Chapter 8: Reversion of Renewal Rights and Termination
Not only did the requirement of renewal under the 1976 Act result in many copyrighted works entering the public domain after 28 years (in cases in which the author did not take the necessary steps to renew the copyright), it also provided some benefit to authors by automatically reverting the copyright to the original author, even if that author had transferred all rights in the copyright during its initial 28 year term. Thus, an author who had transferred her copyright to a music publisher, for example, was able to renew the copyright after the initial 28 years and thereby recapture the copyright for the renewal term. This was a particularly valuable opportunity for the author in cases in which the perceived value of the work increased after the initial transfer of the copyright, in which case the author would be able to renegotiate a higher royalty for the work the second time around, either to the original transferee, or perhaps to a new transferee.
For example, an author of a comic book series might not be able to negotiate a very lucrative deal with a publisher when the author is still unknown—perhaps it is the author’s first published work, and the only readers are adolescent boys. Twenty-eight years later, the hero of the comic book might have become the subject of blockbuster movies, in which case the author (or his heirs) might be able to negotiate a much more lucrative deal for the renewal of rights in the comic book series and its characters.
An author can renew the copyright by filing an application for renewal within a year before the expiration of the first 28 year term. If the author is no longer alive, his successor in interest, e.g., widow, children, etc., can renew.
In Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643 (1943), the Supreme Court held that when an author assigns his interest in the renewal copyright before he has secured it, then the assignee will own the renewal term, so long as the author survived into the renewal period, and the agreement clearly conveyed the right for valid consideration.
Later, in Miller Music Corp. v. Charles N. Daniels, Inc., 362 U.S. 373 (1960), the Supreme Court introduced an important caveat, holding that if the author dies prior to vesting of the renewal period, any assignment by the author of the renewal copyright is void as a contingent interest, and the copyright renewal term goes to the successors of the author, as specifically identified in the Copyright Act. Significantly, an author and his assignee cannot contract around this limitation on the ability of an author to assign his renewal term prior to its vesting.
The following Supreme Court decision, Stewart v. Abend, addresses the question of what happens when the author assigns the renewal right and dies prior to vesting of the renewal right, and the assignee made a derivative work based on the originally assigned work. In particular, the case involved an author who assigned his rights in a short story to a movie production company, along with his right to the renewal term. The movie production company made a movie based on the short story, and after the copyright in the short story came up for renewal, the author’s successor argued that the movie production company could no longer exploit the movie without the successor’s permission.
Some things to consider when reading Stewart:
- The Court’s discussion of its earlier, related decisions in Fred Fisher and Miller Music, including the congressional intent and policy considerations relating to copyright renewal and reversion of the renewal term.
- The holding of Rohauer v. Killiam Shows, Inc., and why the Supreme Court overruled it in Stewart.
- The policy implications of the Court’s holding.
Stewart v. Abend
495 U.S. 207 (1990)
Justice O’CONNOR delivered the opinion of the Court.
The author of a pre-existing work may assign to another the right to use it in a derivative work. In this case the author of a pre-existing work agreed to assign the rights in his renewal copyright term to the owner of a derivative work, but died before the commencement of the renewal period. The question presented is whether the owner of the derivative work infringed the rights of the successor owner of the pre-existing work by continued distribution and publication of the derivative work during the renewal term of the pre-existing work.
I
Cornell Woolrich authored the story “It Had to Be Murder,” which was first published in February 1942 in Dime Detective Magazine. The magazine’s publisher, Popular Publications, Inc., obtained the rights to magazine publication of the story and Woolrich retained all other rights.
The Copyright Act of 1909 provided authors a 28–year initial term of copyright protection plus a 28–year renewal term. See 17 U.S.C. § 24 (1976 ed.). In 1945, Woolrich agreed to assign the rights to make motion picture versions of six of his stories, including “It Had to Be Murder,” to B.G. De Sylva Productions for $9,250. He also agreed to renew the copyrights in the stories at the appropriate time and to assign the same motion picture rights to De Sylva Productions for the 28–year renewal term. In 1953, actor Jimmy Stewart and director Alfred Hitchcock formed a production company, Patron, Inc., which obtained the motion picture rights in “It Had to Be Murder” from De Sylva’s successors in interest for $10,000.
In 1954, Patron, Inc., along with Paramount Pictures, produced and distributed “Rear Window,” the motion picture version of Woolrich’s story “It Had to Be Murder.” Woolrich died in 1968 before he could obtain the rights in the renewal term for petitioners as promised and without a surviving spouse or child. He left his property to a trust administered by his executor, Chase Manhattan Bank, for the benefit of Columbia University. On December 29, 1969, Chase Manhattan Bank renewed the copyright in the “It Had to Be Murder” story pursuant to 17 U.S.C. § 24 (1976 ed.). Chase Manhattan assigned the renewal rights to respondent Abend for $650 plus 10% of all proceeds from exploitation of the story.
“Rear Window” was broadcast on the ABC television network in 1971. Respondent then notified petitioners Hitchcock (now represented by cotrustees of his will), Stewart, and MCA Inc., the owners of the “Rear Window” motion picture and renewal rights in the motion picture, that he owned the renewal rights in the copyright and that their distribution of the motion picture without his permission infringed his copyright in the story. Hitchcock, Stewart, and MCA nonetheless entered into a second license with ABC to rebroadcast the motion picture. In 1974, respondent filed suit against these same petitioners, and others, in the United States District Court for the Southern District of New York, alleging copyright infringement. Respondent dismissed his complaint in return for $25,000.
