Termination Rights Explained

August 30th, 2011

The subject of copyright “termination rights” has been a recent focus of the New York Times, The Hollywood Reporter, Billboard, and countless other news sources, as artists are beginning to reclaim their copyright interest in sound recordings owned by record labels.  In this post, I’m going to attempt to clearly explain the concept and structure of the Copyright Act’s “termination clause” as well as discuss various issues and arguments that both sides (labels and artists) are making to support or counter the provision.  Even though I mostly discuss the provision as it applies to sound recordings and record labels, as that is the most ambiguous area of this law currently, it is important to realize that the termination rights also apply to other copyright protected works, such as musical compositions (i.e., this will be an issue for music publishing companies too).

§ 203 of the US Copyright Act: The “Termination Clause”

The 1976 US Copyright Act § 203 provides that any license or transfer of copyright or any right under copyright executed by the author after January 1, 1978 may be terminated after 35 years of the date of the license or transfer (or 40 years in certain circumstances) as long as the termination is done within 5 years after the 35 year mark begins.   Authors must also give notice of their intent to terminate the license no less than 2 years and no more than 10 years before they intend to terminate the grant.  There is a provision also built in for grants executed before 1978, but the rules are a different and those terminations won’t come due until 2018 at the earliest date for the first notice, so in the interest of simplicity, I will not get into the details at this point.

If there are more than one authors of a copyrighted work, the termination can be effected if a majority of authors who granted the original license decide to terminate.  Significantly, the termination right does not apply to works made for hire (which I discuss more below).

As an example of how this would work, let’s say the copyright of a sound recording was exclusively transferred to a record label in 1978.  35 years later, in 2013, the author or joint-author of the original work (the artist, most likely, in this case) could terminate this grant and take back the copyright from the label.  Because there is a minimum notice requirement of two years and a maximum of ten years, the author(s) can first give notice to the label in 2003.  There is a five year window within which the grant must be terminated (i.e., 2018 here), so the latest to give notice would be 2016.

Why are there termination rights in the first place?

The Copyright Act has gone through a number of versions, the most recent being the 1976 Act.  The 1909 Copyright Act had completely different term provisions for copyright.  The initial term of copyright protection was 28 years, and this protection could be renewed for an additional 28 year period, making the total 56 years.  An important feature of the renewal term was that even if an author had assigned all of his rights to a publisher or somebody else during the first term, the author would reacquire those rights at the beginning of the renewal term.  This renewal copyright would allow authors to renegotiate terms of licenses so they could better benefit from and get a larger share in the success of their careers.  Even at this stage in copyright law, one exception to this renewal period was for works made for hire.

The 1976 Act got rid of this two-term copyright protection structure, in its place imposing a single term of life of the author plus 50 years (later amended to 70 years in 1998) in most cases (there are exceptions where the term is different).  The amendment did not seek to abandon the ability of authors to regain control of their work after a given time period, so the termination provision was drafted.

The Labels’ Arguments…

As artists are now trying to reclaim their copyright interests in sound recordings, the labels are using two primary arguments to protect their interests in the sound recordings: (1) that the recordings are work for hires created by the artists for the label, and (2) that the artist is not the only author of the recording.

The Work for Hire Issue

Traditional record contracts almost always provide that the recordings made by the artist under the agreements are works made for hire.  Then, because (as I’ll get into below) sound recordings may not as a matter of law be able to be included under the work-for-hire umbrella, the contract provides that in the event the recordings are not deemed to be works made for hire under the copyright act, the artist assigns his or her copyright interest in the recordings to the record label.  It seems like these two sentences accomplish the same thing, but for purpose of the termination clause, the effect of the language makes all of the difference.  If the recordings are in fact works made for hire, the record company owns them and the artist never had a copyright interest to transfer; however, if the recordings were assigned by the artist, this would be a transfer for purposes of the termination clause and the artist could reclaim ownership and control over the copyrights 35 years later.

I think I got a little ahead of myself, so let’s take a step back to the basics of the work made for hire.

§ 201(b) of the Copyright Act provides the following:

Works Made for Hire. — In the case of a work made for hire, the employer or other person for whom the work was prepared is considered the author for purposes of this title, and, unless the parties have expressly agreed otherwise in a written instrument signed by them, owns all of the rights comprised in the copyright.

I’m sure you can already see the issue starting to unfold.  If a work is made for hire, the author who actually created it has no interest in the copyright or work, the employer or commissioner is considered the author for purposes of copyright.

But what qualifies as works made for hire?

In the definitions portion of the Copyright Act, a “work made for hire” is defined as follows:

(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 compilation, . . . if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire. …

Notice a word missing in part (2)?  You’ll see that “sound recording” is nowhere to be found.  Whereas motion picture and other a/v works are included, sound recordings are not expressly stated.  In 1999, the RIAA tried to quietly insert “sound recording” after “other audiovisual work” in the work for hire provision through The Satellite Home Viewer Improvement Act of 1999.  The addition was not related to the subject matter of the bill and was only added in later drafts.  The amendment was enacted by Congress and President Clinton without discussion or debate.  Once musicians caught wind of this significant change, their disapproval led to a brief hearing which led to Congress retroactively repealing the amendment.  One might think that by Congress removing the “sound recording” language from the Act, it is confirming that sound recordings are not works made for hire.  Not necessarily, the RIAA did get Congress to add language to the Copyright Act stating that no such presumption could be made, that the removal of the language did not express approval or disapproval or any other legal significance.

