draft. Section 304 (c) (5) (A) provided the same exception for termination of subsisting copyrights during the extended term: A derivative work prepared under authority of the grant before its termination may continue to be utilized under the terms of the grant after its termination, but 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. 21/ Like both earlier versions, the 1965 bill contains a definition of a "derivative work" that includes sound recordings. 22/ The Register's Supplementary Report described the termination or "reversion problem" as the "most explosive and difficult issue" throughout the drafting phase of the revision program. 23/ He noted that: An important question arises as to whether, in a 2. Revision Period 1965-1976. During this period a number of copyright bills were introduced in both houses of Congress and a number of hearings were held, but the language of the derivative works exception was not changed. Although certain groups were still opposed to reversion of rights, 21/ Supplementary Report of the Register of Copyrights on on the General Revision of the U.S. Copyright Law: 1965 Revision Bill, Copyright Law Revision, Part 6, 89th Cong. 1st Sess. 244 (House Judiciary Comm. Print 1965) Thereinafter Copyright Law Revision, Part 6]. the derivative works palatable." 25/ exception had made the proposal "tolerably The House Report that accompanied H.R. 4347 summed up the reasoning and purpose behind §203: It was obvious at the 1965 hearings that a certain accommodation among the affected interests had been achieved with respect to the so-called "reversion "problem dealt with in section 203. The history of that development is summarized fully and accurately in the Register's Supplementary Report, and the committee is aware of that history. After careful consideration, the committee has concluded that the reversionary provisions of the present section on copyright renewal (17 U.S.C. sec. 24) should be eliminated, and that the proposed law should substitute for them a provision safeguarding authors against unremunerative transfers. A provision of this sort is needed because of the unequal bargaining position of authors, resulting in part from the impossibility of determining a work's value until it has been exploited. Section 203 of the amended bill reflects a practical compromise that will further the objectives of the copyright law while recognizing the problems and legitimate needs of all interests involved. The constructive spirit manifested by those who have contributed to this compromise reflects credit on all those responsible. The committee believes that the framework and principal provisions of section 203 offer a workable solution to the "reversion" problem, and that their adoption would be in the public interest. In its general provisions the section attracted fairly wide support; and, while there was some opposition on principle, motion picture producers for their part indicated that they could accept the compromise if it were not substantially changed to the disadvantage of their industry. The committee has adopted some amendments in the details of section 203, which have required a substantial amount of redrafting, but the broad principles of the compromise have been retained. 26/ 25/ Copyright Law Revision: Hearings on H.R. 4347, H.R. 4680, H.R. 6831, H.R. 6835 Before Subcommittee No. 3 of the House Committee on the Judiciary, 89th Cong., 1st Sess. 1035-6 (1965) (prepared statement of the Motion Picture Association of America). 26/ H.Rep. No. 2237, 89th Cong., 2d Sess. 119 (1966) (hereinafter, the 1966 House Report). The Committee agreed with the Register's statement that arguments for granting a right of termination are even more persuasive under section 304 than they are under section 203. 27/ In later hearings various amendments were proposed, but none of them elaborated on the issue before us today. The Second Supplementary Report of the Register of Copyrights noted: Section 203 is a compromise that attempts to balance the interests of individual authors and their transferees in a fairer way than the present renewal provision. The subject is inherently complex, and the bargaining over individual provisions was very hard indeed. The result is an extremely intricate and difficult provision, but one that has appeared to have gained general support. 28/ Since the reports that accompanied the Copyright Bill enacted in 1976 do not add anything to the 1966 House Report, the one unassailable observation is that Congress wanted the author to share in the extended term. 29/ The derivative works exception is mentioned briefly in the general discussion of section 203, and there is no discussion of royalty payments after termination of the license. The Copyright Act only specifies that "a derivative work prepared earlier may 'continue to be utilized' under the conditions of the terminated grant, " 30/ .... B. The Mills Music Litigation A music publisher's licensing agent brought an action in 1982 that tested the "derivative works exception." The heirs of one of the authors had 271 28/ Id. at 136. Second Supplementary Report of the Register of Copyrights on the General Revision of the U.S. Copyright Law: 1975 Revision Bill. Chapter XI, p. 10. 