Three years later, the United States Court of Appeals for the Second Circuit decided Rohauer v. Killiam Shows, Inc., 551 F.2d 484 (1977), in which it held that the owner of the copyright in a derivative work may continue to use the existing derivative work according to the original grant from the author of the pre-existing work even if the grant of rights in the pre-existing work lapsed. Several years later, apparently in reliance on Rohauer, petitioners re-released the motion picture in a variety of media, including new 35 and 16 millimeter prints for theatrical exhibition in the United States, videocassettes, and videodiscs. They also publicly exhibited the motion picture in theaters, over cable television, and through videodisc and videocassette rentals and sales.
Respondent then brought the instant suit in the United States District Court for the Central District of California against Hitchcock, Stewart, MCA, and Universal Film Exchanges, a subsidiary of MCA and the distributor of the motion picture. Respondent’s complaint alleges that the re-release of the motion picture infringes his copyright in the story because petitioners’ right to use the story during the renewal term lapsed when Woolrich died before he could register for the renewal term and transfer his renewal rights to them. Respondent also contends that petitioners have interfered with his rights in the renewal term of the story in other ways. He alleges that he sought to contract with Home Box Office (HBO) to produce a play and television version of the story, but that petitioners wrote to him and HBO stating that neither he nor HBO could use either the title, “Rear Window” or “It Had to Be Murder.” Respondent also alleges that petitioners further interfered with the renewal copyright in the story by attempting to sell the right to make a television sequel and that the re-release of the original motion picture itself interfered with his ability to produce other derivative works.
II
A
Petitioners would have us read into the Copyright Act a limitation on the statutorily created rights of the owner of an underlying work. They argue in essence that the rights of the owner of the copyright in the derivative use of the pre-existing work are extinguished once it is incorporated into the derivative work, assuming the author of the pre-existing work has agreed to assign his renewal rights. Because we find no support for such a curtailment of rights in either the 1909 Act or the 1976 Act, or in the legislative history of either, we affirm the judgment of the Court of Appeals.
Petitioners and amicus Register of Copyrights assert, as the Court of Appeals assumed, that § 23 [sic, presumably the Court means § 24] of the 1909 Act, and the case law interpreting that provision, directly control the disposition of this case. Respondent counters that the provisions of the 1976 Act control, but that the 1976 Act reenacted § 24 in § 304 and, therefore, the language and judicial interpretation of § 24 are relevant to our consideration of this case. Under either theory, we must look to the language of and case law interpreting § 24.
The right of renewal found in § 24 provides authors a second opportunity to obtain remuneration for their works. Section 24 provides:
“[T]he author of [a copyrighted] work, if still living, or the widow, widower, or children of the author, if the author be not living, or if such author, widow, widower, or children be not living, then the author’s executors, or in the absence of a will, his next of kin shall be entitled to a renewal and extension of the copyright in such work for a further term of twenty-eight years when application for such renewal and extension shall have been made to the copyright office and duly registered therein within one year prior to the expiration of the original term of copyright.” 17 U.S.C. § 24 (1976 ed.)
Since the earliest copyright statute in this country, the copyright term of ownership has been split between an original term and a renewal term. Originally, the renewal was intended merely to serve as an extension of the original term; at the end of the original term, the renewal could be effected and claimed by the author, if living, or by the author’s executors, administrators, or assigns. In 1831, Congress altered the provision so that the author could assign his contingent interest in the renewal term, but could not, through his assignment, divest the rights of his widow or children in the renewal term. In this way, Congress attempted to give the author a second chance to control and benefit from his work. Congress also intended to secure to the author’s family the opportunity to exploit the work if the author died before he could register for the renewal term. The evident purpose of the renewal provision is to provide for the family of the author after his death. Since the author cannot assign his family’s renewal rights, it takes the form of a compulsory bequest of the copyright to the designated persons. See Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643, 651 (1943) (if at the end of the original copyright period, the author is not living, his family stands in more need of the only means of subsistence ordinarily left to them).
In its debates leading up to the Copyright Act of 1909, Congress elaborated upon the policy underlying a system comprised of an original term and a completely separate renewal term. It not infrequently happens that the author sells his copyright outright to a publisher for a comparatively small sum. The renewal term permits the author, originally in a poor bargaining position, to renegotiate the terms of the grant once the value of the work has been tested. Unlike real property and other forms of personal property, a copyright is by its very nature incapable of accurate monetary evaluation prior to its exploitation. If the work proves to be a great success and lives beyond the term of twenty-eight years, it should be the exclusive right of the author to take the renewal term, and the law should be framed so that the author could not be deprived of that right. With these purposes in mind, Congress enacted the renewal provision of the Copyright Act of 1909, 17 U.S.C. § 24 (1976 ed.). With respect to works in their original or renewal term as of January 1, 1978, Congress retained the two-term system of copyright protection in the 1976 Act. See 17 U.S.C. §§ 304(a) and (b) (1988 ed.) (incorporating language of 17 U.S.C. § 24 (1976 ed.)).
