The new subsection also would specify that this right to royalties exists "Notwithstanding any other provision of law, ..." It is not clear what is meant by the opening phrase of the subsection; perhaps it was drafted to emphasize that the royalties from derivative works would revert to the person exercising the terminated right regardless of any contractual agreement between the author and the assignee, or despite any other provision within the Copyright Act. To accomplish its purpose, moreover, the bill should ensure that the royalties go to the persons in whom the reverted rights vest (who may be different than the person exercising the termination right).

The Senate bill does not amend the derivative work exception to §203, which governs works first copyrighted under the current Act.

Congressman Berman has introduced H.R. 3163 in the House which would amend the derivative works exception found in both §203 terminations and §304 terminations by adding the following phrase within each existing derivative works exception:

or other

After the effective date of termination, all rights to
enforce the terms of any such license
contract and to receive royalties or other monies from
any such continued utilization shall become the
property of, and such royalties or other monies shall
be payable to, the person or persons in whom the
of rights are vested
this
reversion
under
subsection. 42/

If Congress concludes that the Mills Music decision should be reversed, the Copyright Office believes the derivative works exception of both §304(c) and §203 should be amended. Direct amendment of the clause containing the exception (the technique of the House bill) seems preferable to indirect amendment (the Senate bill). The latter approach may invite further litigation to test the "clarification."

42/ The amendment to §203 refers to rights vested under this "section" simply because of the different structure of §203 as compared with §304.

III. OBSERVATIONS ON THE DERIVATIVE WORKS EXCEPTION

A. Congressional Intent

The derivative works exception does not mention royalties, and there is no evidence in "pre-legislative" or legislative history that either the Copyright Office or Congress ever considered the specific issue addressed in the Mills case. The district court concluded that the legislative history was ambiguous:

There is no indication that either the drafters in the
Copyright Office of these provisions or the Congress
specifically considered the Exception with respect to
music publishers. In all of the Office's panel
discussions and reports, and all of the hearings,
reports and other legislative materials regarding the
various bills introduced in Congress, there is no
discussion by either the Office or individual members
of Congress about the termination of assignments or
the derivative works exception specifically as they
apply to music publishers. It is an unwarranted
assumption that Congress itself ever gave any thought
to the issue. In addition, there is no discussion by
the Office or by any member of Congress of the general
issue of whether the Exception applies to an author's
grantee who only authorizes others to make derivative
works and is not itself the owner or producer of the
derivative works. 43/

The only statements that remotely discuss royalties are by music
publishers very early in the revision effort, as part of the debate
concerning the author's right to reversion in principle. These remarks
have been given different weights by the courts that have addressed
them. 44/
The Supreme Court made a judicial
congressional intent, which favored the publisher over the author.

determination

of

If the Court erred in its finding of congressional intent, it did

so less in its parsing of §304(c) and its history, than in its inattention to the broad purposes of the 1976 revision. The underlying

43/ 543 F. Supp. 844, 856 (citations omitted).

44/ See, 543 F. Supp. 849, 863-864; 720 F2d 733, 740, 105 S.Ct. 638, 648649.

purpose of copyright legislation is to stimulate creativity, i.e., to encourage authors to create. The 19 year extension of the term for subsisting copyrights was clearly a windfall; in consonance with the underlying purpose of copyright legislation, Congress more likely than not intended to reward the author and not the publisher.

In any case, except for its possible significance regarding the constitutionality of curative legislation, as discussed later, further tortuous examination of the "original" intent of the 94th Congress seems less important than a review of the equities of the proposed legislation by the 99th Congress. It is now that the Congress must make a decision that the authors should receive all royalties due under the terms of grants that have been terminated.

B. The Equities

Unlike many of the copyright issues which have recently come before this Subcommittee, the controversy to which this bill is addressed is not about whether copyright should or should not govern a given activity. Rather, it is a dispute between two classes of copyright proprietors: here, authors and publishers. In most instances the copyright law does not distinguish among classes of copyright owners, and for good reason. In creating a statutory form of private property, Congress has largely left

property to the participants.

transactions concerning that

And, in the market, authors of proven

best sellers will usually get a better "deal" from a publisher than will a beginner. Likewise, the composer of a perennial hit tune will derive more income than will the composer of a song which is rarely performed or recorded.

But the marketplace has not been the sole determinant of copyright rewards over the long life of the copyright monopoly. The renewal provisions, which have been supplanted in the present law by the termination provisions, have their origin in the Statute of Anne (1710).

They were intended to provide, among other things, the power to the author to recapture copyrights he or she had previously bargained away. As Senator Specter stated when he introduced S. 1384, the 94th Congress recognized that both the impossibility of predicting a work's value as soon as it has been created and the unequal bargaining power of most authors as against most publishers were proper subjects for legislative redress. The question before you today, Mr. Chairman, is whether Congress shall continue to choose to seek to strengthen the hand of authors both original and derivative authors in light of the decision in Mills Music. In short, should the law be made explicit to the effect that the class of intended beneficiaries of all royalties under the termination rights provisions consists exclusively of authors and their heirs (and the other statutory renewal claimants) and that the class of intended beneficiaries of the derivative works exceptions consists exclusively of those who create derivative works? The alternative, as I see it, is to leave the status quo alone, i.e., to grant to those primary publishers who, under assignments from the author, themselves authorize the preparation of derivative works, a substantial shield against termination.

In support of the status quo, publishers would presumably argue that the derivative work exception, while of great significance, constituted only part of one of a series of compromises regarding duration of copyright: the decisions to extend the term of copyright both transitionally for subsisting copyrights, and permanently for new copyrights; to allow the author under stated conditions to recapture the copyright after a period of years; to exclude works for hire from the recapture provisions; and to allow the continued of derivative works under the terms of the original grant. Some will argue that it is not equitable to reverse the Supreme Court's finding on one feature of the compromises regarding duration the sparse evidence of any specific congressional intent opposed to the Court's holding - without re-examination of the case for any forced reversion of property rights. Publishers could also argue that the

-

utilization

especially in view of

impact of the Mills Music decision has been exaggerated by authors. After Mills, authors can terminate licenses and recapture the copyright. They can license new uses of their works including new derivative works that may compete with the one licensed by the publisher. 45/ Authors can receive all of the royalties from phonorecords of derivative sound recordings licensed post termination. They can share in the royalties under the terms of the original grant in the case of phonorecords licensed before termination (if that grant so provides), and the music publisher's right to royalties is limited to this last narrow situation.

Nevertheless, given that the function of the termination right is to grant authors and their heirs a second chance at capturing a fair share of the revenue generated by the exploitation of their works, a bill designed to achieve the goal of S. 1384 seems an appropriate way of balancing the equities between authors and the publishers of their works. The function of the derivative works exception should not be to freeze authors into disadvantageous positions, but to prevent capricious rights owners from denying the public access to derivative works whose preparation and performance was initially authorized. As Justice White observed, the very purpose of the termination provisions is to provide more compensation to those authors whose works are very long-lived than their initial contracts would have provided. To leave the law as stated by the majority in Mills Music frustrates that purpose.

C. Constitutional Issue

It is clear that Congress had the authority to determine who got the royalties at the time the new right (extended term) was created in

45/ The author's right to license competing derivative works is particularly powerful outside of the music field. It is less significant in the music field because the public performance right is commonly licensed on a nonexclusive basis anyway, and the mechanical reproduction right is subject to a compulsory license.