29/ See, e.g., S. Rep. No. 473, 94th Cong. 1st Sess. 123 (1975); H. Rep. No. 1476, 94th Cong. 2d Sess. 140 (1976). 30/ S.Rep. No. 473 at 111; H.Rep. No. 1476 at 127. exercised their right to terminate a subsisting copyright under 17 U.S.C. §304 (c). The Harry Fox Agency, which had issued licenses for mechanical recordings of the song, wanted to know who should receive the royalties from the sound recordings of works already licensed when the grant was terminated: the author's heirs or the music publisher. Ultimately the question went to the Supreme Court. 31/ On January 3, 1978, the widow and son of one of the co-authors of the song exercised the right to terminate this co-author's grant to Mills of his one-third interest. The heirs claimed that all of the royalties generated from sound recordings of the composition, even those prepared by record companies before the effective date of termination, should be paid to the authors. Mills claimed that termination was ineffective against it under the terms of the derivative works exception and that it that it could enforce the provisions of its contract with the record companies. This contract divided In order to resolve this royalties 50-50 between the composers and Mills. dispute, Fox brought an interpleader action. Mills and the Snyders (heirs) brought counter and cross-claims and each moved for summary judgment. After an exhaustive look at the revision materials, the legislative 31/ The subject of this litigation was the song, "Who's Sorry Now" composed in the early 1920's. The three composers assigned their copyright in the song to a publisher who registered the copyright in 1923. The publisher granted licenses to recording companies who paid royalties for the use of the song to the publisher who then split these royalties with the composers. In 1940 the authors assigned the renewal right including the exclusive right to act as publisher to Mills. (The original publisher went bankrupt and assigned the copyright to the defendant in this litigation, Mills Music, Inc. In 1932 Mills recorded its assignment as the exclusive copyright owner and publisher for the balance of the original term.) In 1958 in accordance with section 1(e) of the 1909 Act Mills filed a Notice of Use on Mechanical Instruments with respect to "Who's Sorry Now." The Harry Fox Agency acted on Mills' behalf in issuance of licenses with respect to mechanical recordings of the song. Section 1(e) together with section 101 (e) of the 1909 Act, and its successor §115, are known as the mechanical reproduction license provisions and an argument was made that the sound recordings prepared under the arrangement between Mills and the Harry Fox Agency was in the nature of a compulsory license and not "under authority of the grant" from the authors to Mills. This argument was dropped before appeal. history, and the statute, District Court Judge Weinfeld concluded that the publisher was protected by the derivative works exception. 32/ On appeal the Court of Appeals for the Second Circuit considered only the rights to the mechanical royalties from phonograph records prepared and licensed before the termination of the grant to the publisher, but sold after the termination. The court unanimously reversed the decision below, holding that the derivative works exception did not apply to music publishers. The court based its decision on three propositions: 1. 2. 3. Mills is relying on two separate Mills is not a utilizer of the derivative The statute does not expressly address the Based on these propositions, the appellate court examined the purpose of the derivative works exception to determine what Congress would have intended had it faced the "more complex situation, typically found in the music business, of a grant to a music publisher followed by subsequent grants to licensees by the publishers to creators of derivative works." The court 32/ Specifically, the court found that as to: 1. Relicensing of Sound Recordings: Mills could continue to license new releases of old derivative works that it first licensed prior to termination of the Snyder grant with royalties to be shared as before termination. 2. Post-Termination Licenses: As to sound recordings prepared before termination, but first licensed after termination, the exception did not preserve Mills' right to issue the Post-Termination Licenses. Harry Fox Agency, Inc. v. Mills Music, Inc., 543 F.Supp. 844, 868-9, 878 (S.D.N.Y. 1982). 33/ This is the court's characterization of Mills' role. In instances not before the court, Mills might be a creator of derivative works, e.g. music arrangements. 34/ Harry Fox Agency Inc. v. Mills Music Inc., 720 F.2d 733 (2d Cir. 1983), rev'd. sub nom. Mills Music, Inc. v. Snyder, 105 S.Ct. 638 (1985). |