Copyright Termination and Recapture Rights Explained for Songwriters and Recording Artists
By Brian R. Tinkham, Esq. and Robert J. Allan, Esq.
The U.S. Copyright Act permits authors and/or their heirs, under certain circumstances, to terminate the exclusive or nonexclusive grant of a transfer or license of an author’s copyright in a work or of any right under a copyright. For songwriters and recording artists, this means that they can terminate a grant of copyright in a work, such as a musical composition or a sound recording, that was previously granted to a third party, such as a publisher or a record label, provided specific requirements are met. If there is no dispute claimed by the record label or publisher, the copyright will revert to or be “recaptured” by the songwriter or recording artist.
The statutory provisions for how and when to terminate a grant of a transfer or a license of a copyright for a musical composition or sound recording are set forth in 17 U.S.C. § 203 (“Section 203”) and 17 U.S.C. § 304(c) (“Section 304(c)”) of the 1976 U.S. Copyright Act (the “Act”).
Songwriters and recording artists (and/or their heirs) may terminate a grant of transfer or a license of copyright (“Grant”) under either Section 203 or Section 304(c) of the Act by serving the holder of the Grant or his/her successor an advance written notice of the termination of the Grant (the “Notice of Termination”).
THE NOTICE OF TERMINATION – TIMING IS (ALMOST) EVERYTHING.
There are several deadlines and other specific requirements for filing a Notice of Termination under either Section 203 or Section 304(c) of the Act. Understanding these deadlines and requirements are critical to the termination of the Grant.
Under Section 304(c) of the Act, if a copyright was subsisting in either its first term or renewal term on January 1, 1978, and the author transferred an exclusive or non-exclusive Grant before January 1, 1978, other than by will, then the author and/or the author’s heirs may terminate that Grant at any time during five (5) years beginning at the end of fifty-six (56) years from the date the copyright was originally secured, or, starting on January 1, 1978, whichever was later. See 17 U.S.C. § 304(c)(3).
Under Section 203 of the Act, if there is an exclusive or non-exclusive Grant or any right of copyright executed by the author on or after January 1, 1978, otherwise than by will, then that Grant can be terminated by the author, or his heirs, beginning at the end of thirty-five (35) years from the date of execution of the Grant and as late as forty (40) years from the date of the execution of the Grant; or, if the Grant covers the publication of the work, at the end of (35) thirty-five years from the date of the publication of the work under the Grant or at the end of (40) forty years from the date of execution of the Grant, whichever term is earlier. See 17 U.S.C. § 203(a)(3).
The author or author(s) of the work owns the right to terminate the Grant (commonly referred to as the “Termination Interest”) and may serve the Notice of Termination at any time up until the death of the author. After the author or authors die, the Termination Interest is owned by the author’s heirs or the author’s estate as set forth below:
The widow or widower owns the author’s entire Termination Interest unless there are any surviving children or grandchildren of the author, in which case the widow or widower owns one-half of the author’s Termination Interest;
The author’s surviving children, and the surviving children of any dead child of the author, own the author’s Termination Interest unless there is a widow or widower, in which case the ownership of one-half of the author’s Termination Interest is divided amongst the surviving children and widower;
The rights of the author’s children and grand-children are divided between them on a per stirpes basis according to the number of such author’s children represented; the share of the children of a dead child in a Termination Interest can be exercised only by the action of the majority of them;
If there are no heirs or a widow or widower, then the author's executor, administrator, personal representative, or trustee shall own the author's entire Termination Interest. See 17 U.S.C. § 203(a)(2); 17 U.S.C. § 304(c)(2).
The specific requirements for filing a Notice of Termination include:
A cover page known as a Form DCS for Recordation of Documents under 17 U.S.C. § 205;
The Notice of Termination must comply with the requirements of the Register of Copyrights (see 37 C.F.R. §201.10);
The Notice of Termination must include the effective date of termination, which must fall within the termination window;
The termination of the Grant may be effected at any time during five (5) years beginning at fifty-six (56) years from the date the copyright was originally secured under Section 304(c) of the Act; or, if termination of the grant is under Section 203 of the Act, then the termination of the Grant may be effected at any time during five (5) years beginning at thirty-five (35) years from the date of execution of the Grant, or, if the Grant covers the publication of the work, at the end of (35) thirty-five years from the date of the publication of the work under the Grant orthe end of (40) forty years from the date of execution of the Grant, whichever term is earlier (these periods are commonly referred to as the “Termination Window”);
The Notice of Termination must be served on the grantee of the Grant no earlier than ten years before the effective date of termination and no later than two years before the effective date of termination; AND
The Notice of Termination must be recorded with the Copyright Office before the effective date of termination for the termination to be effective.
