Thursday, June 09, 2005

Do Termination of Transfers Matter?

Yes, termination of transfers matter quite a bit. But figuring out how they work and why they are in the statute can be head-scratching. Termination of transfers are the result, ultimately, of two factors. First, the Supreme Court's belief that it could make better policy than Congress; and second, Congress's decision in the 1976 Act to switch to a term of protection measured by life of the author, rather than, as under the 1909 Act, from the date of first publication.

The 1909 Act provided for two terms, an original term of 28 years, and a renewal term also of 28 years but dependent upon a proper renewal in the final year of the original term. The purpose of this arrangement was (hard as it is to believe) to give the author a second bite at the apple: because it was believed difficult to calculate the market value of a work at its inception, it would be hard to calculate what an assignment of the renewal term was worth. Congress therefore considered the renewal term to be an opportunity for the author or his or her heirs to renegotiate the terms of an assignment made during the original term. But that plan worked only if the author was not permitted, during the original term, to also convey the renewal term. If the author could convey the renewal term along with the original term, the plan failed.

In Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643 (1943), this question was squarely presented. In a 6-3 opinion by Justice Frankfurter, the Court held the author could assign in futuro the renewal right. For those who have read the catty comments about legislative history made by Frankfurter previously as law professor, his phrasing of the issue will come as a surprise. It will also come as a surprise to those who believe that the Scalian textualist approach to statutory construction is and always has been mainstream. Here's how Frankfurter posed the issue presented:

"Plainly, there is only one question before us -- does the Copyright Act nullify an agreement by an author, made during the original copyright term, to assign his renewal? The explicit words of the statute give the author an unqualified right to renew the copyright. No limitations are placed upon the assignability of his interest in the renewal. If we look only to what the Act says, there can be no doubt as to the answer. But each of the parties finds support for its conclusion in the historical background of copyright legislation, and to that we must turn to discover whether Congress meant more than it said."

After traversing the history of U.S. copyright acts and legislative history, Frankfurter got to the real point, and that point was his preferred policy:

"If an author cannot make an effective assignment of his renewal, it may be worthless to him when he is most in need. Nobody would pay an author for something he cannot sell. We cannot draw a principle of law from the familiar stories of garret-poverty of some men of literary genius. Even if we could do so, we cannot say that such men would regard with favor a rule of law preventing them from realizing on their assets when they are most in need of funds. Nor can we be unmindful of the fact that authors have themselves devised means of safeguarding their interests. We do not have such assured knowledge about authorship, and particularly about song writing, or the psychology of gifted writers and composers, as to justify us as judges in importing into Congressional legislation a denial to authors of the freedom to dispose of their property possessed by others. While authors may have habits making for intermittent want, they may have no less a spirit of independence which would resent treatment of them as wards under guardianship of the law."

Whether one agrees with this or not (and great judges like Judge Pierre Leval do agree with the policy expressed by Frankfurter), the Court should not have ended up where it did, since it conceded the statute was plain and plainly to the contrary. In the 1976 Act, Congress took care of this by making termination of transfers inalienable. There are of course two of them. The first, in Section 304, deals with works protected under the 1909 Act, and gives the right to terminate the extra 19 years added in 1976 (28+28+19). An extra opportunity to terminate was added for the 20 years tacked on by the Sonny Bono Act (28+28+19+20) in case the author missed the deadline for the 19 year termination. (I take credit for this third bite).

The second termination, in Section 203, deals with terminations of transfers made after January 1, 1978 and thus this right includes 1909 Act works too if the transfer was made after 1/1/78. Some works may thus have both 304 and 203 termination rights. Or, a work created from 1909 to 1977 may not have a Section 304 termination right at all if it was unpublished and protected federally only by virtue of Section 303.

Importantly, there is no termination of transfer right if the work was made for hire. Terminations could have been made automatic. This would have greatly simplified things. But in the rough-and-tumble of lobbying, this didn't happen, and the current Rube Goldberg provisions are a result. Whether the very low termination right (perhaps 4% on average, but much higher for musical works) is the result of this complexity (and if so it mirrors renewal) or is the result of a lack of a desire to terminate is, no doubt, a highly partisan affair.


Anonymous said...

I think we can reasonably assume that the low termination-rate to some extent reflects the complexity of the termination process and the inequality in the economic position of the author's heir (a private individual, though sometimes assisted by a trust or other institution) and the assignee (often an immortal and powerful corporation). And even if an assignment is terminated, there can be subsequent disputes in court over the precise extent of what was assigned (and therefore terminated). Was not the "Superman" controversy of a few years ago a dispute of this kind ? Automatic termination, desirable though it is, would not completely short-circuit all such disputes.

Anonymous said...

As usual, Prof. Patry has flagged a number of interesting issues.

Another facet of § 203 termination is the Ninth Circuit's ridiculous opinion in Rano v. Sipa Press, 987 F.2d 580 (9th Cir. 1993). This case held that where a license agreement does not contain any express duration terms or termination procedures, § 203 preempts state contract law (which typically makes such licenses terminable at will) and creates a minimum term of 35 years. As one commentator (Mark Radcliffe) has put it, this decision "takes a provision meant to protect the author and turns it into a straitjacket."

