I am going to take time off from my overall discussion of the provisions for statutory termination under the Copyright Act of 1976 (see this introductory post and the posts that are linked to that post), to discuss two cases that came down this week that address some of the many thorny issues presented by this statutory scheme.
On March 31, 2020, two SDNY judges issued decisions in separate cases involving terminations of copyright interests under the provisions of the Copyright Act of 1976. Both cases are putative class actions brought by owners of interests in musical recordings against record labels. And while neither decision is particularly earthshaking (the courts denied motions to dismiss most of the claims in both cases), these decisions address interesting issues and the cases will be worth following in the months to come.
Johansen et al. v. Sony Music Entertainment Inc., et al., is a putative class action in which David Johansen, John Lyon (p/k/a Southside Johnny) and Paul Collins claim that notices of termination they served on Sony to terminate recording agreements effectively terminated Sony's rights in 2017. Sony responded to the notices of termination by taking the position that because the works in question were created as works made for hire, they are not subject to statutory termination under the provisions of 17 U.S.C. § 203, which excludes works made for hire from the type of work subject to termination rights. The work for hire issue, however, was not the subject of Sony's motion to dismiss. Rather, the motion was predicated on Sony's claim that there were certain technical failings in the notices of termination that rendered them ineffective and that the attempts to terminate certain of the grants were untimely.
In the Johansen decision, the court (Judge Ramos) denied Sony's motion to dismiss in its entirety. It found that the notices of termination gave Sony adequate information with respect to the claims of the artists and that any errors in the notices were harmless. In so holding, the court referred to the underlying purposes of the termination provisions as providing protections for authors of creative works. It held, in essence, that as long as Sony had enough information to identify the affected grant and work, it would not dismiss a claim based on technical shortcomings. Significantly, this included errors in the designation of the effective date of termination.
Waite et al. v. UMG Recordings, Inc. is another putative class action by recording artists against their record label. And like the Johansen case discussed above, the case involves an ultimate issue as to whether the works were created as works made for hire, which would mean that any grant of a copyright interest cannot be terminated. But, also like Johansen, the issues decided by the court were much more limited. Here, the defendants argued that the plaintiffs' claims were barred by the three-year statute of limitations that governs claims under the Copyright Act. They argued that because the core question is the case is whether the defendants own the copyright in the recordings because they were works made for hire, any such claim would have to have been made many years ago. Defendants cite as authority for this point a 1997 case (not involving statutory termination) in which a claim by the artist Meat Loaf that he was not an employee for hire of a production company at the time he made certain recordings many years earlier was deemed time barred. Aday v. Sony Music Entertainment, No. 96-cv-0991 (MGC), 1997 WL598410, at *5 (S.D.N.Y. Sept. 25, 1997).
In its decision in Waite, the court (Judge Kaplan) ruled that defendant’s reliance on Aday was misplaced. He noted that, unlike in Aday, the gravamen of plaintiffs’ claim is defendant’s refusal to recognize their termination rights. The court held that it would be impossible for there to be a legally cognizable infringement claim until a termination right vests, a valid and timely termination notice is sent, is ignored, and the copyright’s grantee continues to distribute the work. In so holding, the court noted that the contrary result would render the termination provisions essentially meaningless, because an author/creator would have to challenge the legal status of the grant within a few years of its exercise.
The court in Waite, as in Johansen, held that the fact that the termination notices contained certain errors and/or misinformation was essentially harmless. Finally, the court held that grants that were made by certain of the plaintiffs' loan-out companies could not be the subject of termination. This is because the Copyright Act provides that for grants made after January 1, 1978, only grants made by the author of the work an be the subject of termination. The court rejected the contentions by these plaintiffs that the use of loan-out companies was merely a tax planning device and should not serve to preclude the termination provisions. The court stated that to permit such grants to be subject of termination would run counter to the plain language of the Copyright Act.
Interestingly, it might be this last point that ends up being the most important part of the Waite decision, since questions as to the terminability of grants made by creators' loan-out companies are of considerable practical significance. More on this to come down the road.