Applying these principles in Miller Music Corp. v. Charles N. Daniels, Inc., 362 U.S. 373 (1960), this Court held that when an author dies before the renewal period arrives, his executor is entitled to the renewal rights, even though the author previously assigned his renewal rights to another party. An assignment by an author of his renewal rights made before the original copyright expires is valid against the world, if the author is alive at the commencement of the renewal period. Fred Fisher Co. v. M. Witmark & Sons, 318 U.S. 643, so holds. If the author dies before that time, the next of kin obtain the renewal copyright free of any claim founded upon an assignment made by the author in his lifetime. These results follow not because the author’s assignment is invalid but because he had only an expectancy to assign; and his death, prior to the renewal period, terminates his interest in the renewal which by § 24 vests in the named classes.” The legislative history of the 1909 Act echoes this view: “The right of renewal is contingent. It does not vest until the end [of the original term]. If [the author] is alive at the time of renewal, then the original contract may pass it, but his widow or children or other persons entitled would not be bound by that contract.” Thus, the renewal provisions were intended to give the author a second chance to obtain fair remuneration for his creative efforts and to provide the author’s family a “new estate” if the author died before the renewal period arrived.
An author holds a bundle of exclusive rights in the copyrighted work, among them the right to copy and the right to incorporate the work into derivative works. By assigning the renewal copyright in the work without limitation, as in Miller Music, the author assigns all of these rights. After Miller Music, if the author dies before the commencement of the renewal period, the assignee holds nothing. If the assignee of all of the renewal rights holds nothing upon the death of the assignor before arrival of the renewal period, then, a fortiori, the assignee of a portion of the renewal rights, e.g., the right to produce a derivative work, must also hold nothing. Therefore, if the author dies before the renewal period, then the assignee may continue to use the original work only if the author’s successor transfers the renewal rights to the assignee. This is the rule adopted by the Court of Appeals below and advocated by the Register of Copyrights. Application of this rule to this case should end the inquiry. Woolrich died before the commencement of the renewal period in the story, and, therefore, petitioners hold only an unfulfilled expectancy. Petitioners have been “deprived of nothing. Like all purchasers of contingent interests, [they took] subject to the possibility that the contingency may not occur.” Miller Music, 362 U.S. at 378.
B
The reason that our inquiry does not end here, and that we granted certiorari, is that the Court of Appeals for the Second Circuit reached a contrary result in Rohauer v. Killiam Shows, Inc., 551 F.2d 484 (1977). Petitioners’ theory is drawn largely from Rohauer. The Court of Appeals in Rohauer attempted to craft a “proper reconciliation” between the owner of the pre-existing work, who held the right to the work pursuant to Miller Music, and the owner of the derivative work, who had a great deal to lose if the work could not be published or distributed. Addressing a case factually similar to this case, the court concluded that even if the death of the author caused the renewal rights in the pre-existing work to revert to the statutory successor, the owner of the derivative work could continue to exploit that work. The court reasoned that the 1976 Act and the relevant precedents did not preclude such a result and that it was necessitated by a balancing of the equities:
“[T]he equities lie preponderantly in favor of the proprietor of the derivative copyright. In contrast to the situation where an assignee or licensee has done nothing more than print, publicize and distribute a copyrighted story or novel, a person who with the consent of the author has created an opera or a motion picture film will often have made contributions literary, musical and economic, as great as or greater than the original author…. [T]he purchaser of derivative rights has no truly effective way to protect himself against the eventuality of the author’s death before the renewal period since there is no way of telling who will be the surviving widow, children or next of kin or the executor until that date arrives.”
The Court of Appeals for the Second Circuit thereby shifted the focus from the right to use the pre-existing work in a derivative work to a right inhering in the created derivative work itself. By rendering the renewal right to use the original work irrelevant, the court created an exception to our ruling in Miller Music and, as petitioners concede, created an intrusion on the statutorily created rights of the owner of the pre-existing work in the renewal term.
Though petitioners do not, indeed could not, argue that its language expressly supports the theory they draw from Rohauer, they implicitly rely on § 6 of the 1909 Act, 17 U.S.C. § 7 (1976 ed.), which states that “dramatizations … of copyrighted works when produced with the consent of the proprietor of the copyright in such works … shall be regarded as new works subject to copyright under the provisions of this title.” Petitioners maintain that the creation of the “new,” i.e., derivative, work extinguishes any right the owner of rights in the pre-existing work might have had to sue for infringement that occurs during the renewal term.
We think that this conclusion is neither warranted by any express provision of the Copyright Act, nor by the rationale as to the scope of protection achieved in a derivative work. It is moreover contrary to the axiomatic copyright principle that a person may exploit only such copyrighted literary material as he either owns or is licensed to use. The aspects of a derivative work added by the derivative author are that author’s property, but the element drawn from the pre-existing work remains on grant from the owner of the pre-existing work. So long as the pre-existing work remains out of the public domain, its use is infringing if one who employs the work does not have a valid license or assignment for use of the pre-existing work. It is irrelevant whether the pre-existing work is inseparably intertwined with the derivative work. See Gilliam v. American Broadcasting Cos., 538 F.2d 14, 20 (CA2 1976) (“[C]opyright in the underlying script survives intact despite the incorporation of that work into a derivative work”). Indeed, the plain language of § 7 supports the view that the full force of the copyright in the pre-existing work is preserved despite incorporation into the derivative work. See 17 U.S.C. § 7 (1976 ed.) (publication of the derivative work “shall not affect the force or validity of any subsisting copyright upon the matter employed”); see also 17 U.S.C. § 3 (1976 ed.) (copyright protection of a work extends to “all matter therein in which copyright is already subsisting, but without extending the duration or scope of such copyright”). This well-settled rule also was made explicit in the 1976 Act:
“The copyright in a compilation or derivative work extends only to the material contributed by the author of such work, as distinguished from the preexisting material employed in the work, and does not imply any exclusive right in the preexisting material. The copyright in such work is independent of, and does not affect or enlarge the scope, duration, ownership, or subsistence of, any copyright protection in the pre-existing material.” 17 U.S.C. § 103(b).
