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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:

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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 75.0.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).

concluded that authors, not publishers, were the intended beneficiaries of the

termination provision and that the owners (creators) of derivative works were the beneficiaries of the exception. 35/

On January 8, 1985, in a 5-4 decision the Supreme Court reversed the court of appeals. 36/ As both the appellate court and district court had

done, the Supreme Court considered the revision materials, the legislative

history, and the statute itself, and concluded that Congress did not intend to

draw a distinction between authorizations to prepare derivative works that are

based on a single direct grant and those that are based on successive grants.

an

The Court felt that the key to this "statutory puzzle" is understanding of the phrase "under the terms of the grant" as it is used in

8304(c)(6)(A). The majority of the Court did not accept the court of appeal's

view that there were two grants and the exception only preserved one.

The

Court noted that the word grant was used in the exception three times, that

the third reference had to refer to the author's grant to the publisher, and that it is logical to assume that the same word has the same meaning in the

same sentence.

The Court also rejected the court of appeal's second proposition that

Mills is not a "utilizer" within the exception on the ground that the word

"utilized" cannot be separated from its context in the exception.

Finally,

the Court rejected the appellate court's third proposition that Congress did

not consider the specific situation presented in Mills.

The Court noted

references within the legislative history that indicated Congress was aware of the prevalence of multiparty licensing arrangements in the music-publishing

industry. The Court saw no reason to differentiate between a book publisher's

license to a motion-picture producer and a music publisher's license to a

record company

i.e. to distinguish a so-called "creative" middleman from a

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36/

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

Justice White, dissenting, 37/ accepted the majority's assertions that the terminated grant is the original grant (Snyder-Mills), that the derivative

works involved were prepared under the Snyder-Mills grant, and that users of

these works may continue to utilize them under the specific terms of the

licenses issued by Mills.

Justice white disagreed, however, with the

majority's extension of benefits to Mills as well as the users of derivative

works.

Justice White observed that the right to terminate the grant of

copyright covered "any right under" that copyright and that it, therefore, included the recapturing of Mills' right to share royalties.

The minority felt that the legislative history did not support Mills'

claim to share in the royalties from derivative works.

The minority noted

that, early in the revision process (1961-1964), comments by the Music

Publishers Association and the Music Publishers Protective Association, implied that the royalties would revert entirely to the author. In the

absence of any other "legislative history," directly relevant to this point,

the minority felt that these statements of interested parties before the

Copyright Office could not be ignored.

Justice White also noted that the

majority's decision would frustrate the congressional purpose of compensating

authors in those situations where an author has assigned his rights for a

one-time, lump-sum payment. 38/

Justice White argued that, with respect to

the extended term, both parties, the author and the grantee, have already

reaped the benefit of their bargain, and the only question is which one should

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38/

One commentator has suggested that the situation might work against authors in cases where the author is to receive a set yearly payment obligation from the motion picture producer, and the motion picture producer gives the right to produce the work to a second producer for a percentage. Then if the grant is terminated, the original producer would have no obligation to make any payment to the author. 3 Nimmer on Copyright $11.02 (1984).

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On April 17, 1985, Barbara Ringer, former Register of Copyrights,

appeared before this Subcommittee to urge Congress to reexamine this important issue and to redress the imbalance created by the Supreme Court decision. Ms. Ringer emphasized that the impact of the decision went far beyond the facts of

the Mills case:

First: The decision applies not only to music and sound recordings but also to every conceivable type of copyright able work and to every conceivable type of derivative work that can be made from a copyrighted work.

Second: In the Mills case the author's grant to the publisher provided for him to receive 50 percent of the record royalties, and his heirs will, under the decision, continue to receive this share. But, especially in fields other then music, the author's grant to the publisher or middleman-entrepreneur may not provide for any author's share of royalties from licensing particular kinds of derivative works. If the publisher or entrepreneur can continue to receive 100 percent of the royalties, the termination of the author's grant becomes a hollow mockery.

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39/ Civil and Criminal Enforcement of the Copyright Laws: Hearing Before the Subcommittee on Patents, Copyrights and Trademarks of the Senate Committee on the Judiciary, 99th Cong., 1st Sess. 83 (1985) (Barbara Ringer's prepared statement).

Ms. Ringer's testimony summed up the revision process that led to the termination provision and the exception and what she saw as the congressional

intent on this issue:

In my opinion, the intention of Congress was
that termination means termination. And if the
entrepreneurs rights were only contractual - if
it did not create and own the derivative work in
question - then Congress intended that the
entrepreneur's rights would be terminated,
assuming that the author went through all the
statutory requirements for termination. 40/

11.

PROPOSALS TO REVERSE MILLS MUSIC

On June 27, 1985, Senator Specter introduced s. 1384, a bill to clarify

the operation of the derivative works exception. In introducing the bill, Senator Specter urged that since "the Court's sharply divided 5 to 4 decision

was based almost exclusively on its perception of Congress' intent, it is

appropriate now for Congress to clarify its intent and alter the effect of the decision in Mills Music." 41/ This bill would amend section 304(c)(6) by adding a new subsection:

a

(7) Notwithstanding any other provision of law, where an author or his successor, as defined in subsection

(c)(2),

has exercised right of termination pursuant to this section and a derivative work continues to be utilized pursuant to subsection (c)(6)(A) of this section, any right to royalties from the utilization of the derivative work shall revert to the person exercising the termination right.

The Senate bill does not change any language in $304(c)(6); instead the new subsection (7) adds the clarification that any rights to royalties for derivative works utilized pursuant to (c)(6)(A) following termination by an

author or his successor as defined in (c)(2) "shall revert to the person

exercising the terminated right."

40/

Id. at 93.

41/

Congressional Record, S. 8971 (June 27, 1985).

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