Given some of the hyper-technical arguments made by the record labels and publishers in the last few years, an attorney should prepare the Notice of Termination to avoid issues regarding the preparation of a Notice of Termination.
The dates when the Termination Window are open and when the Notices of Termination must be served on the grantee for termination of a Grant under Section 304(c) of the Act are set forth below:
The dates when the Termination Windows are open and when the Notices of Termination must be served for termination under Section 203 of the Act are set forth below:
If the Notice of Termination is Based Solely on the Execution of the Grant and the Grant Did Not Convey the Right of Publication:
If the Notice of Termination is Based Upon a Grant Conveying the Right of Publication and the Publication Date was the Earlier Date:
If the Notice of Termination is Based Upon a Grant Conveying the Right of Publication and the Date the Grant was Executed was the Earlier than the Date of Publication:
Gap Grant Issues Fall Under Section 203 of the Act.
Gap Grants are when a songwriter or recording artist signs an agreement involving a Grant of copyright before January 1, 1978, and the copyrightable work was created after January 1, 1978, under the same deal. For example, Charlie Daniels signed a songwriter agreement involving a Grant of copyright with Universal Music Publishing Group in 1976. He then wrote the hit country song “The Devil Went Down to Georgia” in 1979 under the same agreement.
In this situation, Section 304(c) of the Act does not apply on its face because the copyright for the musical composition did not exist before 1978. The musical composition was written in 1979. Whereas, the plain language of Section 203 of the Act does not define what term “execution” means or whether the execution of the Grant is different from the execution of the larger agreement. So, under which section of the Act does the author claim the effective termination date and file the Notice of Termination?
The Copyright Office eventually amended 37 C.F.R. §201.10to state: “in any case where an author agreed, prior to January 1, 1978, to a grant of transfer or license of rights in a work that was not created until on or after January 1, 1978, a notice of termination under section 203 … may be recorded if it recites, as the date of execution, the date on which the work was created.” 37 C.F.R. 201.10 (f)(1)(ii)(c). The Copyright Office “arrived at the conclusion that Gap Grants are terminable under Section 203 as currently codified because, as a matter of law, the date of execution of the Grant will be on or after January 1, 1978. Until there is a work of authorship, there is no copyright interest, no transfer of that interest, and no author for whom exclusive rights (not to mention termination rights) can vest.” See www.copyright.gov/docs/termination/.
Under this amendment, record labels and publishers may argue that the work in question was created before January 1, 1978. Under the Act, “a work is “created” when it is fixed in a copy or a phonorecord for the first time; where a work is prepared over a period of time, the portion of it that has been fixed at any particular time constitutes the work as of that time, and where the work has been prepared in different versions, each version constitutes a separate work.” 17 U.S.C. § 101. If the exact date when the work was created is uncertain, the parties may look to the date the work was registered with the copyright office, the date the song was released (date of publication), or the date the work was delivered to the publisher or record label.
Joint Authorship Issues Under Section 203 of the Act Can
A musical composition or sound recording may be written or performed by two (2) or more authors, making it a joint work (e.g., one songwriter writes the lyrics, and another songwriter writes the music). A joint work is “a work prepared by two or more authors with the intention that their contributions be merged into inseparable or interdependent parts of a unitary whole.” 17 U.S.C. § 101. Ownership of joint works is presumed to be shared equally by the authors, absent an agreement to the contrary.
