Copyright Termination and Copyright Recapture Rights Explained for Songwriters and Recording Artists
by Brian R. Tinkham and Robert J. Allan
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 authors, such as songwriters and recording artists, this means that they can terminate a copyright in a work, such as a musical composition or a sound recording, that was previously granted to a third party, like a publisher or a record label, provided certain requirements are met. If there is no dispute claimed by the Record Label or Publisher, the rights will revert to or be "recaptured" by the Author, and the Author or authors will be able to negotiate with the Record Label or Publisher and enter into a subsequent deal or a third party.
The statutory provisions for how and when to terminate a grant of a transfer or license of a copyright for a musical composition or sound recording are set forth in 17 U.S.C. §§ 203(a) (“Section 203(a)”) and §§ 304(c)(“Section 304(c)”) of the U.S. Copyright Act (the “Act”).
Songwriters and recording artists (and/or their heirs) may terminate a grant of transfer or license of copyright (“Grant”) under either Section 203(a) 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(a) or Section 304(c) of the Act. Understanding these deadlines and requirements is 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 prior to January 1, 1978, other than by will, then the author and/or the author’s heirs may terminate that Grant at any time during a period of five (5) years beginning at the end of fifty-six (56) years from the date the copyright was originally secured, or beginning on January 1, 1978, whichever was later. See 17 U.S.C. 304(c).
Under Section 203(a) 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. See 17 U.S.C. 203(a).
The author or author(s) of the work own the right to terminate the Grant (referred to in the Act as the “Termination Interest”) and may serve the Notice of Termination at anytime up until the death of the author. After the author or authors die, then 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; OR
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 children or grand-children as the case may be with the rights of the author’s children or grandchildren divided between them on a per stirpes basis according to the number of children represented while the share of the children of a dead child in the Termination Interest can be exercised only by the action of the majority of them; OR
In the even there are no heirs or a widow or widower, the author’s executor, administrator, personal representative or trustee shall own the author’s entire Termination Interest.
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 (discussed below);
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 in order for the termination to be effective.
The termination of the Grant may be effected at any time during a period five (5)years beginning at the end of thirty-five (35) years from the date of the execution of the Grant pursuant to Section 203(a) of the Act or five years beginning at fifty-six (56) years from the date the copyright was originally secured pursuant to Section 304(c) of the Act (the five year time period after the thirty-five year mark pursuant to Section 203(a) of the Act or the fifty-six year mark pursuant to Section 304(c) of the Act are commonly referred to as the “Termination Window”).
The dates when the Termination Window are open and when the Notices of Termination must be served for a 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(a) of the Act are set forth below:
* The time period of 1978 to 1981 were omitted because the Termination Window for filing Notices of Termination for Grants made in those years has already closed.
JOINT AUTHORSHIP ISSUES CAN COMPLICATE TERMINATION
A musical composition or sound recording may be written or performed by two (2) or more authors making it a joint work (e.g. two or more songwriters write the lyrics and the music or multiple band members who record the sound recordings). 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. The authors also must each intend to contribute to a joint work and their contributions must be independently copyrightable.
Under Section 203(a) 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 it. 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 pursuant to their recording contract and all five band members were deemed joint authors. Three (3) out of the five (5) band members would have to serve a Notice of Termination under Section 203(a) of the Act in order 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. For example, if one author wrote the lyrics to a song and another author wrote the music to the song; both authors file separate copyrights to the musical composition under 17 U.S.C. § 102(a)(2); and each author subsequently assigned their copyright to the same publisher in separate 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 Termination Interest in the copyright while the grantee retains the other Termination Interest if the other joint author did not timely serve a Notice of Termination.
One of the current issues under Section 203(a) 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. This issue is currently being determined by the Courts 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. While Courts have held that mere direction or advice is not sufficient for joint authorship, at least one Court has found that providing equipment and talent for the production of a sound recording may establish joint authorship. Other Courts have rejected claims when the party’s main contribution was funding the project and providing the studio space.
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.)
YOU’LL MISS ME WHEN I’M GONE – MISSING THE DEADLINES
17 U.S.C. 304(d) provided authors who had registered a copyright in 1939 to terminate a Grant as late as 2017 with a termination date in 2019 and get a second chance at terminating any subsequent Grant. However, this right only applied to works that were originally registered or published on or before October 26, 1939. See, e.g., 17 U.S.C. 304(d).
