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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 5304(c). The

reversion of rights in both cases is subject to the following limitation:

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.

17 U.S.C. $203(b)(1); $304(c)(6)(A).

In January of this year, the Supreme Court ruled

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questioning the proper disbursement of royalties for derivative works that

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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

district court judge

felt that the disbursement of royalties should be

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

31

Mills Music Inc. V. Snyder, 105 S.Ct. 638 (1985)

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 compromise was reached,

moreover, as part of resolving the larger issues of:

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,

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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
for lengthening the term unless the author or
his heirs were to receive some benefit from it.
At the same time, the interests of their
assignees must also be considered.

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. 47

Although the 1961 Report did not refer to an exception from the author's

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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. 61

The 1963 preliminary draft bill had two sections that contained an

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) Thereinafter 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) Thereinafter 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. ! The exception was found in 822 "Duration

one

of Copyright: Subsisting Copyrights," and in alternative to $16 "Limitation on Transfer of Copyright Ownership." 8/ The exception found in

$22 stated:

derivative work prepared under the authority of a terminated transfer may, despite such termination, 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.

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

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.

71

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].

87 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.

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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." Ideat 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
exploitation during the 25-year period will
belong to others indeed to all others,
because the licensee of the publisher retains
his rights under subsection (b) of Alternative
A, with the royalties resulting from the license
presumably reverting entirely, to the author,
etc., under subsection (a). 16/

an article that was being

11/ Id. at 277-8. Alternative B was based on considered by the Federal Republic of Germany.

12/ Id. at 279-80 (Colby for Motion Picture Association of America (MPAA)), 281-3 TManges, American Book Publishers Council); 292 (Wasserstrom, Magazine Publishers Association).

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15/

See, e.g., 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.

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