 12 of the 51 works had passed and, as of the issuance of the subject opinion, the purported termination dates for 23 works had elapsed.72

    The court proclaimed that determination of the effectiveness of a termination notice can be made only by a court of law, as the Copyright Office does not issue or enforce notices of termination.73 In addition, the court held that the foundation had standing to challenge the heirs’ termination notices because the foundation was “litigating its own stake in the controversy.”74 The court explained its conclusion, specifying that the termination notices “directly affect the Foundation’s right to royalties” and an effective termination notice “would deprive [the foundation] of the right to receive prospective royalties.”75 Further, the foundation’s questions were deemed within the zone of interest contemplated by § 203(a) and § 304(c).76 The court also concluded that, although not expressly provided by the Copyright Act, an implied private cause of action exists under § 203 and § 304(c) termination provisions.77 After finding that termination would directly extinguish the foundation’s right to receive prospective royalties from the current grants, the court remanded the case for further proceedings.78
  • When comic book publishers challenged the copyright termination notices served by the heirs of comic book illustrator Jack Kirby, the Court of Appeals for the Second Circuit undertook a factually intensive inquiry to determine whether the drawings at issue were works made for hire.79 The heirs served termination notices seeking to terminate rights in 262 works created between 1958 and 1963 under § 304(c), and the publishers sought a declaration that the heirs had no termination rights under § 304(c)(2) because the works were “made for hire” by Kirby for the publisher, excepting them from the termination benefits of § 304(c).80 Kirby was a freelancer, was not paid a fixed wage or salary, did not receive benefits, and set his own hours, although he was closely associated with the publisher and worked in tandem under their direction.81

    The court conducted its evaluation according to the case law interpreting “works made for hire” that was in effect when the works were created and the “instance and expense test,”82 which generally looks to whether the “employer induces the creation of the work and has the right to direct and supervise the manner in which the work is carried out,” and whether the hiring party has invested resources in creation of the work.83 The test “turns on the parties’ creative and financial arrangement as revealed by the record in each case.”84 The court reconstructed the dispute via deposition testimony of the publisher, depositions and declarations of other comic book artists who worked for the publisher at various time, depositions of the heirs, and some documentary evidence.85

    The court’s bases for finding that the works were at the publisher’s instance include that their relationship with Kirby was close and continuous, Kirby was kept busy with assignments from the publisher throughout the relevant time period, and Kirby created the relevant works pursuant to the publisher’s assignment and with the publisher specifically in mind.86 Further, the relationship, “however unbalanced and under-remunerative to the artist, is therefore what induced Kirby’s creation of the works.”87 While the question of expense was a closer call, the court found the publisher took on the risk of financial loss as it paid Kirby a sum certain for his work regardless of whether it was published or successful.88 The court further concluded that the presumption of work for hire was not overcome by evidence of any agreement to the contrary, and the copyrighted works were not susceptible to § 304(c) termination.89
  • Termination notice technical compliance was the subject of a very recent district court ruling that considered the bounds of adherence to the statutory and regulatory requirements.90 Musician and songwriter Jason Mtume sought to terminate a 1977 agreement in attempt to get back the copyrights to three sound recordings he had conveyed.91 The current assignee of the recording contract rejected the termination notices contending, inter alia, the notices did not comply with the Copyright Act, the recordings were not subject to § 203 termination because they were created pursuant to a grant contained in a 1977 agreement, and other potential authors might exist whose grants were not noticed for termination.92

    The motion to dismiss focused on the purported invalidity of the termination notice for its failure to list the correct date of execution for the works as required by the Copyright Office.93 First, the court noted the sound recordings fit the category of “gap grants,” which are pre-1978 agreements concerning works that were not created until 1978, which are subject to the § 203 termination framework per a 2010 clarification from the Copyright Office.94 Second, the court evaluated the termination notices’ technical compliance. For example, it was noted that “date of execution of the grant” means “the date on which a written contract transferring the author’s rights to another party was signed,” but for gap works it means “the date on which the work was created,” and “creation” is different for sound recordings.95 In addition, the court questioned whether the lack of technical compliance may be “harmless error.”96 Further, the court also highlighted the need “for the existing assignee to receive reasonable notice of what rights of theirs are being affected through the exercise of the [artist]’s . . . termination right.”97 As the dates listed on the termination notices did not seem to make sense, the court asserted the need for additional factual inquiry to examine whether the assignee was appropriately on notice, whether a different date would materially affect the termination, and whether the error was made in good faith.98
  • The screenwriter of the original Friday the 13th film was found to have successfully exercised his right to termination under § 203, enabling him to take back the rights he conveyed in 1979 to a production company pursuant to a contract.99 In response to Victor Miller’s filing of a number of notices terminating the grant of rights in the screenplay made to the production company, the production company and its successor filed suit contending the termination notices were invalid because the screenplay was a work made for hire, and thus the notices were a breach of his “employment agreement.”100 Miller sought a declaration of the validity of the termination. In a ruling that is currently subject to a pending appeal, the district court undertook a detailed examination of the relationship between Miller and the production company to consider the production company’s assertion that the screenplay was a work for hire,101 and other defenses raised.102

