"In contrast to previous economic eras,
intellectual property will be the primary source
of new wealth in the 21st century."
- Gregory A Piccionelli, 1989
 
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Welcome To The Era Of Copyright Recapture

JULY 2012

When a company purchases an irrevocable assignment of the copyright in a work, such as a video or photograph, the company can rest assured that it will own the copyright and be able to freely exploit the work as it wishes, indefinitely, right? Wrong, at least under United States law.

 

On January 1, 1978 a revision of U.S. Copyright Law enacted in 1976 became effective. Among the many changes to the copyright law that resulted was a controversial provision that provides to authors and their statutory heirs an opportunity to recapture ownership of intellectual property that had previously been assigned to a third party.

 

Specifically, Section 203 of the Copyright Act of 1976 contains provisions that permit copyright authors to terminate previously executed transfers and licenses of copyrights pertaining to any copyrighted work other than a work made for hire, at “any time during a period of five years beginning at the end of thirty-five years from the date of execution or grant” provided notice is given “not less than two or more than ten years before that date”.

 

Congress’ stated purpose in providing a right of termination was to protect authors from “unremunerative transfers...made before the author had a fair opportunity to appreciate the true value of his work product.” House Report on the Copyright Act of 1976, page 134; Mills Music, Inc. v. Snyder et al., 469 U.S. 153 (1985). Essentially, authors were given a “second bite at the apple” to address what is often a situation of unequal bargaining power between an artist and the purchaser of an artist’s works, which is often the case at the beginning of a successful artist’s career.

 

To effectuate Congressional intent, the Copyright Act also prohibits selling or waiving of the recapture right by contract, including by any

future grant of the termination right. 17 U.S.C. §203(a)(3)(5) and 17 U.S.C. §304(c)(5). In fact, the House Report on the Copyright Act of 1976 concluded that to permitan author to waive such rights would defeat the stated purpose of the statutory termination right.

 

Section 203, therefore, provides to artists and other authors the power to effectively and unilaterally nullify a contractual license or assignment and completely reclaim their U.S. copyrights.

 

If you are surprised that a contract to purchase the rights in a copyrighted video, photograph or music recording can be terminated by creators of the content, you’re not alone. I find that many people are shocked and even incredulous when I tell them that virtually all licenses and assignments of copyrighted works are potentially terminable by the authors of the works unless the works were acquired as “works for hire”. And underscoring the breathtaking scope of the right of recapture is the fact that it can be exercised regardless of how much was paid for the license or assignment of rights at issue.

 

The Big Day Is Not12-21-12.

 

I believe one of the reasons why many adult content producers and licensors of adult content are not yet aware of the rights recapture provisions of the Copyright Act is because they, like many of their counterparts in the mainstream motion picture, music, publishing, and software industries, have not yet received their first license or assignment termination notice. This is not surprising given that a license or an assignment of copyrights is not subject to termination by an author until at least 35 years after the author executed of the license or assignment agreement.

 

But all that is soon likely to change in a big way. What is expected by most entertainment and computer industry attorneys to be a decades long copyrights crisis of unprecedented proportion will commence in earnest on January 1, 2013, as the first set of copyright assignments governed by the 1976 Copyright Act will become eligible for termination. I think it is fair to say many mainstream entertainment, software and print publishing companies look toward 1-1-13 with a greater apocalyptic concern than the end of the Mayan calendar on 12-21-12.

 

The Effect Of The Termination.

 

The copyright recapture provisions of the Copyright Act provides to creators and their heirs not only the right to terminate copyright licenses and transfers, it also enables them to regain creative control of the use of their intellectual property. Because of this, companies that hold copyright licenses and assignments that are subject to termination should be aware that rights to use works subject to the rights recapture could be suddenly terminated. This could have potentially severe consequences for such content companies.

 

For example, if a previously licensed or assigned right to use a work was suddenly subject to termination and recapture by an author, a company could find itself without the right to lawfully commence a new exploitation of the work. Similarly, a company could face liability to a third-party sublicensee or assignee of rights in the work to whom the company provided representations and warranties that the company had sufficient rights to provide the sublicense or assignment to the third party.

 

The problem of rights recapture could present some particularly challenging circumstances for some software companies and owner’s of specially written or custom software. For example, a termination of rights by an author who created a basic software module or a critical code application frequently used to generate new software works could have far reaching and potentially economically devastating impact.

 

Will The Courts Uphold Authors’ Rights To Recapture Their Copyrights?

 

While copyright works only become eligible for rights reclamation pursuant to Section 203 after January 1, 2013, the period of time in which an author could serve notice of termination of a license or assignment of copyrights has already begun. In one instance, notice of rights termination provided by an author provoked a lawsuit that resulted in an early judicial affirmation of an author’s copyright recapture rights under Section 203.

 

The case, Scorpio Music S.A. v. Willis, No. 11-CV-1157- BTM (RBB), 2012 WL 1598043 (S.D. Cal. May 7, 2012), involved Victor Willis, a member of the famous music group “Village People”. Between the 1970s and 1990s, Willis was hired to create lyrics for Can’t Stop Music, which he did pursuant to an agreement with the company. In the agreement, Willis transferred his rights in the compositions he created to Can’t Stop Music in exchange for royalty payments. The rights to the songs were subsequently assigned to another entity, Scorpio Music. The songs in question included many of the Village People’s biggest hits, including, for example, the songs YMCA and In the Navy.