Even though sound recordings aren’t expressly included in the work made for hire definition, the record labels will likely argue that the recordings were commissioned as a “contribution to a collective work” as a “compilation”, the full album in this case.   The artist would contend that each individual recording is a distinct work protected by copyright and its use as part of an album is incidental.  Unfortunately, some contracts may have this “collective work” language expressly included, further weakening the artist’s argument.  However, the emerging dominance of digital distribution as the primary method for music sales has led to a weakening of the album format.  Single recordings can be (and very often are) purchased independently of the album, a clear sign that the recording does not just exist to serve the collective whole of the album.

A separate argument may exist for the labels as to whether the artist may be considered an employee of the label, acting within the scope of his or her employment when recording the songs.  The law of agency determines whether a person was acting as an “employee” for purposes of the work for hire doctrine.  Some factors to be considered are: (1) control by the employer over the work; (2) control by employer over the employee; and (3) status and conduct of employer (such as providing benefits to the employee or withholding taxes) (CCNV v. Reid).  Applying these factors to the case of artists as employees of the record label, it seems that the artist would not be considered an employee.  In many cases, record companies now simply provide funds at the “front-end,” and distribution at the “back-end,” of a sound recording’s production.  Outside of this involvement, the label itself does not usually take control over the artist or the work (although this may vary in cases), the artist is responsible for engaging musicians and the producer, the artist does not usually record the work at the label’s office, the label does not provide employee benefits for the artist, and in most cases the label does not withhold taxes.  The labels could argue that they do have some control over the creative work, final creative control, and approval rights for the budget; however, the argument could subject them to back  tax liability.

An interesting historical sidenote – one theory for why sound recordings were not expressly excluded as work for hires in earlier copyright acts was because in the 1960′s the labels exerted much more control over the production and recording of the album – from engaging in-house producers and musicians to owning the recordings studios.  Because of the employment relationship developed through these practices, the labels did not initially seek out inclusion of sound recordings in the work for hire definition.

Producer as Author

Another issue that complicates termination rights is that the artist may not be the only author of the recording.  The producer may be an author too.  Producers also sign work for hire agreements with record labels.  Although not true in every case, most producers contribute creatively to the project, making decisions about the sonic characteristics and artistic quality of the sound to be captured in the recording.  And further, what if the session musicians and recording engineers are contributing creatively in the recording process?  If the producer is deemed to be a “joint author” and had transferred his or her rights to the label in a separate document than the artist, the producer would have an independent basis to terminate the grant and regain copyright in the recording.  The label could still exploit the recording as long as at least one of the other joint authors had not terminated their grant of rights to the label.  This could get very messy because if one but not all of the authors chooses to terminate the original grant and then re-license to another company, there would be multiple “versions” of the same sound recording on the market competing with one another.

As a side issue – what about foreign artists who signed recording agreements? Does it make a difference if the agreement was signed abroad, but the recordings are distributed domestically? What about if they were signed here, but relate to international sales or sub-publishing/distribution agreements?

Moving Forward

There is currently a push in Washington from the House Judiciary Committee to amend the Copyright Act in order to clarify the ambiguities as to who can benefit from the termination provision and reclaim their copyrights. “For too long the work of musicians has been used to create enormous profits for record labels, radio stations and others, without fairly distributing these profits to the artists,” said Michigan Representative John Conyers Jr. who was chairman of the Committee until January.  “Copyrights are a tool to be used by creators to earn a living from their work,” so it is important to ensure “a fair marketplace.”  Unfortunately, the amendment process is likely going to be long and complicated.

In the meantime, lawsuits are looming over many record labels as artists are beginning to take action to reclaim their copyright interests.  An anonymous source disclosed to the New York Times his understanding that some of the major labels (he distinguished the indie labels’ approach to this matter) want to take these issues to court, regardless of the time or money spent, while others think that that approach would alienate artists and prevent a more favorable renegotiation of these agreements.

Artists Taking Action

What artists have (allegedly) begun taking action on these termination rights?

  • Victor Willis,  the cop in the Village People is seeking to regain control over a 35-set songlist that includes ‘Y.M.C.A.’ (note – this is for their publishing, the rights in the composition, rather than the master recording).
  • Steven Greenberg, writer of the disco classic “Funkytown.”
  • Bob Dylan
  • Tom Petty
  • Bryan Adams
  • Tom Waits
  • Kris Kristofferson
  • Loretta Lynn

References

In writing this article, I consulted the following resources (among those cited above).  These would make great further reading for anyone interested in the subject. [randomly ordered]