Copyright Office Clarifies Rules For “Gap Grant” Terminations

No, this post has nothing to do with blue jeans.  It concerns the termination of copyright grants, including licenses and assignments.  The Copyright Office has issued new regulations, which will help authors and their lawyers navigate a lacuna, or gap, in the Copyright Act’s termination provisions.

First,  a short background on terminations of copyright grants.   Under the 1909 Copyright Act, the duration of copyright was broken into two terms: the original term and a renewal term.  Each term lasted 28 years.  The purpose of this arrangement was the protection of authors.  Congress recognized that in many industries, authors typically assigned away their rights at a time when the value of their work was unknown and the author had minimal bargaining power, often resulting in a perceived underpayment to the author for the work.  The renewal term was meant to give authors a “second bite at the apple” when the renewal term vested, allowing them to strike new deals if their work was still economically viable 28 years later.

Congress’s attempt to protect authors did not quite work out as intended.  In Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643 (1943), the Supreme Court held that, notwithstanding the clear purpose of the renewal term, an author was free to assign his or her renewal term in advance, at the same time as the grant of the original term.  As long as the author survived until the vesting of the renewal term, such an advance assignment would divest the author of any rights in the renewal term.  Of course, given the author’s typical lack of bargaining power, this holding effectively eviscerated the author’s protection because assignees simply insisted that authors assign the renewal term along with the initial grant of copyright without any additional payment.

When the 1976 Act was passed, Congress tried again.  This time, a termination right was created, through which an author (or the heirs of an author) could terminate prior grants of copyright.  This time, Congress explicitly stated that the author’s termination right was inalienable.  Two different termination provisions were enacted, and this is where things got murky.  Section 304 applies to copyright grants for works already in existence on January 1, 1978 and protected under the 1909 Act, giving an author the right to recapture the extended term of copyright (beyond 56 years) added by the 1976 Act and subsequent extensions.  Section 203 applies to copyright grants executed on or after January 1, 1978, irrespective of when the works were created, giving an author the right to terminate the original grant of copyright thirty-five years after execution of the grant.

Here is the wrinkle that creates the “gap” in the termination provisions.  I am not aware of any explanation of why Congress did it this way, but the Section 304 termination only applies to grants for works in existence prior to 1978, and Section 203 termination only applies to grants executed in or after 1978.  So what about grants contained in contracts signed prior to 1978, but which cover works that did not get created until 1978 or later?  This is actually a somewhat common fact pattern.  Often times in the music industry for example, authors enter into output deals, where they agree to create new works over the following several years and the commissioning agreement includes language assigning those future works.  Could it be argued that under these circumstances, where an author signed an output deal in 1976 but created several new works in 1978 and later under the deal, that the grant of copyright in those works did not fall within either termination provision and the author had no termination right at all?  As we began approaching 2013, the first year that Section 203 terminations will be effective, many of us advising clients in this area realized this potential gap in the termination provisions.

Although the courts have not yet weighed in on this issue, the Copyright Office helpfully has.  As a first step, the Office issued a Notice of Inquiry, seeking public comments from stakeholders affected by the termination provisions.  This inquiry, and the Copyright Office’s own study of the issue, led to the Office’s publication, on December 7, 2010, of a report titled “Analysis of Gap Grants Under the Termination Provisions of Title 17.”  In this report, the Copyright Office determined, based upon the plain language of the statute as well as the legislative history, that these gap grants were terminable pursuant to Section 203 because those grants cannot be deemed fully “executed” until the works actually come into existence.   The Office also suggested an amendment to Section 203, to clarify this point. For more details, you can read the excellent and thorough report below:

Although not binding on any court that might eventually have to decide the issue, this report gives strong support to an author’s right to terminate gap grants pursuant to Section 203.  One issue raised by the Copyright Office’s position on gap grants is how an author should fill out his or her notice of termination.  Serving a proper notice of termination, and filing it with the Copyright Office is a prerequisite for valid termination of a grant of copyright.  To be valid, a notice of termination pursuant to Section 203 must give the date of execution for the terminated grant.  The Copyright Office recently issued an amendment to its regulations, consistent with the reasoning in its report, expressly providing that the Office will accept termination notices for gap grants if gives the date the work was created as the date of execution.  Here is a copy of that regulation:

Although not removing all doubt, the Copyright Office’s report and amended regulation go far in clarifying authors’ termination rights.  Those who represent authors should read carefully and make sure to follow the new regulation when serving those notices of termination.  One lingering question: what happens if the author (or the heirs) cannot remember the exact date the work was created?