equities between two types of copyright proprietors: the composer or author of the original work and the publisher or other disseminator who was granted rights to that work and subsequently licensed derivative works. The exception appears in a provision which, since it involves statutory restraints on transfer of property and on freedom of contract, required considerable compromise in order to reconcile opposing views. The moreover, as part of resolving the larger issues of: compromise was reached, duration of copyright; recapture of the copyright by the author and his or her heirs, either through a renewal provision or other reversion mechanism; and if so, under what terms, conditions, and procedures could recapture occur. I. BACKGROUND TO CONTROVERSY OVER DERIVATIVE WORK ROYALTIES A. Legislative History of Derivative Work Exception 1. Revision Period 1961-1965. Most of the discussion concerning the derivative work exception occurred during this period. The backdrop for the discussion was the debate regarding one of the crucial issues of any copyright law: how long should copyright protection endure? Under the Act of 1909 then in effect, copyright endured for 28 years from publication or registration as an unpublished work. The right ended at that point unless the copyright was renewed timely (that is, a renewal registration made in the Copyright Office within the 28th year of the first term). One of the major revision issues therefore was whether the 56-year maximum term should be extended; subsidiary, but equally important issues were whether there should be a single term of copyright, and, if so, would the author who sold his or her copyright be able to recapture the copyright, notwithstanding any contract to the contrary. In the context of this debate, derivative work users argued that their investments in new versions (e.g. motion pictures of novels) prepared under license should not be jeopardized or perhaps destroyed by reversion of all rights to the author or the author's heirs. The Register of Copyrights' initial Report on the General Revision of the United States Copyright Law recommended a twenty year extension of the renewal term for subsisting copyrights and noted the need to balance the interests involved: We believe there would be little justification If the assignee is obligated to continue paying royalties or a part of his revenue to the author or his heirs during the entire life of the copyright, we would allow the assignment to remain in effect during the added 20 years. On the other hand, if the author or his heirs would otherwise receive no benefit from the lengthened term, we would terminate the assignment at the end of the 28th year of the renewal term, even if it purported to convey ownership for the length of the copyright "and any extensions thereof"; the copyright for the remaining 20 years would then revert to the author or his heirs. 4/ Although the 1961 Report did not refer to an exception from the author's reversion right for derivative works, the reaction to the Register's recommendations shows that a major controversy had arisen. The Motion Picture Association of America was disturbed that the Register's proposal for a reversionary provision provided for the termination of an assignment of renewal rights unless the assignee was obligated to pay royalties or a share of the revenue from the work to the author during the proposed 20-year extension. 5 Another commentator felt the proposed extension period was too short and argued that any extension should revert to the author and his family and should be inalienable. 6/ The 1963 preliminary draft bill had two sections that contained an 4/ Report of the Register of Copyrights on the General Revision of the United States Copyright Law, Copyright Law Revision, 87th Cong., 1st Sess. 57-58 (House Judiciary Comm. Print 1961) [hereinafter cited as 1961 Report]. (emphasis added). 5/ Discussion and Comments on Report of the Register of Copyrights on the General Revision of the U.S. Copyright Law. Copyright Law Revision, Part 2, 88th Cong., 1st sess. 360-1, (House Judiciary Comm. Print 1963) [hereinafter cited as Copyright Law Revision, Part 2]. 6/ Id. at 392 (John Schulman, Chairman of the American Patent Law Association Committee on Copyright). exception for derivative works. 1/ The exception was found in $22 "Duration of Copyright: Subsisting Copyrights," and in and in one alternative to §16 "Limitation on Transfer of Copyright Ownership." 8/ The exception found in §22 stated: A derivative work prepared under the authority The §16 exception was almost identical. 10/ Barbara Ringer, then the Assistant Register of Copyrights for Examining, explained the background to the two alternatives for a termination provision found in §16. She observed that this termination provision was based on the Register's proposal, and that it had proved to be "one of the two or three most controversial recommendations in the entire Report." Ms. Ringer summed up the three primary arguments against such a proposal, other than the nature of copyright as property and the inviolability of contracts: (1) authors are not in a weak bargaining position and need no special protection; (2) users, such as motion picture producers and book publishers, contribute a great deal to the success of a work, assume economic losses, should not lose their property, and can't recoup their investment in twenty years; (3) the proposal would cloud the title of a number of copyrights and make them less valuable. 