Under Section 203 of the Act, if there is a joint work and the joint authors simultaneously executed a transfer of copyright to a transferee, then the Notice of Termination must be effected by the majority of the authors who executed the Grant. 17 U.S.C. § 203(a)(1). If the author is dead, then the author’s Termination Interest may be exercised by the person or persons who own and are entitled to exercise a total of more than one-half of the author’s Termination Interest. (See widow/widower, children/grand-children, personal representative explanation above.) For example, a five (5) person band assigns the copyright in the sound recording to a record label in 1990 under the band’s recording contract. All five band members were joint authors through a written agreement. Three (3) out of the five (5) band members would have to serve a Notice of Termination under Section 203 of the Act to terminate the Grant.
However, if the joint authors transferred their copyright to a transferee through separate Grants, each author can independently choose whether to invoke Section 203 of the Act. Scorpio Music S. A. v. Willis, 2012 U.S. Dist. LEXIS 63858 at p. *13. For example, if one songwriter wrote the lyrics to a song and another songwriter wrote the music to the song; and both authors file separate copyrights, and each author subsequently assigned their copyright to the same publisher in different Grants, then each author would then have to serve separate Notices of Termination of each Grant to reclaim the Termination Interest in the entire joint work. However, it is possible for the songwriter who wrote the lyrics to independently terminate his 50 percent Termination Interest in the copyright while the grantee retains the other 50 percent Termination Interest if the other joint author did not timely serve a Notice of Termination under Section 203.
One of the current issues under Section 203 of the Act is whether or not a transferee (such as a record label) can establish joint authorship to a copyright in a sound recording. The Courts are currently determining this issue on a case-by-case basis. For example, if a transferee serves in a creative role, matching authors by providing feedback on the works, then the transferee could be deemed a joint author. Courts have held that mere direction or advice is not sufficient for joint authorship (Gaylord v. United States, 595 F.3d 1364, 1377 (Fed. Cir. 2010). However, at least one Court has found that providing equipment and talent for the production of a sound recording may establish joint authorship. Shaab v. Kleindienst, 345 F. Supp. 589, 590 (D.D.C. 1972). Other Courts (and more recent decisions) had rejected claims when the party’s main contribution was funding the project and providing the studio space. Forward v. Thorogood, 985 F. 2d 604, 607 (1stCir. 1993).
Under Section 304(c) of the Act, if the Grant is executed by one or more authors of the joint work, Notice of Termination of the Grant for a particular author’s share in the renewal ownership of the renewal copyright may be given by the author who executed it, or, if the author is dead, by the persons described above. (See widow/widower, children/grand-children, personal representative explanation above.) 17 U.S.C. § 304(c)(1).
Missing the Deadlines.
Under Section 203 and 304(c) of the Act, if the author or the heirs fail to timely or adequately serve the Notices of Termination according to Section 203 or Section 304(c) on the grantee (and timely file the required documents with the US Copyright Office), then rights to the work will remain with the grantee of the copyright.
A WRITTEN AGREEMENT CONTAINING A WORK FOR HIRE OR WORK MADE FOR HIRE CLAUSE MAY PREVENT TERMINATION; HOWEVER, THAT LANGUAGE IS NOT DISPOSITIVE IN THE WORK MADE FOR HIRE ANALYSIS.
Under Section 203 and Section 304(c) of the Act, there are statutory exceptions to an author’s right to terminate a Grant. One of the statutory exceptions is that termination under Section 203 and Section 304(c) does not apply to works made for hire or works for hire. If a work is determined to be a work made for hire, an employer is considered the author even if an employee created the work. The determination of whether a work was made for hire is complicated and is not based entirely on the plain reading of a written agreement. Instead, Courts have given several factors and tests that will be examined on a case-by-case basis by looking at the facts in existence at the time when the work was created to determine whether or not the work was made for hire.
Section 304(c) of the Act and Works Made for Hire.
If the Grant was based on a contract with the author that contained a work made for hire clause and the termination of the Grant falls under Section 304(c) of the Act, then the determination of whether the work was created as a work made for hire will fall under the 1909 U.S. Copyright Act (the “1909 Act”).
Under the 1909 Act, Courts have looked to different factors to determine whether a work created by an employee or independent contractor was a work made for hire. Some of the preliminary factors historically addressed by the Courts have included: (1) the existence of a contract or other written agreement which addresses the circumstances of a work’s creation or authorship, (2) payment of wages or other remuneration, and (3) the right of the “employer” to direct and supervise the creation of the work.
