Will There Be a Winner in the Termination Rights Battle?

Will There Be a Winner in the Termination Rights Battle?

By: Kristin Kolick, J.D. Candidate 2012, New England Law | Boston

17 U.S.C. § 203 provides generally that the creator of a work other than a work made for hire may terminate an exclusive or nonexclusive grant of rights, thereby regaining the previously granted interest in the work. Under Congress' 1976 revision of the Copyright Act, which is applicable to works created in 1978 and later, the grant's termination may be effected at any time "during a five year period beginning at the end of thirty-five years from the date of execution of the grant..."(If the grant covers publication rights, however, the window begins at the earlier of the end of thirty-five years from the publication date or forty years from the execution of the grant.2)  Because it is now within the five-year period to give notice of termination, the first group of songs (those to which rights were granted to third parties in 1978) will soon be available for recapture by the songs' creators.  Consequently, the volume and types of works that may potentially revert to artists in 2013 is now becoming apparent.Many of the songs involved in this group were hits from the late 1970s, an era during which popular music thrived and records sold millions of copies, making the record industry massive amounts of money.  Many of these songs are songs written or performed by such artists as the Village People and Bruce Springsteen.

The recapturing of rights by these artists and/or their heirs will force the record companies to find alternative income streams.  Income from the sales of current records may not be sufficient to replace the income lost from the great hits of the past, as the rise of the internet and illegal downloads have caused record sales to drop drastically.  Without the revenue from the old hits and with profits already low, will the record companies survive?

Musical artists have long relied on record companies to promote and distribute their records to the masses, both nationally and internationally.  Although artists have the legal right to recapture the spoils of their own labor, is it wise for artists to join in the termination rights movement? 

Termination Rights: A Safeguard to Artists

Although there is no doubt that artists benefit from their affiliation with the record companies, artists often become trapped in bad record deals due to a disparity in bargaining power and an inability to speculate as to how popular (and thus profitable) their work may become.  The Congressional intent behind the creation of a termination right was to provide a mechanism for correcting the disparity in bargaining power and allowing a renegotiation of a deal that, in retrospect, was a bad bargain.  The purpose behind the statutory recognition of the termination right is to safeguard artists "against unremunerative transfers...needed because of the unequal bargaining position of artists, resulting in part from the impossibility of determining a work's prior value until it has been exploited."5

A.    Exercising Termination Rights

The termination right is a unilateral act of power; it need not be mutually agreeable to become effective,6 though the artist must give proper notice of termination.7 Ownership rights vest at the time that notice of termination is given, meaning that if a person dies after the notice has been given and before the rights have reverted, the rights go to that individual's estate upon death.8

Works created jointly present a more complicated issue, and decisions have been made as to whether a majority of parties or a unanimity of parties must attempt to regain their rights in a joint work.  "A grant executed on or after January 1, 1978, may be terminated only by a majority of the joint authors who executed it."The termination right also presents an interesting problem for derivative and sublicensed works.  Derivative works created before the reversion of the copyright law may lawfully be created under the Code, and the rights to derivative works will not revert to the artist.10  However, it is unlawful to create derivative works after termination.11

Even more complicating factors arise when the author dies prior to the permissible time to notice termination.  "Section 203 does not apply to transfers by the author's successors in interest or to rights transferred by bequests of the author."12  Instead 17 U.S.C. § 304(c)(2) applies.  At the author's death, the termination rights vest in either: 1) the spouse, if living; 2) the children and grandchildren, if living, when the spouse is deceased; or 3) per stirpes representation between the widow, children, and grandchildren if all (or some of each class) are then living.13  If a person dies who owns part of the reverted interest, the interest passes to his or her estate, and the proportion of parties assenting to termination or re-grants remains the same.  The artist's executor, administrator, personal representative or trustee also holds his or her interest when he or she dies prior to the vesting of the termination right.14 

The post-mortem protection of the termination right exemplifies the intent that the copyright benefit the author and his or her heirs.  Congress sought to further this benefit by protecting artists from bad contracts.  Under the law, an artist may not validly waive his or her termination rights.15  Because of this, artists have some degree of protection with respect to the termination right, notwithstanding the validity or invalidity of the contract itself.  "To determine whether an agreement functions as a further grant of reverted right, courts will examine the character of and intent behind the agreement."16  

The Record Industry's Reaction

A.    Defensive Posturing

With so much money and power at stake, the record industry is, of course, scrambling to find reasons why artists should be precluded from recapturing their works.  Among these reasons is the argument that the works created were works for hire, which would place the artist in a statutory exception to the general right of termination.17  Put simply, a "work made for hire" is either a work that is commissioned or a work "prepared by an employee in the scope of his or her employment."18 

Given the process an artist goes through to be picked up by a record label, which often includes an artist's musical offering in exchange for the mere opportunity for a record deal, it is unlikely that the work could ever be considered "commissioned."  Wealthy benefactors and organizations have been commissioning works for centuries.  Commissioned works are typically prepared for a particular individual and/or event, and the contract is typically for one project only (although satisfied customers may commission additional works at a later date).  Unlike the project-by-project arrangement, artists' relationships with the record companies are contractually ongoing and often afford the record companies an exclusive option to pick up additional albums.

The second circumstance to which record companies can apply the work for hire doctrine is one in which the work is created by an employee within the scope of his or her employment.19  As applied to musicians, however, the doctrine is arguably inapplicable because the record companies do not withhold from artists' paychecks for things such as taxes or social security.  Also of interest, a musician is not provided with healthcare or a pension plan through the company and does not receive the same benefits as the company's payroll employees. In fact, the musician is not on the employee payroll.