    In finding the screenplay was not a work made for hire, the court looked to the Copyright Act’s work made for hire definition under § 101 under the Supreme Court’s agency law analysis,103 refusing to supplant it with a labor law analysis that was suggested by the producers.104 The court noted the contract at issue had no express agreement regarding work for hire status, or any other express arrangement regarding copyright, and that Miller did not prepare the screenplay as an employee within the scope of his employment. Some factors cited in the agency analysis include the production company failed to show that they closely controlled the details of Miller’s creative expression, or otherwise directed the performance of Miller’s daily activities; Miller did not receive traditional employee benefits; Miller was not treated as a traditional employee for tax purposes; Miller’s compensation was based on completion of the individual project rather than time worked; and, emphasized by the court as a key factor, the producers were unable to assign Miller additional projects unrelated to completion of the Friday the 13th screenplay.105 The court also found that the contributions of the producers did not deprive him of sole authorship.106 The court also rejected the production company’s statute of limitations defense, finding the few occasions where another entity was listed in a copyright notice did not equate with clear repudiation of ownership sufficient to trigger a copyright claim.107

    One of Miller’s termination notices was deemed effective to terminate the 1979 grant notwithstanding that it contained certain incorrect addresses as the “error does not rise to the level of invalidat[ion].”108 The court concluded that Miller’s “reacquired copyright will extend to all copyrightable content in the screenplay” except for a single scene.109 In addition, the court clarified that the “termination notices apply only to the copyright in the screenplay for the first film, and did not purport to terminate a separate copyright in the adult Jason character present in later films. Adjudication of the status of any copyright in the adult Jason character will have to await a ripe dispute with respect to that issue.”110

    On appeal, the production company asserts the court erred in failing to find that Miller was an employee by virtue of his membership in the Writers Guild of America (WGA), arguing that the production company, a WGA collective bargaining agreement signatory company, could hire him only by complying with the terms of the WGA collective bargaining agreement, which imposes employee status on a screenwriter.111 The production company cautions that the “decision threatens to upend that structure, disrupting long-settled relationships in the film industry and undermining the very benefits the WGA has so successfully negotiated for its members.”112 The production company also contends the district court misapplied the Supreme Court agency analysis factors, including failure to give weight to the terms of the WGA collective bargaining agreement applicable in light of Miller’s WGA membership and his “WGA-signatory employer.”113  Lastly, the production company asserts it was an error to find no express repudiation and deem the copyright notices not time-barred under the statute of limitations.114

Practical Implications

As the copyright termination notices roll in, what’s a purportedly terminated grantee or licensee to do? If a production company has spent some 35 years developing, advertising, and promoting the copyrighted work, its investment has likely caused, or at least substantially contributed to, the increased value, popularity, and recognizability of the work. The termination provisions are intended to benefit authors while acknowledging “the possible disruption such exercise of the termination right might bring to long-established business dealings.”115 In practice, a balanced middle ground is difficult to achieve. What options and considerations are available?

Question the termination notice

Upon receipt of a termination notice, there are many angles to explore to confirm whether the grant or license is subject to termination, and whether the termination notice is legally compliant.

  • Is it a work made for hire? Because a work made for hire is excepted from the termination provisions, it is important to evaluate the true owner of the original work and the conditions under which it was created. As demonstrated by the Kirby and Miller cases,116 it is important to determine when the work was created and which legal standard applies to evaluate work made for hire status. Regardless of which work for hire definition is applicable, key considerations will be whether there was an employment relationship, who had ultimate creative control over the work, who invested resources that were used to support the work, and how was the creator paid. In light of the time that has likely elapsed since the grant, it is also important to consider what documents or witnesses are available to provide evidentiary support.
  • Was the original grant or license signed by the appropriate individual? Was the subject grant or license signed, if after January 1, 1978, by the author? If not, then § 203 termination is not permitted. Is the grant susceptible of § 304(c) termination? If there are multiple authors or owners, was the termination signed by the majority of the authors who executed it or their heirs?