However, the analysis is even more complicated than examining these three factors. The Ninth and Second Circuit Court of Appeals use what is commonly referred to as the “instance and expense” test in determining whether a work created by an employee or independent contractor were ones made for hire. See, e.g., Siegel v. Warner Bros. Entm’t Inc., 658 F. Supp. 2d 1036, 1058 (9th Cir. 2009). This test creates a presumption in favor of finding a work for hire ownership whenever a work is produced at the instance and expense of the hiring party, and the presumption can only be overcome by evidence that the parties did not intend that result. For example, “when one person engages another, whether as [an] employee or as an independent contractor, to produce a work of an artistic nature, that in the absence of an express contractual reservation of the copyright in the artist, the presumption arises that the mutual intent of the parties is that the title to the copyright shall be in the person at whose instance and expense the work is done. The presumption may be rebutted only by evidence that the parties did not intend to create a work-for-hire.” Lin-Brook Builders Hardware v. Gertler 352 F. 2d, 298, 300 (9th Cir. 1965).
The instance and expense test requires an evaluation of three factors: (1) at whose instance the work was prepared; (2) whether the hiring party had the power to accept, reject, modify, or otherwise control the creation of the work; and (3) at whose expense the work was created. Siegel v. Warner Bros. Entm’t Inc., 658 F. Supp. 2d 1036, 1058 (9th Cir. 2009).
The “expense” component of the test is met when a hiring party simply pays an employee or independent contractor a sum certain for his work. Playboy Enters. v. Dumas, 53 F. 3d 549, 555 (2nd Cir. 1995). However, where the employee or independent contractor receives royalties as a payment, that method of payment generally weighs against finding a work for hire relationship. Id. Nonetheless, a more recent holding, indicates that if the creator received a lump sum in addition to royalties, then the fact that the creator received a fixed amount is sufficient to meet the requirement that the works may be at the employer’s expense. Twentieth Century Fox Film Corp. v. Entm’t Distrib., 429 F. 3d 869, 881 (9th Cir. 2005). In general, the focus on the expense requirement is on who bore the financial risk of the work’s profitability of the project. Id.
The “instance” component of the test looks into “whether the motivating factor in producing the work was the employer who induced the creation.” Twentieth Century Fox Film Corp. v. Entm’t Distrib., 429 F. 3d 869, 879 (9th Cir. 2005). In one case, a court held that the fact that the employer took the “initiative in engaging the author to create the work rendered it as a work made for hire.” Picture Music, Inc. v. Bourne, Inc., 457 F.2d 1213, 1217, (2d. Cir. 1972).
“The critical factor [to the instance component of the test] is what was the nature of the creator and publisher’s business relationship (be it as an employer-employee or a commissioner-independent contractor) at the time of the work’s creation, and whether the work in question falls within the scope of those job duties. It is for this reason that courts concern themselves with “the degree to which the hiring party had the right to control or supervise the artist’s work,” as its presence would reflect a circumstance found when the work being created was done so within the confines of the pre-existing employment relationship.” Siegel v. Warner Bros. Entm’t Inc., 658 F. Supp. 2d 1036, 1059 (9th Cir. 2009). Although it is not critical that the commissioning party exercise its right of control and supervision in the creation of the work in question, it is necessary that the party has the power to direct, control, or otherwise shape the artist’s work. Id. at 1060. The “instance” component also depends on how much control the publisher or recording label could exert over the songwriter or recording artist. Id. For example, regular face-to-face meetings with an author or receiving extensive notes and comments from the employer may make it more likely that the work was created at the request of a party.
Courts engaging in a work for hire analysis under the 1909 Act have focused on the relationship of the parties rather than the language of their agreements in determining authorship for the work. Donaldson Pub. Co. v. Bregman, Vocco & Conn, Inc., 375 F.2d 639, 640-42 (2nd Cir. 1967). Courts have also looked at agency law to determine whether a work is created “for hire” under the 1909 Act. As such, both the written agreement and the analysis of the artist’s relationship will need to be done to determine if a work for hire arrangement exists.