In other words, if the author or the heirs fails to properly or timely serve the Notices of Termination pursuant to Section 203(a) 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.
“WORK FOR HIRE” OR “WORKS MADE FOR HIRE” AGREEMENTS MAY PREVENT TERMINATION
Under Section 203(a) and Section 304(c) of the Act, there are statutory exceptions to an author’s right to terminate a Grant. In both Section 203(a) and Section 304(c), one of the statutory exceptions is that a Grant cannot be terminated if it is for a work made for hire or pursuant to a work for hire agreement. In the 1960s, 1970s, and 1980s it was common practice for companies (record labels/publisher) to sign authors (songwriters and recording artists) to work for hire or works made for hire agreements as part of the recording agreement or songwriting contract.
If a recording contract or songwriter contract containing a Grant also had a work for hire provision in it, then that work for hire provision may apply to the entire Grant. The simple argument used by publishers and record labels is that the work was created within the scope of employment of the author or was a particular type of commissioned work creating a work for hire relationship. Thus, the authorship in a work made for hire relationship automatically vested in the person or entity that hired the author to perform the work and as such there can be no Grant to terminate.
Luckily, the determination of whether the parties entered into a work for hire agreement is not based solely on the plain reading of the statutes but statutory interpretation of Section 203(a) and Section 304(c) of the Act by the Courts. As a result, the Courts have given several factors and tests that will be examined on a case-by-case basis to determine whether or not the songwriter or recording artist can terminate a Grant under Section 203(a) or 304(c) of the Act if the underlying contract contained a work for hire provision.
Section 304(c) of the Act and Works For Hire
If the Grant was based on a contract with the author that contained a work for hire provision and Grant falls under Section 304(c) of the Act, then the determination of whether there was a valid work for hire agreement is based on the interpretation of the 1909 Copyright Act. The 1909 Copyright Act provided that the word “author” shall include an employer in the case of works made for hire. However, unlike the 1976 Copyright Act, the 1909 Copyright Act failed to define what was meant by “work made for hire” or “employer.” Thus, Courts have looked to different factors to determine whether a work under the 1909 Copyright Act 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 these three factors. The Ninth Circuit Court of Appeals currently uses what is commonly referred to as the “instance and expense” test. Sadly, 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. As a result, 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.
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. However, in contrast, where the employee or independent contractor receives royalties as a payment, that method of payment generally weighs against finding a work for hire relationship. 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 sum is sufficient to meet the requirement that the works may be at the employer’s expense. In general, the focus on the expense requirement is on who bore the financial risk of the work’s profitability.
The “instance” component of the test inquiries into whether the motivating factor in producing the work was the employer who induced the creation. 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.”
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 is far more complicated than can be explained in this summary. 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 prior to 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 simply 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.”
Section 203(a) of the Act and Works For Hire
Section 203(a) 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 that contained a work for hire provision and Grant falls under Section 203(a), then the determination of whether there was a valid work for hire agreement falls under the 1976 Copyright Act. The 1976 Copyright Act, unlike the 1909 Copyright 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 order or commissioned for use as a contribution to a collective work…” See 17 U.S.C. § 101.
To be a work made in the scope of employment a Court must consider whether the party who created the work is an employee or independent contractor using the factors set forth in Community for Creative Non-Violence v. Reid, 490 U.S. 730 (1989). These 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. Ibid.
There are several facts working in a songwriter’s or recording artist’s favor using these factors including: a songwriter or recording artist is typically not paid as an employee (hourly) but for the “gig” and a songwriter or recording artist is typically paid on a royalty basis; a songwriter or recording artist is typically not treated as an employee or given the benefits and 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 own 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 own social security payments, retirement payments and maintain their own health insurance benefits); a songwriter or recording artist may hire their own side musicians; and a songwriter’s or recording artist’s unique skill and creative independence plus use of their own instruments support the implication of an independent contractor status. One issue that is currently untested in litigation is whether a songwriter’s or recording artist’s use of a loan-out corporation nullifies the author’s Termination Interest under Section 203(a) of the Act.
A work may also be a work made for hire if it meets the commissioned works standard for use as a contribution or collective work. Neither musical compositions nor sound recordings are explicitly enumerated under 17 U.S.C. § 101 (2). In fact, musical compositions are not encompassed within the enumerated categories.