    Another angle of inquiry was highlighted in a recent class action lawsuit that takes issue with a recording company’s rejection of copyright termination notices.117 In a motion to dismiss, the recording company contends that certain contracts granting rights were not executed by the recording artists who executed the termination notices, but instead by their “loan-out” companies or other companies that agreed to furnish their recording services.118 This angle remains an open question.
  • What is the operative grant or license, and when was it executed? Does § 304(c) or § 203 apply? Generally, if the operative grant or license was executed prior to January 1, 1978, § 304(c) applies, and if executed on or after January 1, 1978, § 203 applies. Depending on the applicable statute, termination might be permitted, or might not, and the window to exercise termination might have passed, or might not accrue for many years. The provisions are similar with respect to exercise of the rights, but their differences have critical impact on the overall analysis. Was there ever a contract that acted as a termination, such that § 203 would be inapplicable because an author can exercise the termination right only once?119 Was there ever a contract that superseded or replaced the original grant, as in the Baldwin case?120
  • Is the termination notice compliant? Was it sent in the appropriate time period? Does it contain the appropriate information? Does it give reasonable notice of what rights are being effected through the exercise of the termination right? Was it recorded in the Copyright Office before the effective date of termination? Might any errors be deemed “harmless,” as discussed in the Mtume case?121

Renegotiate

As the original grantee has the effective “right of first refusal” per the “existing grantee exception,” if the work is important enough, the best choice may be to renegotiate a deal that gives the author or the author’s heirs a reasonable level of remuneration. Affirmatively acknowledging the value of the work and forging an amicable discussion may go a long way toward convincing the author or heirs to permit the production company to continue to develop the source work. It may be helpful to give credence to their emotional connection to the work, especially heirs, and how the work is their family legacy. Getting in early and cutting a deal after the termination notice has been served might be the best move to lock in the property. That eagerness could also harm any hard bargain negotiation approach, but the certainty and removal of the cloud could be worth it.

Consider the option, and impact, of litigation

Without question, terminations under § 203 will create a new wave of litigation, and we have already seen some of it. The courts have proclaimed themselves as the appropriate battleground. However, for all of the issues that have been crystalized in § 304(c) litigation and § 203 litigation, there are many more that will be raised and scrutinized over the coming years. As different fact patterns, contractual situations, and compliance questions arise, the courts will be busy weighing choice of law issues, language interpretation, parties’ intentions, and congressional intent, and attempting practical compromises, as well as reconstructing events from 35 years ago. There is a window for sending a notice of termination and it is effective 2 to 10 years after it is sent. The timing of these disputes could create a cloud of uncertainty, tying up projects in copyright purgatory.

If the termination is valid, what remains?

If the termination is valid, careful consideration must be given to assessing what rights remain versus what rights have been cut off. The right to make further derivative works is cut off 2 to 10 years after the effective termination notice because termination can be effective during a 5-year window and the notice can be served not less than two or more than 10 years before the termination date. That leaves a narrow window of time to make further derivative works and sets off a race to get in that one last sequel.122 The original grantee or any successor can continue to exploit the derivative works that were prepared under authority of the grant. “The critical point in determining whether the right to continue utilizing a derivative work survives the termination of a transfer of a copyright is whether it was ‘prepared’ before the termination.”123 The operative word preparation is likely to be the subject of debate in the coming years.
An interesting question arises for the production company that needs to promote the movie completed just before the termination date is effective. Even if the movie is made before the window closes, what about advertising and promotion? Can you exploit the works without creating additional derivative works? In this multiplatform digital world, movies are often promoted with supplementary materials, games, and behind-the-scenes features. How do you make sure all marketing, promotional videos, and supplementary marketing material using the original source work are “prepared” before the window closes? What are the parameters of exploiting the original derivative work, and how do you do it without creating more?
Notably, the copyright termination has no impact on foreign rights, so the works can still be exploited outside of the United States. In fact, the right to make derivative works continues outside of the United States. The scope of any such rights must be determined with the benefit of skilled counsel. In addition, the copyright termination has no impact on trademark rights.

