Property, intangible

a blog about ownership of intellectual property rights and its licensing

Penguin to Continue Publishing Steinbeck

In the past I could have just linked to William Patry’s blog for a case like this, but unfortunately no more. We’ll just have to soldier on and do our best to understand the intricacies of termination rights in copyright law without the benefit of his knowledge and insight.

A recently published termination case, Penguin Group (USA) Inc. v. Steinbeck, involves the publishing right to some of John Steinbeck’s books, including “Of Mice and Men,” “The Grapes of Wrath,” and “Tortilla Flat.” You may have heard it on the news; John Steinbeck’s heirs won at the district court but just suffered a reversal in the Second Circuit.

John Steinbeck had originally licensed the works to Penguin’s predecessor in interest in 1938. Steinbeck’s wife and successor to his copyrights, Elaine, renegotiated a new agreement in 1994 after Steinbeck’s death. The 1994 agreement said, “when signed by Author and Publisher, [it] will cancel and supersede the previous agreements, as amended, for the [works] covered hereunder.” (Brackets in original). Elaine Steinbeck died in 2003 but her will did not give Steinbeck’s two children any ownership interest in the copyrights. In 2004, one of these children, Thomas, and the sole surviving child of the other son, Blake Smyle, served a notice of termination of the 1938 agreement on Penguin. Penguin filed a declaratory judgment action asking the court to find that the termination was invalid.

The works were in their renewal period on January 1, 1978, so termination is controlled by § 304 of the Copyright Act rather than § 203. If the 1938 agreement was still in effect, there would have been an earlier opportunity to terminate the publishing rights at times ranging from 1990 to 2000 (depending on the publication date of each book), but that right had not been exercised. The Steinbeck heirs were now taking advantage of a “second bite of the apple” opportunity provided under the Sonny Bono Copyright Term Extension Act, i.e., if there was no termination of a grant under § 304 prior to the Sonny Bono Act a second window for terminating opened. This termination notice was served within the second window.

But the 1938 Agreement was not in effect; it was superseded by Elaine Steinbeck’s 1994 grant, so there was no termination right under § 304. The language of the 1994 agreement clearly terminated the 1938 agreement, plus other terms in the 1994 contract demonstrated that it completely superseded the 1938 agreement.

Indeed, the 1994 agreement contemplated future exercise of termination rights, but the Court of Appeals distinguished the question it was deciding, i.e., whether the 1938 agreement had been terminated, from the question of whether the new contract affected the termination right. Any statements regarding the latter in the 1994 agreement did not change the answer to the former.

The court also wasn’t buying Professor Nimmer’s argument that under § 304(c)(6)(D) there must be a “moment of freedom” between the termination and the new grant; by its terms the section itself contemplates that contracts may be made before the termination is effective so long as the notice to terminate has been served. Furthermore, nothing in § 304 suggests that an agreement cannot be renegotiated before the notice of termination is served.

Still, § 304(c)(5) provides that one cannot avoid the termination right by contract: “Termination of the grant may be effected notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant.” The Steinbeck heirs argued that the 1994 agreement was an “agreement to the contrary” and therefore ineffective to extinguish the termination right. The court held that reading § 304(c)(5) so broadly that this new contract would be considered an “agreement to the contrary” was inconsistent with other narrowing limitations of the termination right in the Copyright Act. Further, the 1994 agreement did not even terminate any of the heirs’ rights at the time, since in 1994 they did not have a majority share and therefore no termination right (a situation that changed upon Elaine Steinbeck’s death).

Unfortunately for the Steinbeck heirs, they do not have another chance under § 203. Unlike § 304, § 203 only applies to grants made by the author. The 1994 grant was by the author’s widow, so the 1994 grant cannot be terminated:

In this case, Elaine Steinbeck had the opportunity in 1994 to renegotiate the terms of the 1938 Agreement to her benefit, for at least some of the works covered by the agreement were eligible, or about to be eligible, for termination. By taking advantage of this opportunity, she exhausted the single opportunity provided by statute to Steinbeck’s statutory heirs to revisit the terms of her late husband’s original grants of licenses to his copyrights. It is no violation of the Copyright Act to execute a renegotiated contract where the Act gives the original copyright owner’s statutory heirs the opportunity and incentive to do so.

It’s also a good decision to have for some basic background on the historical roots of the termination provisions of the Copyright Act, provided by the Court of Appeals to explain the district court’s reasoning.

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