While the “instance and expense” test may appear at first glance to be in favor of the record label or publisher and daunting for a songwriter and/or recording artist, it is, in the end, a factual test that may ultimately be in favor of the songwriter and/or recording artist depending on the facts of each case.
Given that a songwriter and/or recording artist will lose the right to file a Notice of Termination if it is not timely filed, it is worth the time and money necessary to have an experienced copyright attorney examine the agreements and other documents related to the creation of the work well before the earliest date when a Notice of Termination must be served to determine if the subject work is a work made for hire rather than merely writing off the possibility of filing a Notice of Termination under Section 304(c) of the Act because an agreement contains the words: “work for hire” or “work made for hire.”
Section 203 of the Act and Works Made for Hire.
Section 203 of the Act contains a more beneficial test for songwriters and/or recording artists. If the Grant was based on a contract with the author and included a work for hire clause and termination of the Grant falls under Section 203 of the Act, then the determination of whether there was a valid work for hire agreement falls under the Act. The Act, unlike the 1909 Act, defines a work for hire as a “(1) 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 part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation,…, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work for hire.” See 17 U.S.C. § 101.
The first step in analyzing whether or not a work is considered a “work for hire” under the Act is whether the work was prepared by (a) an employee or (b) an independent contractor. If a court determines that the work was created by an employee within his or her scope of employment, then the work will be considered a work for hire. However, for copyright purposes, employee means an employee under general agency law (see CCNV factors discussed below). If an independent contractor created the work and the work was “specially ordered or commissioned” according to a “written agreement” and fell within one of the “enumerated categories” then the work is a work made for hire.
Section 203 of the Act: Was the Work Prepared By an Employee Within
His or Her Scope of Employment?
Under Section 203 of the Act, a court must find that the work was prepared by an employee within the scope of his or her employment by considering the employer’s right to control the manner and means by which the project is accomplished using the agency criteria outlined in Community for Creative Non-Violence v. Reid, 490 U.S. 730, 751 (1989) (“CCNV”). The CCNV factors include: (1) the skill required; (2) the source of the instrumentalities and tools; (3) the location of the work; (4) the duration of the relationship between the parties; (5) whether the hiring party has the right to assign additional projects to the hired party; (6) the extent of the hired party’s discretion over when and how long to work; (7) the method of payment; (8) the hired party’s role in hiring and paying assistants; (9) whether the work is part of the regular business of the hiring party; (10) whether the hiring party is in business; (11) the provision of employee benefits; (12) and the tax treatment of the hired party. Id. at 751-752.
Several facts are working in a songwriter’s or recording artist’s favor using the CCNV factors including a songwriter or recording artist is typically not paid as an employee (hourly) but paid on a royalty basis; a songwriter or recording artist generally is not treated as an employee or given the benefits that an employee is entitled to receive as a matter of law; a songwriter or recording artist is given a wide range of creativity over the work; songwriters and recording artists typically do not have regular hours of work, and the publisher or record label does not require the songwriter or recording artist to work certain hours; a songwriter or recording artist may work from home or in their recording studio; a songwriter or recording artist is typically given a Form 1099 instead of a Form W-2 (and as a result musicians must make their social security payments, retirement payments and maintain their health insurance benefits); a songwriter or recording artist may hire their side musicians, and a songwriter’s or recording artist’s unique skill and creative independence plus the use of their instruments support the implication of independent contractor status.
If there is a written agreement, the record labels sometimes argue that the agreement states, “work for hire” or “works made for hire,” and that statement is unambiguous. However, there typically is a statement in most entertainment contracts that makes this work for hire clause ambiguous. This statement generally is still found in entertainment contracts today. It goes something like this: that in the event the copyrightable works are determined not to be “works made for hire,” then the signee to this agreement assigned the copyrightable works to the entertainment company as of the date of signing this agreement. In effect, the second statement mandates that the parties look at the relationship of the parties to determine if the hiring party had the right to control the manner and means by which the product is accomplished.
