I won't get into the details of the provision. I'm sure that the earlier witnesses have already done so. The question we get into today relates to a specific exception to these new recapture rules. We know it as the derivative work exception. A derivative work is a work based on an earlier work in the same or another medium a movie based on a novel, like Gone With the Wind; or a Broadway musical based on a play, like Hello Dolly. Congress exempted these works from the recapture provision to prevent hardship. - The situation we face is this: the author assigns his rights to a publisher, including the right to make or authorize others to make derivative works. In return for this arrangement, the author may get a lump sum payment, say $20,000, or a smaller amount in return for a share of future royalties. In turn, the publisher makes a derivative work or sells someone else the right to make a derivative work. And that fee, or royalty, is paid to the publisher. That royalty may be paid on a continuing basis, rather than a lump sum. The author may not get a dime. (I'm simplifying this for the sake of clarity.) Many years later, the author is free to terminate the publisher's assignment, and the author or heirs can get back the copyright except for the derivative works. The owner of the rights in the derivative work can continue to use the work under the terms of the original contract. All the derivative work owner has to do is continue to pay royalties under the contract with the publisher. And that brings us to the question raised by the Specter bill and the Supreme Court decision who should get the royalty? S.1384 would amend the derivative works exception by specifying that "any right to royalties from the derivative work shall revert to the person exercising the termination right." Congress wrestled with these termination-recapture provisions for a long time in an attempt to balance the interests of individual authors and their transferees in a fairer way than the renewal provision of the old Copyright law. The derivative works exception of the 1976 Act does not specify how these royalties are to be disbursed; it only specifies that "a derivative work prepared earlier may continue to be utilized under the conditions of the terminated grant." In the Mills Music case the author's heirs terminated the publisher's grant and recaptured the rights during the extended term. But the record company went on using the derivative work and paying royalties to the publisher under his contract. So the issue was joined: who should receive the royalties from recordings licensed by the music publisher under the grant from the author. The Supreme Court held that the royalties for continued use of a derivative work should be disbursed under the terms of the original contract between the author and the publisher. Or, simply stated, all royalties did not revert back to the original author along with the other rights; the author got a 50 percent split, in accordance with the terms of the contract. The question before the Senate today is how to resolve a dispute between two classes of copyright proprietors: authors and publishers. As I've already said, evidence of congressional intent on this narrow issue is very sparse. The most that can be said is that Congress wanted the authors to benefit from the windfall nineteen-year increase in the life of existing copyrights. Congress wanted to stimulate creativity, and it seems more likely that Congress wanted this windfall to go to the authors and not to the publisher. It seems to me that the burden of showing the unfairness of the proposed legislation should rest with the publisher. In enacting the termination clause, Congress wanted to give authors more money for their works that turned out to be popular and long-lived. Congress gave them the chance to get a better deal than they did early in their careers when they were untested and unknown. So a bill that achieves the goal of S.1384 seems on balance an appropriate way to carry out the intent of Congress in balancing the equities between authors and the publishers. Congress will also have to look at the constitutional issues raised by the bill, especially in terms of impact on existing property rights. That is not an area of expertise in the Copyright Office. If you find no constitutional impediment, the Copyright Office would support the principle of S.1384. I would suggest several refinements. I think the derivative works exception of both the provision terminating subsisting copyrights in Chapter 3 and the provision terminating post January 1, 1978, copyrights in Chapter 2 should be amended. Direct amendment of the clause containing the exception seems preferable to indirect amendment as you do in S. 1384. The latter approach could trigger a new round of litigation to clarify your "clarification." The bill should also be worded to ensure that the royalties go to the person in whom the reverted rights vest. This person may be different than the person exercising the termination right. The Copyright Office is prepared to help you work out these details. Thank you. Ms. Schrader, Ms. Kretsinger and I will be pleased to respond to any questions. PREPARED STATEMENT OF RALPH OMAN REGISTER OF COPYRIGHTS AND ASSISTANT LIBRARIAN FOR COPYRIGHT SERVICES Mr. Chairman and members of the Subcommittee I appreciate the opportunity to appear here today and testify in support of the principle of S. 1384, the "Copyright Holder Protection Act of 1985." This bill would amend 17 U.S.C. §304 (c), the termination-reversion provision of the Copyright Act, to provide that "any right to royalties from the utilization of the derivative work shall revert to the person exercising the termination right." The termination provisions are the result of considerable compromises that attempted to balance the interests of individual authors and their transferees