Fortunately, the other circuits have explicitly rejected Rano, and permit earlier termination if permitted by applicable state contract law. See, e.g., Walthal v. Rusk, 172 F.3d 481 (7th Cir. 1999); Korman v. HBC Florida, Inc., 182 F.2d 1281 (11th Cir. 1999). Indeed, as the Seventh Circuit colorfully observed, "If the Rano decision were a Broadway show, bad reviews would have forced it to close after opening night." 172 F.3d at 483. Nevertheless, it's still the law in the Ninth Circuit.

LKB in Houston

William Patry said...

A good friend of mine was involved in the Superman termination efforts. A significant problem for terminations involving famous characters is identifying all of the different grantees whose rights who are sought to be terminated. See 37 CFR 201.10(b)(i). In the case of Superman, for example, how many different grantees were there for television shows, books, clothes, posters, and other memorabilia? Tracking all these down is seeming impossible but if you don't how can you terminate?

Anonymous said...

Automatic termination, desirable though it is, would not completely short-circuit all such disputes.

I'd disagree with you. I think that termination is a pretty dumb idea, any way you look at it. It's very paternalistic to give authors an out of otherwise perfectly valid contracts. I think it'd be far better to abolish the practice. And while I'd like to see a return to multiple terms, I think it'd be better to allow rightsholders to assign (or retain) renewal rights.

Children might deserve two bites at the apple; don't go treating authors like children.

Anonymous said...

If it is "paternalistic" to recognize that not all contracts are made between equal parties, and that the weaker party may need some legal devices-(termination of copyright; the doctrines of "adhesion" and "unconscionable contract"; fair-labor laws; and so on) to compensate for weakness, then this is the sort of "paternalism" that we probably need more of, or at least (human beings being what they are) better enforcement of..

Anonymous said...

Unequal positions for contractual parties is a fact of life.

If an author can break his word and take back his work, why shouldn't I be able to break my word and get my money back for my 13 year old car?

You seem to be going in a direction of making contracts unenforceable altogether. That seems like an amazingly bad idea to me, and probably to most people, which is why there are very few, very limited grounds on which you can escape a contract normally.

After all, we're not talking about unconscionable contracts here, or otherwise unenforceable ones. We're talking about good, valid contracts that authors only don't like years down the road.

And as for fairness, frankly, it's quite unfair to allow termination. For example, in the Superman case, it wasn't the creators who made the character into a valuable one. It was the publisher. Why should the author get to reap what he hasn't sown?

William Patry said...

The same sort of issue raised by Timothy in his last comment (that the publisher ends up creating the market value) are seen in the debates over droit de suite (resale royalty) for visual artists. The artists claim the right is necessary because the reproduction right is inadequate; art dealers and houses claim that they are the ones who take the risks and should not have to share the upside.

Anonymous said...

Professor, you seem to be mistaking the anonymous contributor's comment for one of mine. I'm not sure that I would ever state that publishers "create" market value. After all, the publishers have been whining since the late 17th century about how incompetent they are at their trade. Only one book in five succeeds, so they must have monopolies, and ever more monopolies, in order to be able to cash in on the few successes.

William Patry said...

Timothy, I was confusing you with Anonymous, sorry (although no slight intended toward Anonymous). I'll do t'shuva by a posting Monday on droit de suite and the law and economics of visual artists' resale royalties, which as I mentioned, raises I think similar issues.

Anonymous said...

In response to LKB in Houston re: Rano v. Sipa Press...

I know that Nimmer thinks its bad law, but I can think of no way to reconcile 17 USC 203(b)(6) or 17 USC 304(c)(6)(F) [holding that any grant that is silent wrt termination will extend throughout the entire copyright term] with anything but the holding in Rano.

I think the contrary rulings from the other circuits have good intentions, but fixing this seems like a job for Congress, not the judiciary.

Daniel said...

Hi, I'm writing a note for the Columbia Journal of Law and the Arts on termination. I'm curious how you know or estimate the termination rate, so far, to be around 4%?



Anonymous said...

In your blog, you state that "some works may thus have both 304 and 203 termination rights." When this does occur, which state of laws prevails? Can you provide further guidance with this dilemna? Does the "Winnie the Pooh" case shed any light on this situation? (Would the 1983 contract in the "Winnie the Pooh" case be subject to termination rights of section 203?) Any help on this matter would be appreciated.

William Patry said...

Brian, I am unaware of any case that has addressed the issue of a conflict between the two sections. Raya Dreben noted the problem in an article, "Section 203 and a Call for a Hurried review of the 1976 Copyright Act: Dealing with the New Realities," (N.J. Copyright Doc'y 1977). The Pooh case dealt with whether an agreement that wiped out the termination rights was enforceable so I don't see the relevance.
Daniel, the figure on the number of terminations comes from Copyright office testimony.