The bottom line is the written agreement is not dispositive. As stated by Nimmer, “Insofar as is made “for hire” because it has been prepared by an employee within the scope of his employment, it is the relationship that actually exists between the parties, not their description of that relationship that is determinative.” Nimmer on Copyright, §11.02[A](2018).
Section 203 of the Act: Was the Work Prepared By an
Under Section 203 of the Act, if a work was not created by an employee within the scope of employment, it can only be a work for hire if: (1) the work must be specially ordered or commissioned (created at the request of someone and not a previously created work) (2) created under a written agreement that specifies that the work is pursuant to a work for hire agreement and (3) in one of the specially enumerated categories (use as a contribution to a collective work, as part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation). See 17 U.S.C. § 101.
The most common area where a recording artist or songwriter could be deemed a work for hire is when a sound recording or musical composition is written for a motion picture or other audiovisual work. Under 17 U.S.C. § 101 all that would be needed is a written agreement stating that (1) the recording artist or songwriter is a work for hire, and (2) the recording artist or songwriter is commissioned for use in an audiovisual work or a motion picture for a court to determine that work was work made for hire. See 17 U.S.C. § 101.
Record labels sometimes contend that sound recordings are encompassed within the enumerated categories as contributions to a collective work or a compilation because sound recordings historically were distributed on an album, and as such were an assembly of works constituting a collective whole. A “collective work” is a collection of individual works in themselves, are assembled as a collective whole. Examples of a collective work include an anthology of short stories and an encyclopedia. 17 U.S.C. § 101. A “compilation” is a work formed by the collection and assembling of preexisting materials or of data that are selected coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship. 17 U.S.C. § 101.
The record labels’ argument has not carried much weight in Court given that sound recordings specifically are not an enumerated category under 17 U.S.C. § 101, whereas compilations and collective works are specifically enumerated categories under 17 U.S.C. § 101. See, e.g., Ballas v. Tedesco, 41 F. Supp. 2d 531, 541 (D.N.J. 1999) holding “sound recordings are not a work for hire under the second part of 17 U.S.C. § 101.” Sound Recordings were one of the enumerated categories in 1999, but Congress later eliminated sound recordings from this list.
The work for hire issue is a very thorny issue and is currently being actively litigated in Courts throughout the country and is typically decided on the specific facts in each case.
DERIVATIVE WORKS CREATED UNDER THE GRANT OF COPYRIGHT
DO NOT TERMINATE.
The other statutory exception under Section 203 and Section 304(c) of the Act is that a derivative work created under the authority of the Grant before the termination date in the Notice of Termination remains the property of the grantee of the copyright. 17 U.S.C. § 203(b)(1); 17 U.S.C. § 304(c)(6)(a).
THE U.S. RIGHT OF TERMINATION STOPS AT THE BORDER.
Currently, authors and/or their heirs cannot terminate the Grant of international copyright by filing a Notice of Termination under Section 203 or Section 304(c) of the Act because those sections only apply to the termination of Grants or transferred rights in the United States.
For songwriters and recording artists who created works in the late 1950s to late 1960s and the international copyrights to those works were assigned, transferred, and/or conveyed to a transferee, those authors may be able to terminate the Grant of international copyright under foreign copyright law such as the United Kingdom Copyright Act of 1911 which has been applied to what is called the “British Revisionary Territories.”
The reversionary right also exists in Canada, with a different set of rules, procedures, and protocols.
SOUND RECORDING COPYRIGHTS.
In the music business, an author may terminate the Grant of copyright for musical compositions and sound recordings. However, the copyright in a sound recording was not recognized under the Copyright Act until February 15, 1972, so there has been little discussion about or judicial decisions regarding the rights to terminate a sound recording until recently.
Under Section 304(c) of the Act, a Grant of a sound recording copyright fixed on or after February 15, 1972, but before January 1, 1978, may be subject to termination provided the sound recording was not created as a work made for hire.
If a Grant of copyright for a sound recording copyright created on or after February 15, 1972, occurred after January 1, 1978, then the Grant may be subject to termination under Section 203 of the Act provided that (i) the Grant was executed by the author of the sound recording (which may be subject to the joint author issues discussed above) and (ii) the author did not create the sound recording as a work made for hire.
The same timing provisions discussed above apply to sound recordings under either Section 203 or 304(c) of the Act.