Properly conceding there is no explicit support for their theory in the 1909 Act, its legislative history, or the case law, petitioners contend, as did the court in Rohauer, that the termination provisions of the 1976 Act, while not controlling, support their theory of the case. For works existing in their original or renewal terms as of January 1, 1978, the 1976 Act added 19 years to the 1909 Act’s provision of 28 years of initial copyright protection and 28 years of renewal protection. See 17 U.S.C. §§ 304(a) and (b). For those works, the author has the power to terminate the grant of rights at the end of the renewal term and, therefore, to gain the benefit of that additional 19 years of protection. See § 304(c). In effect, the 1976 Act provides a third opportunity for the author to benefit from a work in its original or renewal term as of January 1, 1978. Congress, however, created one exception to the author’s right to terminate: The author may not, at the end of the renewal term, terminate the right to use a derivative work for which the owner of the derivative work has held valid rights in the original and renewal terms. See § 304(c)(6)(A). The author, however, may terminate the right to create new derivative works. Ibid. For example, if petitioners held a valid copyright in the story throughout the original and renewal terms, and the renewal term in “Rear Window” were about to expire, petitioners could continue to distribute the motion picture even if respondent terminated the grant of rights, but could not create a new motion picture version of the story. Both the court in Rohauer and petitioners infer from this exception to the right to terminate an intent by Congress to prevent authors of pre-existing works from blocking distribution of derivative works. In other words, because Congress decided not to permit authors to exercise a third opportunity to benefit from a work incorporated into a derivative work, the Act expresses a general policy of undermining the author’s second opportunity. We disagree.
The process of compromise between competing special interests leading to the enactment of the 1976 Act undermines any such attempt to draw an overarching policy out of § 304(c)(6)(A), which only prevents termination with respect to works in their original or renewal copyright terms as of January 1, 1978, and only at the end of the renewal period.
In fact, if the 1976 Act’s termination provisions provide any guidance at all in this case, they tilt against petitioners’ theory. The plain language of the termination provision itself indicates that Congress assumed that the owner of the pre-existing work possessed the right to sue for infringement even after incorporation of the pre-existing work in the derivative work.
“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 based upon the copyrighted work covered by the terminated grant.” § 304(c)(6)(A) (emphasis added).
Congress would not have stated explicitly in § 304(c)(6)(A) that, at the end of the renewal term, the owner of the rights in the pre-existing work may not terminate use rights in existing derivative works unless Congress had assumed that the owner continued to hold the right to sue for infringement even after incorporation of the pre-existing work into the derivative work.
Accordingly, we conclude that neither the 1909 Act nor the 1976 Act provides support for the theory set forth in Rohauer. And even if the theory found some support in the statute or the legislative history, the approach set forth in Rohauer is problematic. Petitioners characterize the result in Rohauer as a bright-line “rule.” The Court of Appeals in Rohauer, however, expressly implemented policy considerations as a means of reconciling what it viewed as the competing interests in that case. While the result in Rohauer might make some sense in some contexts, it makes no sense in others. In the case of a condensed book, for example, the contribution by the derivative author may be little, while the contribution by the original author is great. Yet, under the Rohauer “rule,” publication of the condensed book would not infringe the pre-existing work even though the derivative author has no license or valid grant of rights in the pre-existing work. See Brief for Committee for Literary Property Studies as Amicus Curiae 29–31; see also Brief for Songwriters Guild of America as Amicus Curiae 11–12 (policy reasons set forth in Rohauer make little sense when applied to musical compositions). Thus, even if the Rohauer “rule” made sense in terms of policy in that case, it makes little sense when it is applied across the derivative works spectrum.
Finally, petitioners urge us to consider the policies underlying the Copyright Act. They argue that the rule announced by the Court of Appeals will undermine one of the policies of the Act—the dissemination of creative works—by leading to many fewer works reaching the public. Amicus Columbia Pictures asserts that “[s]ome owners of underlying work renewal copyrights may refuse to negotiate, preferring instead to retire their copyrighted works, and all derivative works based thereon, from public use. Others may make demands—like respondent’s demand for 50% of petitioners’ future gross proceeds in excess of advertising expenses …—which are so exorbitant that a negotiated economic accommodation will be impossible.” Brief for Columbia Pictures et al. as Amici Curiae 21. These arguments are better addressed by Congress than the courts.
In any event, the complaint that respondent’s monetary request in this case is so high as to preclude agreement fails to acknowledge that an initially high asking price does not preclude bargaining. Presumably, respondent is asking for a share in the proceeds because he wants to profit from the distribution of the work, not because he seeks suppression of it.
Moreover, although dissemination of creative works is a goal of the Copyright Act, the Act creates a balance between the artist’s right to control the work during the term of the copyright protection and the public’s need for access to creative works. The copyright term is limited so that the public will not be permanently deprived of the fruits of an artist’s labors. But nothing in the copyright statutes would prevent an author from hoarding all of his works during the term of the copyright. In fact, this Court has held that a copyright owner has the capacity arbitrarily to refuse to license one who seeks to exploit the work. See Fox Film Corp. v. Doyal, 286 U.S. 123, 127 (1932).
