Alert June 29, 2011

Opening of Copyright Recapture Period Provides New Opportunities for Authors, Challenges For Licensees

Under the 1976 Copyright Act, creators (and their heirs) of works assigned or licensed by the author to another on or after January 1, 1978 may terminate their assignments and recapture their copyrights within a five-year window, beginning 35 years after the date of the grant. 17 U.S.C. § 203(a). As a result, the right to commercially exploit many popular creative works assigned or licensed after 1978 may begin to revert back to the original authors (or their heirs). This statutory right of termination and recapture under 17 U.S.C. § 203 has precedent in earlier-enacted copyright provisions such as 17 U.S.C. § 304(c) and (d) (pertaining to pre-1978 grants), but is rather unique to intellectual property law, and reflects Congress’ view that many copyright creators may have assigned their works at a time when they had little bargaining power and the potential value of their works was unknown.

By its express terms, Section 203 does not apply to works made for hire. 17 U.S.C. § 203(a). In addition, this provision does not apply to works transferred pursuant to an author’s will. In other words, it applies to transfers that an author made during his or her lifetime. Id. (applying to transfers or licenses “otherwise than by will”). The termination and recapture of an assignment is not automatic, and the right is effectively a “use it or lose it” opportunity that must be exercised within the statutory time period. Authors or their heirs must therefore familiarize themselves with Section 203 and the relevant provisions of the Code of Federal Regulations, 37 C.F.R. § 201.10, which set forth with specificity the time and manner in which a termination and recapture must be made. Likewise, assignees who stand to lose their right to exploit creative works should understand these provisions in order to ensure that, if they receive notice of a termination, the termination complies with the statute and regulations.

When the Right to Terminate May Be Exercised

The Section 203 termination provisions apply to copyright grants made on or after January 1, 1978. 17 U.S.C. § 203(a). The author or the author’s heirs may terminate the grant 35 years after the grant was made, so the first terminations that may take effect under Section 203 are on the immediate horizon in 2013. The right to terminate may be exercised only during the five-year window that begins 35 years after the grant. If the grant covered the right of publication of the work, the period begins at the end of 35 years from the date of publication of the work under the grant, or at the end of 40 years from the date of execution of the grant, whichever term ends earlier. 17 U.S.C. § 203(a)(3).

The Copyright Office has recently amended its regulations to provide, in the case where an author agreed prior to 1978 to a grant of rights in a work not created until after 1977, that it will accept for recordation a termination notice reciting as the date of execution the date the work was created. Whether such notices actually fall within Section 203 will ultimately have to be resolved by the courts.

Importantly, before the termination occurs, the author or the author’s heirs must give written notice to the assignee not less than two years, nor more than 10 years, before the termination date. 17 U.S.C. § 203(a)(4)(A). As set forth below, the statute and regulations provide specific requirements that must be followed for the content, service and recordation of the notice of termination.

The Persons Entitled to Exercise the Right to Terminate

One issue to which the author or author’s heirs must pay special attention is the identification of the persons who must exercise the right to terminate and sign the mandatory notice. Section 203(a)(1) and (2) provide specific direction as to who has the right to terminate in the case where the author is deceased or where there are joint authors. Authors or their heirs considering termination should carefully consult these provisions to ensure that the persons executing the termination notice are sufficient to exercise the right.

In general, the statute provides that termination may be effected by the author or, if the author is now deceased, by survivors owning a total of more than one-half of the author’s termination interest. 17 U.S.C. § 203(a)(1). Thus, because more than one person may be required to execute the right, the author’s heirs may need time to enlist the requisite number of current owners necessary to terminate the grant. Subsection (a)(2) lists the persons who may own a deceased author’s termination interest in order of priority, such as the widow or widower, surviving children or grandchildren, executors, administrators and so on.