 

In early 2011, Willis notified Scorpio Music, and others, of his intent to terminate the grant of rights pursuant to the rights recapture provisions of Section 203. In response to the notice of termination of the grant, Scorpio Music filed a declaratory relief action in the Southern District of California. Among other things, the action sought a judgment that the termination notice was invalid and that Willis no longer had any legal rights in the compositions. In response, Willis filed a motion to dismiss the declaratory relief action.

 

On May 7, 2012, the court granted Willis’ motion to dismiss the declaratory relief action filed by Scorpio Music. In doing so the court determined that his termination notice was meritorious, thereby affirming his right to terminate his decades old grant of rights to Can’t Stop Music and his right to recapture the copyrights in the subject compositions.

 

Can A Company Acquire Copyrights In A Manner That Prevents Rights Recapture By The Author?

 

Because the Copyright Act itself prohibits contractual agreements to prevent the exercise of authors’ rights to recapture their copyrights, companies must take other steps to ensure, when possible, that acquired copyrights are not subject to subsequent recapture. This generally requires that a company obtain rights in a subject work as a “work made for hire” because the termination right does not apply to “works made for hire.” 17 U.S.C. §203(a) and 17 U.S.C. §304(c).

 

Under Section 101 of the Copyright Act, a “work made for hire” is defined as: “(1) a work prepared by an employee within the scope of his or her employment; or (2) a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.”

 

Under the definition of a “work made for hire,” for example, it is clear that any transfer of creative works that are commissioned to be incorporated into a motion picture (for example, the director’s or cinematographer’s creative contributions) will not be subject to termination by the author(s).

 

At least one court has already upheld the “work for hire” exception to the right of recapture. In 2009, Marvel Entertainment was served with 45 notices of copyright termination from the heirs of Jack Kirby, co-creator of many of Marvel’s most valuable franchises, including Spider-Man, X-Men, and the Fantastic Four. In response, Marvel filed a federal lawsuit to invalidate the termination notices. In July 2011, the court granted summary judgment in Marvel’s favor, finding that the Kirby heirs’ termination notices were invalid because Kirby’s contributions had been works for hire. Marvel Worldwide, Inc. v. Kirby, 756 F. Supp. 2d 461 (S.D.N.Y. 2011).

 

But Beware In California Persons Providing Rights Via A “Work For Hire” Agreement May Be Deemed To Be “Statutory Employees”.

 

Under California law, a party transferring rights to any work made under a work for hire agreement is an employee for purposes of workers’ compensation and unemployment insurance.

 

The Employment Development Department of the State of California (“EDD”) has taken the position that “work made for hire” language included in an agreement that otherwise provides for consultant or independent contractor services, nonetheless renders the contractor a statutory employee. 

 

As support for its position, the EDD references California Unemployment Insurance Code Sections 686 and 621(d) and California Labor Code Section 3351.5(c), which provide as follows:

 

“‘Employer’ also means any person contracting for the creation of a specially ordered or commissioned work of authorship when the parties expressly agree in written instrument signed by them that the work shall be considered a work made for hire, as defined in Section 101 of Title 17 of the United States Code, andthe ordering or commissioning party obtains ownership of all of the rights comprised in the copyright in the work. The ordering or commissioning party shall be the employer of the author of the work for the purposes of this part.” Cal. Unemp. Ins. Code Section 686.

 

“‘Employee’ means all of the following:… (d) Any individual who is an employee pursuant to Section 601.5 or 686.” Cal. Unemp. Ins. Code Section 621(d).

 

“‘Employee’ includes:… (c) any person while engaged by contract for the creation of a specially ordered or commissioned work of authorship in which the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire, as defined in Section 101 of Title 17 of the United States Code, andthe ordering or commissioning party obtains ownership of all the rights comprised in the copyright in the work.” Cal. Lab. Code Section 3351.5(c).

 

In the context of an adult entertainment content production company, this could mean that if a performer, videographer or a director is otherwise an independent contractor, if copyrights are acquired from such persons by the production company through a work for hire agreement, each of them would become a statutory employee subjecting the company to Unemployment Insurance and Disability withholdings.  Failure to comply with state law in this regard could subject the company to substantial penalties.

 

The availability of copyright recapture will present exciting new opportunities for what will eventually be a huge number of artists and other creative contributors to copyrighted content of all kinds. It will also present formidable challenges for a broad spectrum of companies that originally contracted to obtain rights in the same content.

 

If you are an artist interested in recapturing previously assigned or licensed copyrights or a company impacted by an actual or potential notice of rights recapture, please feel free to contact my firm at the number below to discuss the matter.

 

This article is not intended to be, nor should it be considered to be, legal advice. If you have a legal question or other matter related to the any of the topics discussed in this article, I strongly urge you to contact our office at the number below or seek the counsel of another qualified and experienced adult entertainment attorney familiar with the legal matters discussed in this article.

 

1Gregory A. Piccionelli is an intellectual property attorney specializing in adult entertainment matters. He can be reached at Piccionelli & Sarno at (818) 201-3955 or greg@piccionellisarno.com.

 

 

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