The limited monopoly granted to the artist is intended to provide the necessary bargaining capital to garner a fair price for the value of the works passing into public use. 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. That is how the separate renewal term was intended to operate. At heart, petitioners’ true complaint is that they will have to pay more for the use of works they have employed in creating their own works. But such a result was contemplated by Congress and is consistent with the goals of the Copyright Act.
With the Copyright Act of 1790, Congress provided an initial term of protection plus a renewal term that did not survive the author. In the Copyright Act of 1831, Congress devised a completely separate renewal term that survived the death of the author so as to create a “new estate” and to benefit the author’s family, and, with the passage of the 1909 Act, his executors. The 1976 Copyright Act provides a single, fixed term, but provides an inalienable termination right. See 17 U.S.C. §§ 203, 302. This evolution of the duration of copyright protection tellingly illustrates the difficulties Congress faces in attempting to “secur[e] for limited Times to Authors … the exclusive Right to their respective Writings.” U.S. Const., Art. I, § 8, cl. 8. Absent an explicit statement of congressional intent that the rights in the renewal term of an owner of a pre-existing work are extinguished upon incorporation of his work into another work, it is not our role to alter the delicate balance Congress has labored to achieve.
For the foregoing reasons, the judgment of the Court of Appeals is affirmed, and the case is remanded for further proceedings consistent with this opinion.
__________
Check Your Understanding – Stewart
Question 1. Under the 1909 Act, when an author of a pre-existing work agrees to assign the rights in his renewal copyright term, but then dies before commencement of the renewal period, which of the following is correct?
Question 2. Under the 1976 Act, when an author terminates an assignment of copyright in a pre-existing work at the end of the renewal term, which of the following is correct?
The Supreme Court’s decisions in Fred Fisher and Abend resulted in two distinct policy concerns. First, although Congress clearly intended for authors to be able to regain the renewal term of their copyright in order to get a “second bite at the apple,” under Fred Fisher an assignee could require an author to assign not only the initial copyright term, but also at the same time the renewal term. An author in a relatively weak negotiating position could be compelled to make this assignment, thus subverting congressional intent.
The second policy concern, raised by Abend, is that if the author dies before the vesting of the renewal right, the author’s successor will be able to block the ability of an assignee to exploit a derivative work based on the licensed work. Recall that the Second Circuit attempted to address this issue in Rohauer by holding that the assignee would retain the right to exploit the derivative works, but the Supreme Court in Abend overturned Rohauer as precluded by Miller Music’s interpretation of the Copyright Act.
When Congress enacted the 1976 Act it eliminated copyright renewal for post-1977 works by creating a single, unitary copyright, but created a “termination right” that is intended to benefit authors and their successors in a manner comparable to the reversion of renewal rights under the 1909 Act. In particular, § 203 of the 1976 Act provides that an author may terminate an assignment or license of a copyright 35 years after the transfer has been made. Significantly, the termination right is inalienable—an author cannot agree to relinquish his termination right, and any agreement purporting to do so is unenforceable as a matter of law. In particular, § 203(a)(5) provides, “Termination of the grant may be effected notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant.” Congress clearly intended to protect authors from being pressured into agreeing to forgo termination rights, and did so by denying authors the ability to do so, as a matter of law, thereby addressing the policy concern raised by Fred Fisher.
In enacting § 203 Congress also addressed the policy concern raised by Stewart, by including a provision that permits the owner of a derivative work to continue to exploit that work even after the original transfer has been terminated. In particular, § 203(b)(1) provides:
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 based upon the copyrighted work covered by the terminated grant.
The § 203 termination right is available for transfers of copyright made on or after January 1, 1978. Authors have a five-year window, starting in the 35th year of the transfer, within which to terminate. In order to be effective, the author must serve notice of the termination to the transferee between two and 10 years of the effective date of the termination.
Termination under § 203 is available for any transfer of interest in copyright made by the author during her lifetime, including assignments as well as exclusive and nonexclusive licenses. It does not, however, apply to transfers made by third parties, nor does it apply to works made for hire.
In the case of a joint work, the termination right can be exercised by a majority of the authors who transferred the right. If the author is dead, then the termination right can be enforced by the author’s successor (or successors), as specified in the statute. For example, if the author is married and has children, 50% of the termination right rests with the author’s widow or widower, and 50% with the author’s children. In order to effectuate the termination right, a majority of those with an interest in the termination must join in signing the termination. Copyright can be re-granted subsequent to termination.
In enacting the 1976 Act, Congress also created a right to terminate transfers made before January 1, 1978, as provided for in § 304(c). The statutory rules for termination under § 304(c) are similar but not identical to those under § 203. The rules allow an author to terminate any pre-1978 transfer 56 years after the work was first published, thereby allowing the author to recapture the benefits of the two term extensions of 19 and 20 years provided by the 1976 Act and 1998’s CTEA, respectively. If the opportunity to terminate at the 56 year mark had already expired unexercised as of the effective date of the 1998 term extension, then the author may terminate the transfer 75 years after the work was first published, thereby enabling the author to recapture the additional 20 years provided by the CTEA.
Termination under § 304(c) may be effectuated within a five-year period after the relevant date, i.e., 56 or 75 years after the work was first published. Notice must be provided between two and 10 years of the effective date of termination. One difference between termination under § 304(c) and § 203 is that § 304(c) applies to transfers by third parties as well as authors, while § 203 only applies to transfers by authors.