The Content of the Termination Notice

Both the statute and applicable regulations set forth the required contents of a termination notice. It is important to note that there is no Copyright Office form for a termination, and therefore, again, authors or their heirs should pay special heed to these requirements. In general, the notice must contain: (i) a statement that the termination is being made under Section 203; (ii) the name and service address of each assignee (or successor in title) whose rights are being terminated; (iii) the date of execution of the original grant (and the date of publication if the grant covered the right of publication); (iv) the title of each work to which the notice applies; (v) the names of the author(s) or successor(s) in interest to the author’s rights; (vi) the original registration number, if available; (vii) a brief statement reasonably identifying the grant being terminated; and (viii) the effective date of termination. See 17 U.S.C. § 203(a)(4); 37 C.F.R. § 201.10(b)(2). The notice must be signed by the owners of at least the requisite proportion of termination interests as set forth above. Again, particularly where the termination notice is being served by persons other than an original sole author, the terminating parties should carefully review the requirements of Section 201.10(b)(vii) to ensure that they are providing all the required information.

All of the required information must be provided in a “complete and unambiguous statement of facts in the notice itself.” 37 C.F.R. § 201.10(b)(3). Incorporation by reference of information from other documents or records is not sufficient. Id.

Service Requirements

The primary source of the service requirements for the notice is 37 C.F.R. § 201.10(d). In general, the termination notice must be served by personal service or first-class mail to the last known addresses of all parties whose interests are being terminated. The terminating parties must make a reasonable investigation to determine those who have ownership rights subject to termination. Id.

Recordation of the Termination Notice

The terminating parties must record the notice in the Copyright Office before the effective date of termination, “as a condition to its taking effect.” 17 U.S.C. § 203(a)(4)(A). The fact that the Copyright Office has recorded the notice does not mean that the notice is otherwise sufficient under the law, and recordation by the Office is without prejudice to any party claiming that the legal and formal requirements for termination have not been met. 37 C.F.R. § 201.10(f)(5). The Copyright Office may refuse to record the notice where, on its face, the notice appears to have been filed after the closure of the five-year window. 37 C.F.R. § 201.10(f)(4).

Impact on Derivative Works

By the express terms of the statute, the right to terminate a copyright grant under Section 203 does not apply to an authorized derivative work created after the original grant but before its termination. 17 U.S.C. § 203(b)(1). In other words, the Section 203 termination does not “de-authorize” a previously authorized derivative work created prior to termination. However, the assignee may be precluded from making new derivative works once the grant is terminated. Id. (“this privilege does not extend to the preparation after the termination of other derivative works based upon the copyrighted work covered by the terminated grant”).

The Effect of Termination

Except as noted above with respect to prior derivative works, a termination that complies with the statutory and regulatory requirements restores to the original author or author’s heirs all the exclusive rights of a copyright owner. 17 U.S.C. § 203(b). This means that even those persons who could have joined in, but did not join in, the termination notice retain their proportionate share of the interests in the work. Id. Importantly, contractual agreements to the contrary do not negate the grantor’s ability to terminate under the statute. 17 U.S.C. § 203(a)(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”). However, nothing prevents the author or author’s heirs from renegotiating a new assignment to the same assignee.

Conclusion

The opening of a five-year window for termination of copyright grants made after January 1, 1978 provides new opportunities for authors or their heirs to recapture their copyrights and explore new ways to commercially exploit their works. However, because the right to terminate is of limited duration and entails numerous procedural requirements, authors and their heirs need to move quickly to ensure that all necessary persons join in the termination, and to timely serve and record a sufficient termination notice.

At the same time, copyright assignees that have enjoyed the commercial success of these works over the past three decades face the prospect of losing valuable works from their catalogs. These assignees should proactively consider how they might present to the authors or authors’ heirs the reasons why termination may not be the most advantageous course of action, or what new terms they may be willing to offer to retain the right to exploit works during the remainder of the copyright period. Assignees should also carefully monitor any termination notices they receive to ensure that they fully comply with statutory and regulatory requirements.