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(from Snyder to Mills), they merely require that royalty pay. ments be made to Mills or to Fox as the collection agent for Mills" (slip opin. p. 13). Based on that finding, the Court concluded:

"If, as the Court of Appeals held, the Exception limits the relevant terms of the grant to those appearing in the individual (Fox) licenses, two rather glaring incongruities would result. **. Second, and of greater importance, there would be neither a contractual nor a statutory basis for paying any part of the derivative works royalties to the Snyders. (Slip. opin. p. 13).

"The licenses issued to the record companies are the source of their contractual obligation to pay royalties; viewed apart from the 1940 grant, those licenses confer no rights on the Snyders. * * * The Snyders' status as owner of the copyright gives them no right to collect royalties by virtue of the Exception from users of previous authorized derivative works.* * * The statutory transfer of ownership of the copyright cannot fairly be regarded as a statutory assignment of contractual rights. (Slip. opin. p. 14).

“The contractual obligation to pay royalties survives the termination and identifies the parties to whom the payment must be made. If the Exception is narrowly read to exclude Mills from its coverage, thus protecting only the class of "utilizers” as the Snyders wish, the crucial link between the record companies and the Snyders will be missing, and the record companies will have no contractual obligation to pay royalties to the Snyders." (Slip. opin. pp. 15-16; see also dissent p. 3).

The Court's finding appears to be based on the standard provision in Fox licenses which reads, with minor variations:

"1. You shall pay royalties and account to us as Agent

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for and on behalf of said Publisher(s) quarterly on the basis of records manufactured and sold;" (JA 26; see also JA 23, 81).

The fact is, however, that that language has never been construed in the music industry as this Court construed it. On the contrary, whenever copyright to a musical composition has changed hands, voluntarily or involuntarily, on notification of the change Fox has paid royalties to the new copyright owner or his designee. The language in the Fox license quoted above has only governed the frequency of payment and the basis of calculating royalties.

It has been the consistent practice within the music industry that payment of royalties under Fox licenses has always followed changes in ownership of the copyright in the musical composition, and has not been restricted to the publisher named in the license. This is true whether the change in ownership was voluntary or involuntary, by assignment or by operation of law. Thus the clause is understood to require payment of royalties to the copyright owner, whomever he may be, when the royalty is generated.

The clearest illustration is the common situation where copyright ownership has changed at the end of the first term of copyright. If an author has granted to a publisher rights for only the first 28-year term of copyright, after the first term the renewal copyright reverts to the author or his statutory heirs (as defined by the Copyright Act), and they may grant the renewal copyright to a different publisher. Even though an author may have granted both initial and renewal term rights to a publisher, if the author dies before the end of the first term of copyright, his statutory heirs may renew the copyright and also assign the renewal to a new publisher. In either case, the consistent practice of Fox has been to pay all royalties earned after the renewal to the new publisher. Fox does not issue a new license or change the existing license; it requires no documentation beyond con

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firmation that the change in copyright ownership has occurred. All music publishers accept and participate in this practice.

In determining the payee of royalties, Fox has followed the provisions of the statutory compulsory license, whose terms are incorporated in the Fox license. The statutory license requires royalties earned upon “phonorecords made and distributed” to be paid to the owner of the music copyright at the time of distribution (17 U.S.C. $115(c); 1909 Act $1(e)).

In short, although the Fox license form modifies the statutory, "self-executing" compulsory license in such respects as frequency and rate of payment of royalties, it does not modify the provi. sions of the statutory compulsory license as to the recipient of royalties.

To put it another way, the term in the Fox license that has governed the payee of royalties has been the language which incorporates the provisions of the statutory compulsory license (e.8., JA 23, 26, 81); designation of Fox "as Agent for and on behalf of said Publisher(s)" has been treated by Fox and by music publishers as merely descriptive of Fox's role, and not as an exception to the statutory provision under which the right to mechanical royalties follows the music copyright. For this reason, as the respondents have contended, upon termination the Snyders stepped into Mills' shoes with respect to the receipt of royalties under the Fox licenses.

When the language of the Fox license is understood as it has consistently been applied, the major premise of the Court's decision disappears. If it is accepted that, as we contend, the "grants” preserved by the Exception are the Fox licenses, there is both “a contractual (and) a statutory basis for paying (all) of the derivative works royalties to the Snyders" (Slip opin., p. 13). That basis is the compulsory license provision of the Copyright Act, as incorporated into the Fox licenses.

The facts as to the practice of Fox and of the music industry

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are described in the annexed proposed affidavit of Lewis M. Bachman, Executive Director of The Songwriters Guild, based on his 25 years of experience in the music industry, as an accountant and as representative of both music publishers and songwriters. Mr. Bachman has reviewed and approved his proposed affidavit; and respondents offer to submit such affidavit, executed by Mr. Bachman, in this Court or upon remand. Moreover, we do not believe there can be any dispute as to the facts he describes, and we are confident that if inquiry as to those facts is made to Fox, they will be confirmed by Fox itself.

Fox's construction of its licenses supports respondents' position and is consistent not only with the terms of those licenses, but also with prior judicial construction of copyright licenses. In April Productions, Inc. v. G. Schirmer, Inc., 308 N.Y. 366, 126 N.E. 2d 283 (1955), the New York Court of Appeals held that even though a publisher of a musical composition agreed to pay royalties without any time limit to the party from whom the publisher obtained the rights, its royalty obligation to that party ceased at the end of the first term of copyright, when ownership of the renewal copyright passed to the writers' statutory heirs. Thereafter, the publisher was required to pay only the owners of the renewal copyright or their assignces. The April Productions holding and its implications for the entire question of derivative rights were well understood by the drafters of the 1976 Copyright Act. See Ringer, “Renewal of Copyright," 86th Cong., 2d Sess., Copyright Law Revision, Studies prepared for the Subcom. on Patents, Trademarks and Copyrights of the Senate Judiciary Committee, Study No. 31 (Comm. Print 1961), 168.

The facts as to the meaning of the Fox license language were not discussed in the lower courts or in the briefs before this Court because they were not material under the approaches taken below. Neither the District Court nor the Court of Appeals rested its decision on the Fox licenses' designation of Mills as "publisher". And in this Court, Mills itself stated, "Mills does

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not rely or need to rely on its licenses to the record companies ..." (Petr's Br., p. 20).

For the reason stated above, respondents respectfully request that this Court grant rehearing and reconsider its decision or in the alternative remand the case to the District Court.

February 1, 1985

Respectfully submitted,

HAROLD R. TYLER, JR.
(Counsel of Record)
PATTERSON, BELKNAP, WEBB

& TYLER
30 Rockefeller Plaza
New York, New York 10112
(212) 541-4000
Attorneys for Respondents

FREDERICK T. DAVIS
ROBERT P. LOBUE
FREDERICK F. GREENMAN, JR.
LINDEN AND DEUTSCH

Of Counsel

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