As is the case with the § 203 termination right, the right to terminate under § 304(c) is inalienable “notwithstanding any agreement to the contrary.” 17 U.S.C. § 304(c)(5). The statute also permits the owner of a derivative work to continue to exploit that work even after the original transfer has been terminated under § 304(c). 17 U.S.C. § 304(c)(6)(a).
The following decision explores the scope of termination of rights under § 304(c) in a case involving Marvel’s Captain America character.
Some things to consider when reading Marvel Characters:
- The basis for Marvel’s argument that by entering into the earlier settlement agreement the author had effectively forfeited his right to terminate.
- The court’s interpretation of § 304(c)’s “any agreement to the contrary” language, and why this resulted in the author prevailing.
- The court’s mention of the transferee’s right to continue exploiting derivative works created prior to termination.
Marvel Characters, Inc. v. Simon
310 F.3d 280 (2d Cir. 2002)
McLAUGHLIN, Circuit Judge.
This appeal requires us to examine the scope of the termination provision of the Copyright Act of 1976 (the “1976 Act”), 17 U.S.C. § 304(c). Section 304(c) grants authors (or if deceased, their statutory heirs) an inalienable right to terminate a grant in a copyright fifty-six years after the original grant “notwithstanding any agreement to the contrary.” 17 U.S.C. § 304(c)(3),(5). The termination provision, however, has one salient exception: copyright grants in works created for hire cannot be terminated. 17 U.S.C. § 304(c).
The question of first impression raised here is whether a settlement agreement, entered into long after a work’s creation, stipulating that a work was created for hire constitutes “any agreement to the contrary” under the 1976 Act. We conclude that it does and, therefore, reverse.
BACKGROUND
This being an appeal from a grant of summary judgment to plaintiff Marvel Comics, Inc. (“Marvel”), we view the deposition testimony, affidavits, and documentary evidence in the light most favorable to defendant Joseph H. Simon, the non-moving party.
I. Publication of Captain America Comics
In December 1940, Martin and Jean Goodman, doing business as Timely Publications and Timely Comics, Inc. (collectively “Timely”) published the first issue of the now iconic Captain America Comics. Captain America, a.k.a. Steve Rogers, was an army-reject turned superhero who was charged with protecting America from all enemies, especially Nazi spies. Authorship of the comic book was attributed to Simon and Jack Kirby.
According to Simon, he created Captain America as an independent, freelance project before shopping it around to various publishers. Although there was no written agreement between the parties, Simon contends that he sold the Captain America story to Timely for a fixed page rate plus a twenty-five percent share of the profits of the comic books. Simon also maintains that he created the second through tenth issues of Captain America Comics on a freelance basis, and orally assigned his interest in Captain America Comics and the Captain America character (collectively the “Works”) to Timely.
During 1941, Timely published the second through tenth issues of Captain America Comics. Shortly after their publication, Timely applied for and received certificates of registration of the copyrights for each issue of the Works. The Works were a tremendous success, and to this day continue to generate substantial revenue for Marvel, Timely’s successor in interest.
II. The Copyright Act of 1909
Under the Copyright Act of 1909 (the “1909 Act”), in effect at the time of Simon’s purported creation of Captain America and assignment to Timely, an author was entitled to a copyright in his work for twenty-eight years from the date of its publication. Upon expiration of the first twenty-eight year term, the author could renew the copyright for a second twenty-eight year period (the “renewal term”) simply by applying to the United States Copyright Office (“Copyright Office”). The Supreme Court has noted that the renewal term operated to “permit[ ] the author, originally in a poor bargaining position, to renegotiate the terms of the grant once the value of the work has been tested.” Stewart v. Abend, 495 U.S. 207, 218–19 (1990).
III. The Prior Actions
As the initial twenty-eight year term of copyright in the Captain America Works neared its completion, Simon commenced two separate lawsuits (the “Prior Actions”) against the Goodmans and their affiliates.
In October 1966, Simon sued in New York State Supreme Court (the “State Action”) claiming that, because he was the author of the Works, the Goodmans’ exploitation of the Captain America character constituted unfair competition and misappropriation of his state law property rights. Simon sought an accounting, damages, and injunctive relief in the State Action.
One year later, Simon filed a similar action against the Goodmans and their affiliates in the United States District Court for the Southern District of New York (the “Federal Action”). In this action, Simon sought a declaratory judgment that he, as the author of the Works, had the sole and exclusive right to the renewal term of the copyright in the Works.
In November 1969, after two years of discovery, the parties to the Prior Actions entered into a settlement agreement (the “Settlement Agreement”). In the Settlement Agreement, Simon acknowledged that his contribution to the Works “was done as an employee for hire of the Goodmans.”
IV. The Copyright Act of 1976
The legislative purpose behind the 1909 Act’s renewal right—to provide authors a second chance to benefit from their works—was dealt a serious blow by the Supreme Court’s decision in Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643 (1943). In Fisher Music, the Supreme Court addressed the renewal rights in the ever-popular (not to mention mellifluous) song “When Irish Eyes Are Smiling.” The Court held that renewal rights were assignable by an author during the initial copyright term, before the renewal right vested.
Not surprisingly, after Fisher Music publishers began to insist that authors assign both their initial and renewal rights to them in one transfer. The natural effect of this, of course, was to eliminate the author’s renewal right under the 1909 Act.