In addition to the work for hire and joint authorship issues discussed above, there are other issues specific to the music industry, such as who is entitled to terminate a Grant of copyright in a sound recording. In particular, who is the attributable author for the sound recording? For example, some of the issues include: is the author the featured artist, or, if there is no featured artist, is the author the entire band? Is the author the featured artist and the featured producer? Or, does the author to a sound recording include every person or entity that had anything to do with the creation of the sound recording, complicating the joint author analysis stated above. Some of these issues may be resolved by the contracts entered into by the band members and other parties who worked on the sound recording.
There are other issues related to terminating grants of copyright in sound recordings. Currently, record labels are arguing under Section 203 that the termination of copyright grants must be “executed by the author.” The record labels now contend that if an artist did business through a loan-out company and to the extent that the agreements between the loan-out company and the record label contained a grant of copyright, then the loan-out company granted the transfer of copyright and not the author. Therefore, the author cannot terminate the Grant. The recording artists contend that there must be a determination of whether the recording artists were actual employees or independent contractors of the loan out companies. In the end, this will likely be a question of fact necessitating a trial requiring an analysis of common law agency principles and a factual inquiry into the nature and substance of the purported employer/employee relationship using the CCNV factors listed above. This issue is currently being litigation in two cases in the Southern District of New York. See, e.g., Waite et al. v. UMG Recordings, Inc., et al., Case No. 1:19-cv-01091.
Most of the cases involving termination of sound recordings currently are resolved out of court because they are expensive to litigate and have no certain result. Moreover, the record label does not want legal precedent saying that the master sound recordings are not works for hire, and the recording artists do not want a legal precedent stating that they do not have a Termination Interest in a master sound recording because they were a work for hire. Passman, Donald S., All You Need to Know About the Music Business, p. 336 (2019).
OPTIONS RELATED TO TERMINATION OF THE GRANT OF COPYRIGHT.
Under Section 203 or 304(c) of the Act, upon the effective date of termination as set forth in the Notice of Termination, all rights under either Section that were covered in the terminated Grants, except for derivative works, revert to the author, authors, and other person(s)/entities who own the Termination Interest with the exception of works made pursuant to a work for hire relationship. 17 U.S.C. § 203(b); 17 U.S.C. § 304(c)(6).
For example, if a songwriter assigned his or her rights in a copyright to a publishing company such as Sony/ATV Music Publishing, Warner-Chappell Music, or Universal Music Publishing Group, and successfully terminates the Grant, then the songwriter is entitled to receive the publisher’s share of the royalties in addition to the ability to control to the copyright.
The publisher’s share of the royalties typically includes at least three types of royalties including: public performance royalties for “small” performance rights (rights include the rights to authorize non-dramatic performances of compositions over television, radio, and other electronic devices; online transmissions; and non-dramatic live performances),fees such as synchronization licenses (“sync licenses”), and mechanical royalties. The public performance royalties are typically collected by performing rights organizations (“PRO”) such as ASCAP, BMI, and ASCAP, with the publisher being paid 50% of the royalties and the songwriter being paid 50% directly from the PRO. Beginning January 1, 2021, the Music Modernization Act (“MMA”) will also provide a bump to the publisher’s share as 50 percent of the royalties will be paid to the publisher through the Mechanical License Collective (“MLC”)(the publisher is required to give the other 50 percent to the songwriter pursuant to the MMA). The publisher may also receive funds from the sales of printed versions of the compositions including sheet music, income for the rights to perform a work in public (“concert rental rights”), and other new media rights.
However, there are business decisions that songwriters and recording artists need to consider before filing a Notice of Termination of a Grant. These include (1) whether or not the songwriter or recording artist is comfortable with self-administering the copyrights in their works or does the songwriter or recording artist need to have the copyrights administered by a third party, (2) whether or not the songwriter or recording artist wants to transfer these rights, in whole or in part, to a third party after the Termination Date, or (3) whether the songwriter or recording artist wants to provide a further grant or reassign the copyright to the original transferee of the Grant after the Notice of Termination has been served but before the effective termination date. For the last point, see 17 U.S.C. § 203(b)(4) and/or 17 U.S.C. § 304(c)(6)(c).
