Property, intangible

a blog about ownership of intellectual property rights and its licensing

Standing for Copyright Termination (Declaratory Judgment, That Is)

The Copyright Act allows for the termination of any copyright grants given. There are different statutory provisions for it* depending on the date of the original grant (before or after January 1, 1978), whether the author is still alive, and with somewhat different conditions for termination, but they can all be terminated. When the author has died, the termination right can be exercised by the heirs listed in the Copyright Act.

Which leads us to renowned soul singer Ray Charles. Ray Charles, the son of a sharecropper and handyman, elected to limit what his twelve children would receive from his estate. In 2002 he had each of his children sign a contract providing that:

My father, Ray Charles Robinson, has told me that he will set up an irrevocable trust for my benefit, to be funded with $500,000. This gift is my entire inheritance from him and I understand that I will not inherit anything further under my father’s estate plan and that I am waiving any right to make a claim against his estate.

Charles was as an employee when he created his musical works, meaning he did not own the copyright, but he did receive advance payments and future royalties. Charles founded a non-profit corporation, the Ray Charles Foundation, and on his death the Foundation was his sole beneficiary, with Charles devising “all of [Charles’s] rights in his works and rights under contracts, including the compositions that are the subject of” the lawsuit.

Seven of the 12 children banded together and filed termination notices on their father’s work. You will spot one problem immediately, which is that Charles was purportedly an employee, his works “works made for hire,” and therefore there is no termination right to exercise. But I guess you start the challenge to the legal status of the works by filing a termination notice to create the dispute. In response the Foundation filed a declaratory judgment action with various claims that, if successful, would ensure it retains the income, for example a claim that the works WERE works made for hire, and that Charles had previously exercised his termination right.

The children (the “Terminating Heirs”) moved to dismiss on the basis that the Foundation wasn’t the copyright owner whose rights were being terminated and therefore it didn’t have standing to bring suit. The Foundation argued that standing for termination wasn’t limited to just owners, and alternatively that it was a beneficial owner (a beneficial owner being one who receives income from a copyrighted work) which also gave it standing.

The district court dismissed the suit on the basis that the Foundation wasn’t in the “zone of interest” protected by the termination provision, which, according to the statute, is enjoyed only by the authors, an author’s statutory heirs owning a termination interest, and grantees of transfers and their successors. The Foundation was none of these so it didn’t have statutory standing. The district court also didn’t entertain the “beneficial owner” concept because the complaint only alleged that the works were works made for hire, so the Foundation didn’t have any beneficial interest.

The Court of Appeals for the Ninth Circuit reversed. It didn’t buy the “beneficial owner” argument either, holding that the concept of “beneficial owner,” used specifically in the statutory section describing the cause of action for infringement, didn’t apply to termination. But the Foundation was successful in convincing the appeals court it was in the zone of interest that the termination provision was intended for. First, the Foundation had a direct interest in the matter:

It is undisputed that copyright ownership lies with Warner/Chappell, but just as the termination notices affect Warner/Chappell’s ownership of copyrights, they also directly affect the Foundation’s right to royalties. The Foundation is the sole recipient of royalties flowing from Charles’s copyright grants and effective termination would deprive it of the right to receive prospective royalties. We thus have little difficulty concluding that the Foundation is litigating its own stake in this controversy.

This conclusion is buttressed by comparing the Foundation’s interests to Warner/Chappell’s. The publisher’s interests will be prejudiced only if Charles’s heirs are successful in their efforts to terminate the existing grants and then either agree to grant copyright ownership to another publisher, or renegotiate grants with Warner/Chappell on terms less favorable to the publisher than the terms of the existing grants. Otherwise, it makes no difference to Warner/Chappell whether it continues to pay royalties to the Foundation under the current grants, or to Charles’s heirs under new grants…. Because Warner/Chappell’s interests are not necessarily at risk, it has diminished reason to litigate, particularly because challenging the Terminating Heirs might endanger its interests.

The appeals court therefore had to decide whether the Foundation would have a claim under the standard recently articulated in Lexmark Int’l, Inc. v. Static Control Components, Inc., that is, “whether the harm alleged has a sufficiently close connection to the conduct the statute prohibits.” The termination provisions of the Copyright Act are intended “to safeguard authors against unremunerative transfers and improve the bargaining position of the authors by giving them a second chance to negotiate more advantageous grants in their works after the works had been sufficiently exploited to determine their value.” The Foundation’s interest is in receiving royalties, and so, although not named in the statute, it is in the zone of interest:

the Foundation alleges injury to its interest in continuing to receive the royalty stream generated by Charles’s works, which is the same interest that the Terminating Heirs seek to redirect to themselves. This interest is the one Congress contemplated, regulated, and protected in enacting the termination provisions. We therefore conclude that the Foundation does come within the zone of interests of § 203 and § 304(c).

And the case claiming that there is no case continues.

Ray Charles Found. v. Robinson, No. 13-55421 (9th Cir. July 31, 2015).

* The chart was published in 2012 and has citations to the Code of Federal Regulations that aren’t currently accurate. The current CFR section for giving notices of termination is 37 CFR 201.10.

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