In 1976, Congress enacted a comprehensive revision of the Copyright Act. Responding to the continual erosion of authors’ rights subsequent to the 1909 Act, Congress extended the duration of copyrights then in their renewal terms for an additional nineteen years (the “extended renewal term”). See 17 U.S.C. § 304(b). More significantly, however, the 1976 Act gave new protections to authors. It allowed authors to terminate the rights of a grantee to whom the author had transferred rights in the original work. See 17 U.S.C. § 304(c). This termination provision provides, in relevant part:
In the case of any copyright subsisting in either its first or renewal term on January 1, 1978, other than a copyright in a work made for hire, the exclusive or nonexclusive grant of a transfer or license of the renewal copyright or any right under it, executed before January 1, 1978, by any of the persons designated [by statute], otherwise than by will, is subject to termination under the following conditions:
…
(5) Termination of the grant may be effected notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant.
17 U.S.C. §§ 304(c) and 304(c)(5) (emphasis added). Section 304 further provides that terminations may be “effected at any time during a period of five years beginning at the end of fifty-six years from the date copyright was originally secured.” 17 U.S.C. § 304(c)(3).
V. The Proceedings Below
In December 1999, recognizing an opportunity created by § 304(c) to reclaim his copyright in the Works, Simon filed Notices of Termination (the “Termination Notices”) with the Copyright Office purporting to terminate his transfers of the copyrights to Timely pursuant to § 304(c). In the Termination Notices, Simon claimed that he independently created the Captain America character and authored the first issue in the Captain America comic book series, and that he was “neither an employee for hire nor a creator of a work for hire.”
Thereafter, Marvel—as Timely’s successor in interest in all rights, title, and interest to the Works by virtue of a series of assignments—commenced this action in the United States District Court for the Southern District of New York (Casey, J.) seeking a declaratory judgment that the Termination Notices were invalid and that Marvel remains the sole owner of the copyrights in the Works.
The district court held that Marvel was entitled to summary judgment on these claims based on the plain language of the Settlement Agreement. The court found that Simon’s unambiguous acknowledgment in the Settlement Agreement that he created the Works “for hire” prevented Simon from exercising the termination right under § 304(c).
This appeal followed.
DISCUSSION
III. Application of Section 304(c) of the 1976 Act
We turn, at length, to the issue of first impression presented by this case: whether an agreement made subsequent to a work’s creation that declares that it is a work created for hire constitutes an “agreement to the contrary” under § 304(c)(5) of the 1976 Act. The district court never addressed this question. Instead, it simply assumed that because Simon had conceded in the unambiguous Settlement Agreement that the Works were created for hire, he could not now assert that he was the Works’ author for purposes of exercising the termination right in this action. While the district court was undoubtedly correct that the Settlement Agreement is not ambiguous, this is not the relevant analysis on this issue. Instead, we must analyze the legislative intent and purpose of § 304(c) of the 1976 Act to determine its application to this case.
Simon contends that the district court’s failure to give effect to § 304(c)’s mandate that authors can terminate copyright grants “notwithstanding any agreement to the contrary” contravenes the legislative intent and purpose of § 304(c). Further, because Simon has submitted testimony that he was not in fact an employee for hire when he created the Captain Marvel character, he maintains that a genuine issue of material fact exists regarding Marvel’s claims that the Termination Notices are invalid and it is the sole owner of the copyright in the Works. Marvel’s only response to Simon’s contentions is that if Simon’s reading of the statute is upheld, no litigation concerning a claim to authorship could ever be resolved by settlement. We find Simon’s arguments persuasive and Marvel’s prediction unfounded.
In order to determine the meaning of § 304(c), we apply the well established canons of statutory construction. In interpreting a statute, we look first to the language of the statute itself. When the language of a statute is unambiguous, judicial inquiry is complete. When the terms of a statute are ambiguous, however, we may seek guidance in the legislative history and purpose of the statute. In so doing, we must construct an interpretation that comports with the statute’s primary purpose and does not lead to anomalous or unreasonable results.
Here, whether § 304(c)(5)’s phrase “any agreement to the contrary” includes a settlement agreement stating that a work was created for hire is not clear from the text of the statute itself. Generally speaking, the Settlement Agreement is an agreement to the contrary. But without more specific or compelling evidence from the text, we find it necessary to go beyond the mere text and consider the legislative intent and purpose of § 304(c) to ascertain the statute’s meaning.
The Supreme Court has elucidated the intent and purpose behind the termination provision of the 1976 Act:
The principal purpose of the amendments in § 304 was to provide added benefits to authors. The … concept of a termination right itself, w[as] obviously intended to make the rewards for the creativity of authors more substantial. More particularly, 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. That general purpose is plainly defined in the legislative history and, indeed, is fairly inferable from the text of § 304 itself.
Mills Music, 469 U.S. at 172–73 (interpreting the derivative works exception to the termination clause of § 304(c)). Furthermore, the legislative history of the termination provision reflects Congress’s intent to protect authors from unequal bargaining positions. See H.R.Rep. No. 94–1476, at 124 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5740 (“A provision of this sort is needed because of the unequal bargaining position of authors, resulting in part from the impossibility of determining a work’s value until it has been exploited.”). As these statements suggest, the clear Congressional purpose behind § 304(c) was to prevent authors from waiving their termination right by contract.