Another primary consideration for both songwriters and recording artists is that only the rights that are the subject of the Grant will revert to the songwriter or recording artist. None of the other rights or property under the recording contract or publishing agreement will return except the right associated with the Grant of copyright. For example, if a recording artist assigned a record label the exclusive right to use the author’s likeness for marketing and distributing sound recordings, then this assignment will not terminate under either Section 203 or Section 304(c) of the Act.
A songwriter or recording artist may want to consider whether to terminate a Grant and reassign the copyrights to a different publisher to negotiate a better deal with the grantee of the copyright (e.g., more royalties paid for the songwriter’s share of the royalties). It may be more advantageous to terminate a Grant to a publisher and/or record label if the songwriter and/or recording artist does not like how the publisher or record label is promoting his or her catalog. However, under existing law, neither the author nor the author’s heirs can enter into an agreement with anyone other than the grantee before the effective termination date in the Notice of Termination.
If a songwriter or recording artist wants to do a deal for the termination rights with the original grantee after filing a Notice of Termination, the reported amount the songwriter can receive for the buyout of the songwriter’s Termination Interest is a multiple of 6-8 times the annual average publisher royalties for the US rights over a three to five year period. However, in recent years some songwriters have received multiples of 20 or more times the annual average publisher’s share of royalties for the US rights depending on a variety of factors, which include, but are not limited to, the (1) the artist’s legacy, (2) the current popularity of the artist, (3) the number of Billboard Top 100 hits by the artist that are subject to termination, (4) consistent earnings in the royalty streams, (5) the duration of the copyright, and (6) the number of and amounts paid for synch licenses over the past three (3) to five (5) years. The multiple has gone up in recent years because more hedge funds and other non-music industry investors are actively buying copyrights and artists’ catalogs. While the initial offer to purchase an artists’ catalog may seem quite large at first, the artist should carefully consider the option of self-administration or using a third party to administer the catalog prior to electing to sell the copyrights depending on a variety of facts including whether or not the record label or publisher can claim that the musical compositions and/or sound recordings are subject to a work for hire provision.
If the grantee does not return the copyright upon the termination date, then the recourse for the songwriter or recording artist is to file a Complaint for Declaratory Judgment and Copyright Infringement in U.S. Federal Court.
Basic Hypothetical Situation Under Section 304(c) of the Act:
If a songwriter registers a composition “I’m Gonna Make It” on January 2, 1974, with the U.S. Copyright Office and assigns the musical composition to Publisher on the same day, then the effective termination date would be January 2, 2030 (56 years from the date of registration of copyrights). The earliest the Notice of Termination could be served on the Publisher is January 2, 2020. The latest date to service a Notice of Termination would be on January 2, 2033, to be within the five-year window, which would close on January 1, 2035 (1974 +56 years + 5-year window).
Basic Hypothetical Situation Under Section 203 of the Act:
If a songwriter registers a composition “I’m Gonna Make It Again” on January 2, 1985, with the U.S. Copyright Office and assigns the song to Publisher on January 2, 1985, then the effective termination date would be January 2, 2020 (35 years from the date of the assignment). The earliest the Notice of Termination could be served on the Publisher is January 2, 2010. The latest date to service a Notice of Termination would be on January 1, 2023, to be within the five-year window, which would close on January 1, 2025 (1985 +35 years + 5-year window).
The information on this website is for general information purposes only. Nothing on this site should be taken as or construed to be legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing the information on this website does not create an attorney-client relationship.
Allan Law Group P.C. recently concluded a transaction for the partial sale and purchase of the Termination Interest of their client, Sylvester Stewart p/k/a Sly Stone of Sly and the Family Stone, with MIJAC Music after filing Notices of Termination under Sections 203(a) and 304(c) of the Act as reported in both Variety and Billboard Magazine in November 2019.
See Variety article here.
See Billboard article here.
This informational summary was written by Brian R. Tinkham and by Robert J. Allan of Allan Law Group P.C. The attorneys at Allan Law Group P.C. specialize in complex business and entertainment litigation and associated entertainment transactions.