7/ Preliminary Draft for Revised U.S. Copyright Law and Discussions and Comments on the Draft, Copyright Law Revision, Part 3. (House Judiciary Comm. Print 1964) [hereinafter cited as Copyright Law Revision, Part 3]. 8/ Alternative A which provided for automatic termination after 25 years contained the exemption. Alternative B permitted an author or his legal representative or heirs to bring an action to terminate the transfer if the assignee's profits are "strikingly disproportionate" to the share received by the author or his successors. Id. at 15-16. 9/ Copyright Law Revision, Part 3, at 21. 10/ "As an exception to the provisions of subsection (a), a derivative work prepared under the authority of a terminated transfer may, despite the reversion of rights, continue to be utilized under the terms of said transfer; however, this privilege shall not extend to the making of other derivative works employing the work covered by the terminated transfer." Id. at 16. She also noted that authors' groups had urged that limiting reversion to cases where the authors did not continue to receive royalties was illusory since royalties could be a nominal payment made merely to avoid termination. In order to meet these criticisms, Alternative A eliminated the lump sum distribution criterion, extended the period before termination. to twenty-five years, and added an exception that would permit the owner of a derivative work to continue to use it. 11/ These changes did not appease either side, but most of the criticism focused on the termination provision(s) rather than the derivative works exception. Alternative B was censured as a provision that would encourage litigation 12/ or was too indefinite. 13/ On the other hand, Alternative A was described as paternalistic 14/ and as giving authors special treatment at the expense of publishers who fared better under the existing law. 15/ Several publishing representatives urged that Alternative A was unfair to publishers: The fruits of the publisher's successful 11/ Id. at 277-8. Alternative B was based on an article that was being considered by the Federal Republic of Germany. 12/ Id. at 279-80 (Colby for Motion Picture Association of America (MPAA)), 281-3 Manges, American Book Publishers Council); 292 (Wasserstrom, Magazine Publishers Association). 15/ See, e.g., id. id. at 281-3 (Manges); 283 (Abeles, Music Publishers Protective Association, Inc.); 284-5 (Wattenberg); 319 (Abeles). Written comments were also filed in which various publishers' groups and the MPAA opposed both alternatives. See 341-2, 388. See also, Further Discussions and Comments on Preliminary Draft for Revised U.S. Copyright Law, Copyright Law Revision, Part 4, 88th Cong. 2d Sess. 249-250; 363-364, (House Judiciary Comm. Print 1964) [hereinafter Copyright Law Revision, Part 4]. 16/ Copyright Law Revision, Part 3, at 285; See also Abeles at 319. Another commentator argued that if the author had reversion, under Alternative B, he would have the opportunity to recover 100% of all income. 17/ Irwin Karp, Counsel for The Authors League of America, expressed the view that the derivative works exception should be narrowed "to cover those types of works which might legitimately be entitled to the right to continue on a non-exclusive basis to be shown or published works such as motion pictures, which do involve the creation at great expense of something new." 18/ - At the next stage in the revision effort, Section 16 of the 1964 revision bill refined Alternative A: the period was extended to thirty-five years, but the derivative works exception remained basically the same. Section 22 still extended subsisting copyrights for 19 years, permitted termination by the author, legal representatives, or heirs, and contained the same derivative works exception. 19/ Comments on the 1964 revision bill again centered on whether or not there should be a termination provision for either subsisting copyrights or copyrights that would come into being after the new law went into effect. On the whole these comments merely repeat the positions that already had been taken by opposing interests. 20/ The only references to the derivative works exception concerned which secondary proprietors or users should be entitled to it. There was no discussion of how royalties should be shared. Section 203 (b)(1) of the 1965 bill provided a derivative work exception that was basically the same as that found in the 1964 bill and the preliminary 17/ Id. at 297 (Wattenberg). 18/ Id. at 294; see also Copyright Law Revision, Part 4, at 314 where Karp urged that "The motion picture problem is a unique one. It alone should be excepted." 19/ 1964 Revision Bill with Discussions and Comment, Copyright Law Revision, Part 5, 89th Cong. 1st Sess. (House Judiciary Comm. Print 1965) [hereinafter Copyright Law Revision, Part 5]. 20/ See, e.g., id. at 222 (Abeles); at 154 (Wattenberg); at 163 (Manges); at 155-156 (Karp). |