Considerations for subsequent grantees and licensees

The producer who wishes to purchase the rights from the author or heirs after termination has to consider the limitations on the purchase. As only the reverted U.S. copyrights can be purchased, any new works based on the copyrights can be exploited only in the United States or risk foreign litigation. In an international digital economy, that is no small feat. In addition, because any related trademarks will remain with the original grantees, the new purchaser will be limited in connection with marketing and merchandising. Accordingly, the reverted rights will likely have less value to new purchasers, as they are limited and come with their own sort of cloud. Also, remember that while the current grantee gets the “right of first refusal” before the grant is terminated, any new license with a new grantee is effective only if made after the effective date of the termination.

Impact that will be felt across the board

The steady stream of copyright termination notices is already having an impact on the business of making movies. It is a financial, strategic, and creative issue that will disrupt long-term plans and find its way into movie budgets. Current rights holders need to plan by taking inventory of their works that are based on grants and licenses of copyrighted source material. They need to thoroughly examine the chain of title of the rights to determine who executed the grant and when, assess whether termination could be available, anticipate the time permitted for receipt of termination notices, and anticipate when termination could be effective. Once the rights are understood and calculations performed, it will be easier to consider the value of the copyrighted source material, a timetable for additional works, and whether litigation expense or further license fees need to be built into production budgets.
Copyright termination notices are already having an impact on the clearance process for making and insuring movies. Clearance review, which previously might have been a clear-cut chain of title review or fair use assessment, now often must also navigate the academic labyrinth of termination rights and potential termination rights. Production companies want to invest in properties with a clear road ahead, and cloudy titles are not an easy sell, nor are they easily insurable.
There may also be issues with production schedules. Being “behind schedule” may already have significant monetary consequences for an ordinary filmmaker, but failure to “prepare” the derivative work before a rights cut-off could put the entire production and ability to exploit it at risk. Then there are the creative issues. Writers will need to become adept at crafting a production that uses elements that were added on by the production in sequels without using any of the copyrighted source material that reverted to the author or heirs.

Conclusion

The challenge of § 203 copyright terminations is how to enable high-stakes business transactions to proceed unimpeded by the uncertainty of clouded rights. We have the benefit of case law on § 304(c) and some on § 203, but even that will not be enough to completely guide the judiciary through a glut of lawsuits seeking guidance that will be critical to an entire industry. While there won’t necessarily be a race to the courthouse, intellectual property and entertainment lawyers will certainly be kept busy, in conjunction with production companies and their insurance brokers, who will need to address these issues. Enabled by § 203, it is a copyright owner’s prerogative to change his or her mind and attempt to “bust” the blockbuster.

This article is for general informational purposes only and is not legal advice and should not be construed as legal advice. The information in this article is descriptive only. Actual coverage is subject to the language of the policies as issued. Any views or opinions expressed herein are those of the author and do not necessarily reflect the view or opinions of QBE.

BIO:
Evynne Grover is AVP, Claims Practice Leader–Media Liability for QBE North America, New York, New York.

 

1 Eriq Gardner, Real-Life “Terminator”: Major Studios Face Sweeping Loss of Iconic ’80’s Film Franchise Rights, Hollywood Rep. (Oct. 2, 2019, 11:37 AM PT), https://www.hollywoodreporter.com/thr-esq/real-life-terminator-major-studios-face-sweeping-loss-iconic-80s-film-franchise-rights-1244737; see, e.g., Horror Inc. v. Miller, 335 F. Supp. 3d 273 (D. Conn. 2018), appeal docketed, No. 18-3123 (2d Cir. Oct. 19, 2018).

2 Copyright Act of 1976, 17 U.S.C. § 101 et seq.

3 Gardner, supra note 1.

4 Id.

5 Id.

6 Mills Music, Inc. v. Snyder, 469 U.S. 153, 172–73 (1985).

7 Siegel v. Warner Bros. Entm’t Inc., 690 F. Supp. 2d 1048, 1055 (C.D. Cal. 2009), judgment entered, No. CV 04-8400 ODW (RZX), 2011 WL 13127546 (C.D. Cal. Mar. 15, 2011) (quoting Mills Music, 469 U.S. at 173 n.39).

8 The Copyright Act of 1909, 17 U.S.C. § 24 et seq., repealed by Copyright Act of 1976, 17 U.S.C. § 101 et seq.; Baldwin v. EMI Feist Catalog, Inc., 805 F.3d 18, 20 (2d Cir. 2015).

9 Baldwin, 805 F.3d at 20.

10 Stewart v. Abend, 495 U.S. 207, 229 (1990).

11 Id. at 218–19.

12 Baldwin, 805 F.3d at 20.

13 Marvel Characters, Inc. v. Simon, 310 F.3d 280, 284 (2d Cir. 2002) (discussing Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643 (1943)).