in a fairer way than the renewal provision of the former Act. Basically, the termination right was given authors in order to give them the benefit of a long-lived copyright that they might have assigned to a grantee for less than its worth at a time when the grantee had a more favorable bargaining position. The derivative works exception to the termination provision(s) was designed to protect those creators of derivative works who had used the underlying copyrighted work to create a new work at considerable expense. The exception of the current Act does not specify how royalties are to be disbursed; it only specifies that "a derivative work prepared earlier may continue to be utilized under the conditions of the terminated grant." At issue in the Mills Music litigation was who should receive the royalties from recordings licensed by the music publisher under a grant from the author. Ultimately the Supreme Court held that the royalties for continued utilization of a derivative work should continue to be disbursed under the agreement that existed between the author and the publisher prior to the author's termination of the grant pursuant to 17 U.S.C. §304(c). The extension of subsisting copyright created a windfall copyright protection and profits for a popular work. continued Evidence of congressional intent on this narrow issue is very sparse. The most that can be said is that Congress wanted the authors to benefit from the nineteen year extension of the term for subsisting copyrights. In consonance with the underlying purpose of copyright, to stimulate creativity, it is more likely that Congress intended this windfall as a reward to the author instead of the publisher. The burden of showing the unfairness of the proposed legislation should rest with the publisher. Mr. Chairman and members of the Subcommittee I appreciate the opportunity to appear here today and testify in support of the principle of S. 1384, the "Copyright Holder Protection Act of 1985." This bill would amend 17 U.S.C. §304 (c)(6) the derivative works exception to the terminationreversion provision of the Copyright Act, title 17 U.S.C., by adding a new subsection (7) that clarifies the operation of this exception. A bill in the other body, H.R. 3163, would amend both the in 17 U.S.C. §203 and the one derivative works exception found $304 (c)(6)(A). in INTRODUCTION The 1976 Copyright Act contains a "recapture of rights" provision that permits the termination of transfers and licenses executed by the author on or after January 1, 1978, and reversion to the author or heirs, under the conditions set out in 17 U.S.C. §203. The renewal provision of the prior law 1/ was retained for subsisting copyrights but if the copyright is properly renewed, the renewal term is extended for nineteen years §304(b), and section 304 (c) permits the termination of transfers and licenses executed by the author or a statutory successor and reversion under the conditions stated. The conditions that must be met for termination of a grant under §203 and those that must be met under §304, although very similar, differ to some extent because of the constraints of the 1909 Act's renewal provision; however, both §203 and §304 contain an identical derivative works 2/ exception to the termination-reversion provisions, §203(b)(1); §304 (c)(6)(A). This 1/ Section 24 of the 1909 Copyright Act gave the author of a work copyright protection for a maximum period of 56 years an initial 28 year term and a renewal term of 28 years. Under the 1976 Act works created after January 1, 1978, may be protected for the life of the author plus fifty years. 17 U.S.C. §302(a). 2/ A "derivative work" is defined in 17 U.S.C. §101 as "a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgement, condensation, or any other form in which a work may be recast, transformed, or adapted.... exception became a part of the termination provisions in order to protect those assignees who had already prepared derivative works before the copyright owner terminated a grant of rights under 17 U.S.C. §203(b)(1) or §304 (c). The reversion of rights in both cases is subject to the following limitation: A derivative work prepared under authority of the 17 U.S.C. §203(b)(1); §304 (c)(6)(A). In January of this year, the Supreme Court ruled on a case questioning the proper disbursement of royalties for derivative works that "continue to be utilized under the terms of the grant after its termination." 3/ The exception itself does not say anything about the payment of royalties, but the Court carefully examined the statutory language and the legislative history before deciding that the petitioner, a music publisher, was entitled to share in the royalties generated by the continued utilization of derivative works, sound recordings, that the publishers had licensed before the composer's heirs terminated the grant under 17 U.S.C. §304(c). Thirteen judges looked at this case; six of them five Supreme Court Justices and the felt that the disbursement of royalties should be - district court judge governed by the author's contract with the music publisher, and seven four Supreme Court Justices and three judges for the Court of Appeals for the Second Circuit felt all of the royalties should revert to the author. The decision has been criticized by authors and composers and by Barbara Ringer, former Register of Copyrights, in an appearance before this Subcommittee on April 17, 1985. On June 27, 1985, Senator Specter introduced S.1384, a bill that adds a new subsection to §304 which specifically provides that "any right to royalties from the utilization of the derivative work shall revert to the person exercising the termination right." This question of how royalties should be divided under the derivative works exception is a technical one involving the balancing of 3/ Mills Music Inc. v. Snyder, 105 S.Ct. 638 (1985) |