A recent decision that will allow rap group 2 Live Crew to terminate a prior transfer of its copyrighted songs to a record label is a reminder that, due to a unique provision of the Copyright Act of 1976, every company that owns copyrights through assignment is sitting on a potential timebomb with a 35-year-long fuse.
Under Section 203 of the US Copyright Act, authors (or their heirs) have the statutory and “inalienable” right to terminate and renegotiate prior grants of copyright that were executed on or after January 1, 1978. More specifically, any grant of copyright is subject to “recapture” by the author or their heirs 35 years after the agreement was executed provided that the statutory requirements for proper notice are met. Importantly, this provision explicitly excludes such termination rights for works-for-hire and does not extend to derivative works created during the term of the underlying agreement.
While termination rights under this provision first began to vest in 2013 for agreements entered on or after 1978, subsequent agreements from the 1990s are now close to entering the termination window. Most recently, a Florida jury found that the 2 Live Crew could recapture numerous copyrights previously transferred to its record label in the early 1990s. This case both demonstrates the risks posed by Section 203’s clawback rights and raises the question as to how grantees can better plan around looming termination rights.
Under US copyright law, the individual or individuals responsible for the creation of a given work, i.e., the “author(s),” immediately retain the exclusive rights under Section 106 of the US Copyright Act to distribute, perform, reproduce, and create derivative works. Authors may then enter into agreements that give others the permission to exercise those rights. Section 203 was designed to safeguard authors against “unremunerative transfers” due to “the unequal bargaining position of authors, resulting in part from the impossibility of determining a work’s value until it has been exploited.” [1]
Pursuant to Section 203, authors (or their heirs) have a five-year statutory “termination period” in which to recapture rights, beginning at the end of 35 years from the date that the author executed the grant. [2] The notice must be signed by a majority of the owners of the termination interest, [3] it must state the effective date of the copyright termination, and it must be served not less than two or more than 10 years before that date. [4]
In essence, Section 203 gives authors and their heirs a “second bite at the apple” to remonetize their works, even after a transfer of rights has been made. As such, creators possess a statutory right to terminate and “recapture” what was licensed 35 years later in order to shop around for a better deal. [5]
However, termination rights under Section 203 do have their limits. First, they only apply to works “other than a work made for hire.” [6] Therefore, works made for an employer by an employee within the scope of their employment are not subject to termination rights. Likewise, works authored by an independent contractor subject to a work for hire relationship (i.e., that the work falls within the statutory definition of a work for hire and the parties entered a written agreement with the appropriate work for hire terminology) are not subject to termination rights. [7]
Second, derivative works, i.e., works built upon preexisting works, prepared pursuant to a grant before its termination may continue to be utilized under the terms of the grant after its termination. [8] However, the post-termination rights to (1) authorize new uses of the derivative work that are not covered by the grant and (2) prepare new derivative works revert to the authors or their heirs once terminated.
The scope of Section 203 recapture rights was recently litigated in Florida federal court in Lil’ Joe Records Inc. v. Ross et al. Record label Lil’ Joe Records sued 2 Live Crew when members of the rap group and their heirs served the record label with a copyright termination notice in 2020, putting the label on notice that 2 Live Crew intends to invoke its termination right for a 1990 agreement that originally transferred the copyrights for the master recordings of more than 40 musical compositions.
Attorneys for Lil’ Joe Records argued that 2 Live Crew members sought to terminate the wrong agreement and the group were employees of the label such that their musical compositions were properly classified as works made for hire and thus could not be recaptured under Section 203. The jury ultimately sided with 2 Live Crew, finding that the 1990 agreement governed, the 2 Live Crew members were independent contractors (i.e., not employees), and the group made a valid claim under Section 203 to claw back ownership of their music.
As the 35-year window opens for copyright transfer agreements made in 1989 and into the early 1990s, termination rights issues are likely to continue to arise. Notably, this time coincides with the beginning of the internet era, which resulted in a rapid influx of copyrighted content being created, shared, and licensed. As a result, the question remains as to how companies can protect themselves against authors’ proverbial “second bite at the apple.”
As discussed above, Section 203’s exclusions—both with respect to works-for-hire and derivative works—may provide limited, albeit effective, protections. Regarding works-for-hire, it is important to note that federal courts have rejected agreements entered into after a work was created to retroactively deem the work a work-for-hire. Such agreements are generally considered to fall under Section 203’s prohibition against “agreements to the contrary” of the statutory termination rights. [9] This underscores the importance of entering into work-for-hire agreements before the works are created.
Regarding more proactive approaches, while some courts have cast doubt as to whether an author may waive or contract away their rights under Section 203, this provision does permit the original parties to terminate an existing grant and negotiate a new grant under different financial terms, thereby resetting the 35-year termination period. Moreover, grantees may also have the proactive option to create a derivative work during the life of the assignment, which cannot be clawed back. The availability of a derivative work may not only improve a grantee’s relative bargaining power, but also provide a temporary stopgap in the event the termination rights are properly exercised.
Law clerk Katya Wagstaff contributed to this LawFlash.
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[1] H.R. Rep. No. 94-1476, at 124 (1976); S. Rep. No. 94-473, at 108 (1975), 1976 U.S. Code Cong. & Admin. News, at 5659, 5740.
[2] 17 U.S.C. § 203(a)(3).
[3] 17 U.S.C. § 203(a)(4).
[4] 17 U.S.C. § 203(a)(4)(A).
[5] See Melville B. Nimmer & David Nimmer, Nimmer on Copyrights §§ 11.01 et seq. (Matthew Bender, Rev. Ed.); Walthal v. Rusk, 172 F.3d 481, 483-86, 50 USPQ2d 1311 (7th Cir. 1999).
[6] 17 U.S.C. § 203(a).
[7] 17 U.S.C. §§ 101, 201(b).
[8] 17 U.S.C. § 203(b)(1).
[9] 17 U.S.C. § 203(a)(5).