When examining the legislative intent and purpose of § 304(c), it becomes clear that an agreement made after a work’s creation stipulating that the work was created as a work for hire constitutes an “agreement to the contrary” which can be disavowed pursuant to the statute. Any other construction of § 304(c) would thwart the clear legislative purpose and intent of the statute. If an agreement between an author and publisher that a work was created for hire were outside the purview of § 304(c)(5), the termination provision would be rendered a nullity; litigation-savvy publishers would be able to utilize their superior bargaining position to compel authors to agree that a work was created for hire in order to get their works published. In effect, such an interpretation would likely repeat the result wrought by the Fred Fisher decision and provide a blueprint by which publishers could effectively eliminate an author’s termination right. We conclude that Congress included the “notwithstanding any agreement to the contrary” language in the termination provision precisely to avoid such a result.
This view finds support in Nimmer on Copyright:
The parties to a grant may not agree that a work shall be deemed one made “for hire” in order to avoid the termination provisions if a “for hire” relationship … does not in fact exist between them. Such an avoidance device would be contrary to the statutory provision that “[t]ermination of the grant may be effected notwithstanding any agreement to the contrary.” … [I]t is the relationship that in fact exists between the parties, and not their description of that relationship, that is determinative.
3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 11.02[A][2] (2000 ed.) This reading of the statute also explains why copyright grants in works created for hire are not subject to termination. See 17 U.S.C. § 304(c). Under the 1909 Act, the statutory author of a work created for hire was the employer-publisher. Because an employer-publisher does not face the same potential unequal bargaining position as an individual author, it follows that an employer-publisher does not need the same protections as an individual author.
This reading of § 304(c) is also consistent with the way in which courts have interpreted the 1909 Act’s “work for hire” provision. Courts engaging in such an analysis have focused on the actual relationship between the parties, rather than the language of their agreements, in determining authorship of the work.
Additionally, this Court has looked to agency law to determine whether a work is created “for hire” under the 1909 Act. And under agency law, “[t]he manner in which the parties designate the relationship is not controlling, and if an act done by one person in behalf of another is in its essential nature one of agency, the one is the agent of such other notwithstanding that he or she is not so called. Conversely, the mere use of the word ‘agent’ by parties in their contract does not make one an agent who, in fact, is not such.” 3 Am.Jur.2d Agency § 19 (2002).
In sum, we hold that an agreement made subsequent to a work’s creation which retroactively deems it a “work for hire” constitutes an “agreement to the contrary” under § 304(c)(5) of the 1976 Act. Therefore, Simon is not bound by the statement in the Settlement Agreement that he created the Works as an employee for hire. Because Simon has proffered admissible evidence that he did not create the Works as an employee for hire, the district court’s grant of summary judgment to Marvel was erroneous. It will be up to a jury to determine whether Simon was the author of the Works and, therefore, whether he can exercise § 304(c)’s termination right.
IV. Equitable Estoppel
Marvel’s final contention is that Simon is barred by the doctrine of equitable estoppel from asserting that he is the author of the Works. Marvel argues that if it knew that Simon would disavow the Settlement Agreement’s admission that the Works were created for hire, it would have proceeded to trial in the Prior Actions and called both Martin Goodman and Jack Kirby as witnesses. As these two men have since died, Marvel contends that Simon should not now be able to raise the issue of his authorship of the Works in this action. We find Marvel’s argument unpersuasive.
The doctrine of equitable estoppel can be raised where the enforcement of the rights of one party would work an injustice upon the other party due to the latter’s justifiable reliance upon the former’s words or conduct. Under federal law, applicable because Marvel’s claim involves a federal statute, a party can be estopped from pursuing a claim where: (1) the party makes a misrepresentation of fact to another party with reason to believe that the other party will rely on it; (2) the other party relies on the misrepresentation to his detriment.
Marvel’s estoppel argument is unpersuasive for three reasons. First, the doctrine of equitable estoppel does not supersede § 304(c). It is plain that § 304(c) necessarily contemplates the likelihood that long-dormant copyright ownership issues will be awakened and litigated once the original fifty-six year copyright term expires. In fact, Congress’s goal in providing authors with this termination right was to enable them to reclaim long lost copyright grants. As the district court correctly recognized, virtually every copyright holder could fashion a similar equitable estoppel argument in response to an author’s legitimate exercise of his termination rights. Permitting such an exception, however, would contravene the plain language, intent, and purpose of § 304(c).
Second, Marvel’s argument ignores the fact that the termination right did not come into existence until 1978, the effective date of the 1976 Act. Therefore, it is specious to argue that Simon should be estopped from raising a claim that did not come into existence until almost a decade after the Settlement Agreement.
Finally, Marvel cannot establish detriment for equitable estoppel purposes. Marvel has received the full economic benefit of the Works’ twenty-eight year renewal term. Even if a jury concludes that Simon is the Works’ author and can therefore terminate Marvel’s copyright in the Works, Marvel can continue to exploit every Captain America property created prior to the effective date of termination. See Mills Music, 469 U.S. at 173 (noting that pre-termination derivative works may continue to be utilized under the terms of the terminated grant).
Accordingly, Simon is not equitably estopped from raising his purported authorship of the Works in this action.
CONCLUSION
For the foregoing reasons, the judgment of the district court is REVERSED. We hereby REMAND this action to the district court for further proceedings not inconsistent with this opinion.
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Check Your Understanding – Marvel Characters
Question 1. Which of the following will preclude an author from terminating a grant in copyright pursuant to § 304(c)?
Question 2. According to Marvel Characters, what is the legislative intent and purpose behind the termination provision of the 1976 Act?