Some authorities have suggested that an individual can still be an employee if the employer does not adhere to such formalities.20  It follows that there is at least a possibility that adhering to formalities would not be dispositive as to whether or not a musician is an employee of the record company.  Although this may be a viable argument for the record companies, this argument becomes less valid when the artist does more work or enters into more contracts outside of the record contract.  Thus, the degree of exclusive control by the record company may become essential to deciding whether or not a work for hire exists.  Because of the opportunity to make more money from the artist and because the company can argue that artists are creating works made for hire, it makes sense for the record company to make the scope of the record contract as broad and inclusive as possible so that the artist's entire income stream is controlled by the record contract.  In doing this, the company appears to be more of an employer than a client of an independent contractor. However, if artists can make a case that the nature of their relationships to the record companies are those of independent contractors rather than employees, this may contribute to the decentralizing of some of the wealth and power in the music industry.

B.     Finding Opportunity in the Termination of Rights

While some businesses may be feeling a monetary loss due to artists asserting their termination rights, others view this change in ownership as a potential way to negotiate a deal and capture "catalogs with good copyrights that were terminated and have come onto the market for the first time in 56 years."21  While the positive effect of the decentralization of money and power is that a door is opened for smaller and newer companies to enter the industry, smaller or newer companies may have the same lack of impact as self-promoting websites, as they too, may lack the known name, and centralized wealth and power of the "Big 4" record companies.  Therefore, the scattering of wealth and power may be good for new companies and individual rights, but may not be the best thing for the industry in general; the positive effects must be weighed against the negatives.

Are Termination Rights Good for the Artist? Maybe Not

While the internet has opened the door for artists to independently market and promote themselves, and sell their own records and merchandise, the record industry still has a greater grip on the market for record sales.  Consider the likelihood that a person would find a particular artist's website from among millions of sites on the internet.  Although the website is there, potential listeners may not be drawn to it unless it is somehow linked to a frequented site.  Having the ability to reach millions of listeners does not necessarily mean that millions will be listening.  One way to target listeners is to encourage creatives from different industries to link their sites to creatives from other industries.  For instance, a photographer could link his or her professional website to a musician's website.  Of course, this will prove to be no more effective than pure self-marketing if the photographer is struggling to be seen just as much as the musician is to be heard.  Another venue that may be helpful to spread the word about emerging artists is internet radio and podcasting.  However, individuals may be less likely to pay the fees for podcasts, especially younger people who account for a large portion of those looking for new and different music. 

What Does the Future Hold? Only Time Will Tell

While record companies are certainly in a position of greater bargaining power than the artist, the artist benefits from the mass appeal and the connections to music industry professionals that can often only be accomplished be entering into a record contract.  If the record companies lose their broad influence, the concept of the superstar may become a phenomenon of the past, and the industry may become more saturated by niche fame.22  If this happens and artists no longer realistically reach superstar levels, it is possible that the wealth that is now concentrated could be spread out to reach many artists, resulting in many more gainfully-employed artists.  Even if this happens, though, the artists who generate the most interest may end up rising to the top, and a new "Big 4" may rise with them.  When it comes to the future, only time will tell how the record industry evolves.  The termination rights battle will be ongoing, and the results of the battle over the next few years may very well dictate the future of the music industry.

[1] 17 U.S.C. § 203(a)(3).

[2] Bruce P. Keller, Jeffrey P. Cunard & Robert Spoo, Copyright L. s 7:5.2, Practising Law Institute, §7:5.2 Transfers Effected on or After January 1, 1978 (Practising Law Institute 2010).

[3] Larry Rother, Record Industry Braces for Artists' Battle Over Song Rights, N.Y. Times C1, (Aug. 16, 2011).

[4] Id; Nicholas Smith, You Can't Stop the Music but you can stop the copyright!, IP Whiteboard (Aug. 19, 2011), http://blogs.mallesons.com/ipwhiteboard/you-can-t-stop-the-music-but-you-can-stop-the-copyright.

[5] Nimmer on Copyright, 3-11 Nimmer on Copyright § 11.01 (Matthew Bender & Company, Inc., 2011).

[6] Bruce P. Keller, Practising Law Institute, supra.; 17 U.S.C. § 304(c)(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.")

[7] 17 U.S.C. § 304(c)(4).

[8] Bruce P. Keller, Practising Law Institute, supra.

[9] Nimmer on Copyright, 3-11 Nimmer on Copyright § 11.03 (Matthew Bender & Company, Inc. 2011).

[10] Bruce P. Keller, Practising Law Institute, supra.

[11] Bruce P. Keller, Practising Law Institute, supra.

[12] Bruce P. Keller, Practising Law Institute, supra.

[13] Bruce P. Keller, Practising Law Institute, supra.; 17 U.S.C. § 304(c)(4).

[14] Nimmer on Copyright, 3-11 Nimmer on Copyright § 11.03 (Matthew Bender & Company, Inc. 2011).

[15] Corey Field & Richard Feldman, Termination Rights - Explained, Copyright Corner (Feb. 13, 2011), http://www.aimp.org/copyrightCorner/2/Termination_Rights_-_Explained.

[16] Bruce P. Keller, Practising Law Institute, supra.

[17] 17 U.S.C. § 203(a); Larry Rother, Record Industry Braces for Artists' Battles Over Song Rights, in N.Y. Times, supra.

[18] 17 U.S.C. § 101.

[19] 17 U.S.C. § 203.

[20] See generally Restatement (Second) of Agency § 220 (1958), Lemmerman v. A.T. Williams Oil Co., 350 S.E.2d 83 (N.C. 1986) [enhanced version available to lexis.com subscribers]; M.G.L. c. 149 § 148B(b).

[21] Corey Field & Richard Feldman, Termination Rights - Explained in Copyright Corner, supra.

[22] See generally Chris Anderson, The Long Tail (Hyperion 2008).


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