However, whether sound recordings are encompassed within the enumerated categories has generated debate since 1999. Record labels wrongly contend that sound recordings are encompassed within the preexisting list as contributions to a collective work because sound recordings historically were distributed on an album, and as such were an assembly of works constituting a collective whole. This argument may not carry much weight in Court given the fact that each individual sound recording on an album is individually copyrightable. Thus, even if an album is not copyrightable, a recording artist could file a Notice of Termination for each individual sound recording on the album as a work-around.
The work for hire issue is a very thorny area 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(a) 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.
THE U.S. RIGHT OF TERMINATION STOPS AT THE BORDER
Currently, authors and/ their heirs cannot terminate the Grant of international copyright by filing a Notice of Termination under Section 203(a) or Section 304(c) of the Act because those sections only apply to 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.
OPTIONS RELATED TO TERMINATION OF THE GRANT OF COPYRIGHT AND COPYRIGHT RECAPTURE
Under Section 203(a) 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) who own the Termination Interest with the exception of works made pursuant to a work for hire relationship. Thus, a songwriter or recording artist should recapture the copyright as of the termination date.
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 copyright. The publisher’s share of the royalties typically includes at least three types of royalties including: public performance royalties, fees from synchronization licenses (“synch licenses”), and some 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).
However, there are issues 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, or their heirs, are comfortable with self-administering the copyrights in their works, (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 artists 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).
There are pros and cons to recapturing the copyright or entering into a subsequent deal for the copyright option depending on how much money is at stake and how experienced the authors and/or their heirs are with administering the copyrights and marketing the copyright for synch licenses and other sources of income.
Another major 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 and not any other rights or property granted by the author pursuant to the recording contract or publishing agreement. 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 this assignment will not terminate under either Section 203(a) or Section 304(c) of the Act. This assignment may prohibit or limit the songwriter’s or recording artists’ ability to market the music.
Another thing a songwriter or recording artist may want to consider is whether to terminate a Grant and reassign the copyrights to a different publisher in order to negotiate a better deal with the grantee of the copyright (e.g. more royalties paid for the songwriter’s share of the royalties). Further, 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 catalogue.
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 approximately a multiple of 6-8 times the annual average publisher's share of 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 or other non-music industry investors are actively buying copyrights and artists’ catalogues.
However, under existing law prior to the effective termination date in the Notice of Termination neither the author nor the author’s heirs can enter into an agreement for a Grant of the post termination copyrights other than with the current grantee.
If the grantee does not return the copyright, then the recourse for the songwriter or recording artist is to file a Complaint for Declaratory Judgment in U.S. Federal Court. In other words, one will need to file a lawsuit and be prepared to litigate.
SOUND RECORDING COPYRIGHTS
In the music business, an author may terminate the Grant of copyright for compositions and sound recordings. However, the copyright in a sound recording was not recognized as a matter of law until February 15, 1972 so there has been very little discussion about or judicial decisions regarding the rights to terminate a sound recording until recently.
Under the 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 occurred after 1978 for a sound recording copyright created on or after February 15, 1972 the Grant may be subject to termination under Section 203(a) of the Act provided that (i) the Grant was executed by the author of the sound recording 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(a) 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.
As stated above, there are many issues related to the Grants of copyrights in and the termination of the Grants pertaining to sound recordings. For now, and until there is clarification it is advisable that the artists with a fact based claim to the authorship of a sound recording created during these time periods to serve Notices of Termination, so they do not miss the limited opportunity to serve a timely Notice of Termination.
Currently, most of the cases involving termination of sound recordings currently are resolved out of Court because the record label does not want a judicial precedent where it loses the rights to a master sound recording and the recording artists do not want a judicial precedent stating that they do not have a Termination Interest in a master sound recording.
Basic Hypothetical Situation Under Section 304(c):
If a songwriter registers a composition “I’m Gonna Make It” on January 2, 1974 with the U.S. Copyright Office and assigns the composition to Publisher on the next 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 2, 2035 (1974 +56 years + 5 year window).
Basic Hypothetical Situation Under Section 203(a):
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, 1990, then the effective termination date would be January 2, 2025 (35 years from the date of the assignment). The earliest the Notice of Termination could be served on the Publisher is January 2, 2015. The latest date to service a Notice of Termination would be on January 2, 2028 to be within the five year window, which would close on January 2, 2030 (1990 +35 years + 5 year window).
Again, both of these scenarios depend on whether the author created the composition pursuant to a work made for hire agreement.
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.
This article 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 music copyright issues, complex business and entertainment litigation and associated entertainment transactions.
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