14 Copyright Act of 1976, Pub. L. No. 94-553, 90 Stat. 2541 (1976) (codified at 17 U.S.C. §§ 101–808).

15 Baldwin, 805 F.3d at 20. For works created before January 1, 1978, the dual-term structure remained, but the renewal term was extended to seventy-five years from the date copyright was originally secured.

16 Ray Charles Found. v. Robinson, 795 F.3d 1109, 1112 (9th Cir. 2015); Baldwin, 805 F.3d at 19.

17 17 U.S.C.A. § 203.

18 H.R. Rep. No. 94-1476, at 124, 1976 U.S.C.C.A.N. 5659, 5740.

19 Ray Charles Found., 795 F.3d at 1112 (citing 17 U.S.C.A. § 203(a)(3)).

20 Baldwin, 805 F.3d at 21–22 (citing 17 U.S.C.A. § 203(a)(3)).

21 17 U.S.C.A. § 203(a)(3).

22 H.R. Rep. No. 94-1476, at 126, 1976 U.S.C.C.A.N. at 5741–42.

23 17 U.S.C.A. § 203(a)(1), (2).

24 Id. § 203(a)(4); see also 37 C.F.R. § 201.10, Copyright Office regulations.

25 17 U.S.C.A. § 203(a)(5).

26 H.R. Rep. No. 94-1476, at 124–25, 1976 U.S.C.C.A.N. at 5740.

27 Id. at 126–27.

28 17 U.S.C.A. § 203(b)(1).

29 Id.

30 Id. § 203(b)(4).

31 Id.

32 Id.

33 Id. § 203(b)(5).

34 See H.R. Rep. No. 94-1476, at 125, 1976 U.S.C.C.A.N. 5659, 5740.

35 See id. at 121.

36 17 U.S.C.A. § 101.

37 Ray Charles Found. v. Robinson, 795 F.3d 1109, 1112–13 (9th Cir. 2015) (quoting U.S. Copyright Office, Analysis of Gap Grants Under the Termination Provisions of Title 17, at 8 (Dec. 7, 2010), available at http://www.copyright.gov/reports/gap-grant-analysis.pdf).

38 See 17 U.S.C.A. § 304.

39 Ray Charles Found., 795 F.3d at 1113 (also highlighting in footnote 4 that § 203 and § 304(c) termination provisions have other differences not relevant to the ruling).

40 Milne ex rel. Coyne v. Stephen Slesinger, Inc., 430 F.3d 1036, 1038 (9th Cir. 2005) (citing the Sonny Bono Copyright Term Extension Act of 1998 (CTEA), Pub. L. No. 105-298, 112 Stat. 2827 (1998) (codified at 17 U.S.C. §§ 108, 203, 301–304)).

41 See H.R. Rep. No. 94-1476, at 140, 1976 U.S.C.C.A.N. 5659, 5756.

42 17 U.S.C.A. § 304(c).

43 Brumley v. Albert E. Brumley & Sons, Inc., 822 F.3d 926 (6th Cir. 2016) (citing 17 U.S.C.A. § 304(c)(3)).

44 17 U.S.C.A. § 304(d); Baldwin v. EMI Feist Catalog, Inc., 805 F.3d 18, 23 (2d Cir. 2015).

45 H.R. Rep. No. 94-1476, at 140, 1976 U.S.C.C.A.N. at 5756.

46 Penguin Grp. (USA) Inc. v. Steinbeck, 537 F.3d 193, 203 n.6 (2d Cir. 2008).

47 See Gardner, supra note 1.

48 Baldwin, 805 F.3d 18.

49 The publisher and its predecessor are referred to interchangeably as “the publisher” for brevity.

50 Baldwin, 805 F.3d 18.

51 Id. at 20.

52 Id. at 22–23.

53 Id. at 23.

54 Id. at 24.

55 Id.

56 Id.

57 Id. at 27–32.

58 Id.

59 Id. at 34.

60 Id. at 26.

61 Ennio Morricone Music Inc. v. Bixio Music Grp. Ltd., 936 F.3d 69, 70 (2d Cir. 2019) (noting the parties agreed that Italian law governed the contracts and their dispute).

62 Id. at 73.

63 Id. at 71 (citing 7 U.S.C. § 203(b)(1)).

64 Ray Charles Found. v. Robinson, 795 F.3d 1109, 1112–13 (9th Cir. 2015).

65 Id. at 1112.

66 Id.

67 Id. at 1113.

68 Id. at 1114.

69 Id. at 1115–16.

70 Id. at 1116–17.

71 Id. at 1117.

72 Id.

73 Id. at 1117–18.

74 See id.at 1119–20.

75 Id. at 1119.

76 Id. at 1119–23.

77 Id. at 1122.

78 Id. at 1124.

79 Marvel Characters, Inc. v. Kirby, 726 F.3d 119 (2d Cir. 2013), cert. dismissed, Kirby v. Marvel Characters, 573 U.S. 988 (Sept. 26, 2014).

80 Id. at 127.

81 Id. at 125–26.

82 Id. at 137.

83 Id. at 139.

84 Id. at 140.

85 Id. at 140 n.10.

86 Id. at 141–42.

87 Id. at 141.

88 Id. at 142.

89 Id. at 143–44.

90 Mtume v. Sony Music Entm’t, No. 18 CIV. 6037(ER), 2019 WL 4805925 (S.D.N.Y. Sept. 30, 2019).

91 Id. at *1–2.

92 Id. at *2.

93 Id. at *2–3.

94 Id. at *3.

95 Id.

96 Id. at *4–5.

97 Id. at *4 (quoting Siegel v. Warner Bros. Entm’t Inc., 690 F. Supp. 2d 1048, 1051 (C.D. Cal. 2009), judgment entered, No. CV 04-8400 ODW (RZX), 2011 WL 13127546 (C.D. Cal. Mar. 15, 2011)).

98 Id. at *5.

99 Horror Inc. v. Miller, 335 F. Supp. 3d 273 (D. Conn. 2018), appeal docketed, No. 18-3123 (2d Cir. Oct. 19, 2018).

100 Id. at 292.

101 Id.

102 Id. at 294.

103 Id. (citing Cmty. for Creative Non-Violence v. Reid, 490 U.S. 730 (1989)).

104 Id. at 296.

105 Id. at 296–31.

106 Id. at 312.

107 Id. at 315–16.

108 Id. at 319.

109 Id. at 320; see id. at 317 n.25 (noting Miller’s admission that he did not write one scene in which a motorcycle policeman arrives at the camp and cautions some of the children to behave, removing the scene from the realm of reverted rights).

110 Id. at 320.

111 Brief for Appellant at 1–2, Horror Inc. v. Miller, appeal docketed, No. 18-3123 (2d Cir. Oct. 19, 2018).

112 Id. at 2.

113 Id.

114 Id.

115 Siegel v. Warner Bros. Entm’t Inc., 690 F. Supp. 2d 1048, 1055 (C.D. Cal. 2009), judgment entered, No. CV 04-8400 ODW (RZX), 2011 WL 13127546 (C.D. Cal. Mar. 15, 2011) (quoting Mills Music, Inc. v. Snyder, 469 U.S. 153, 173 n.39 (1985)).

116 See, e.g., Marvel Characters, Inc. v. Kirby, 726 F.3d 119 (2d Cir. 2013), cert. dismissed, Kirby v. Marvel Characters, 573 U.S. 988 (Sept. 26, 2014); Horror Inc. v. Miller, 335 F. Supp. 3d 273, 292 (D. Conn. 2018), appeal docketed, No. 18-3123 (2d Cir. Oct. 19, 2018).

117 See Waite v. UMG Recordings, Inc., Case 1:19-cv-01091-LAK (S.D.N.Y. Feb. 5, 2019).

118See Memorandum of Law in Supp. of Def. Mot. to Dismiss, Waite, Case 1:19-cv-01091-LAK (S.D.N.Y. Feb. 5, 2019).

119 See, e.g., Brumley v. Albert E. Brumley & Sons, Inc., 822 F.3d 926, 929 (6th Cir. 2016).

120 See, e.g., Baldwin v. EMI Feist Catalog, Inc., 805 F.3d 18 (2d Cir. 2015).

121 See, e.g., Mtume v. Sony Music Entm’t, No. 18 CIV. 6037(ER), 2019 WL 4805925 (S.D.N.Y. Sept. 30, 2019).

122 See Gardner, supra note 1.

123 Mills Music, Inc. v. Snyder, 469 U.S. 153, 173–74 (1985).

This article first appeared with the title “Copyright Act §203 Termination of Transfers and Licenses: Could More Blockbusters Get Busted?” in The Communications Lawyer, Volume 35, Number 2, Winter 2020, starting on page 23. © 2020 by the American Bar Association. The Communications Lawyer, The Journal of Media, Information, and Communications Law, is a Publication of the Forum on Communications Law of the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association or the copyright holder.