IP Law Daily Recording artists who sought to reclaim their copyrights stated a valid claim against UMG
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Wednesday, April 1, 2020

Recording artists who sought to reclaim their copyrights stated a valid claim against UMG

By Robert B. Barnett Jr., J.D.

Recognizing the contractual imbalance between recording companies and young artists, Section 203 of the Copyright Act created an opportunity for certain artists to recover their copyrights.

In a suit in which a group of recording artists who gained prominence in the ‘70s alleged that UMG violated the Copyright Act by failing to honor their termination of UMG’s copyright in their music, the federal district court in New York City has ruled that the complaint stated a valid claim under Section 203. The court, however, dismissed any claims in which the original contract was signed by anyone other than the artists. It also dismissed any claims for recordings of one of the artists made prior to January 1, 1978 (Waite v. UMG Recordings, Inc., March 31, 2020, Kaplan, L.).

Young artists desperate for a recording contract often sign away the copyright to their music in exchange for the opportunity to record. As a result, if the work is a hit, the financial benefits accrue to the recording company rather than to the artist. Recognizing this imbalance, Section 203 of the Copyright Act of 1976 created an opportunity for certain artists to recover their copyright. Under this rule, authors of any work created on or after January 1, 1978, could terminate the earlier transfer of the copyright to the recording company 35 years after the work’s publication. As a result, the earliest termination rights went into effect on January 1, 2013. The artist can choose to terminate the copyright at any point within five years after the termination right began. The termination is not automatic and requires that the artist record a document with the Copyright Office and serve the document on the recording company.

Artists John Waite, Joe Ely, Kasim Sultan, Susan Straw Harris p/k/a Syd Straw, Leonard Graves Phillips, Stan Sobol a/k/a Stan Lee, and Israel Caballero, all of whom had tried to terminate their original agreements, sued UMG Recordings, Inc., alleging that UMG violated Section 203 by refusing to acknowledge their terminations and continuing to sell their music and asserting the copyrights. UMG denied the terminations on the ground that the original recordings were "made for hire," which are excluded from Section 203. UMG filed a motion to dismiss.

Made for hire. UMG’s motion sought dismissal on the ground of the "made for hire" exclusion. The court rejected that argument. Even though the earlier contracts all contained "made for hire" language, the conditions for a "made for hire" arrangement, in which an employee-employer relationship must exist and the performance be specially commissioned, did not apply. As a result, the court concluded that the "made for hire" argument did not justify dismissal of the claim.

Statute of limitations. UMG next argued that the Copyright Act’s three-year statute of limitations barred the claims. The question for the court to determine was when the claims accrued. UMG argued that the claims accrued in the 1970s and 1980s when the agreements were signed. Calling the issue "a close one," the court noted that this copyright infringement claim was different from the typical copyright infringement claim because it was based on a refusal to comply with a termination notice. Termination rights, the court said, are about the nature, extent, or scope of copying a particular works. A legally cognizable infringement claim, therefore, cannot exist until (1) the termination right vests, (2) a termination notice is sent, and (3) the termination notice is ignored. If the court were to rule that the right to sue accrued when the contract was signed, it would defeat the purpose of Section 203 and its 35-year rule. As a result, the court concluded that the rights accrued when UMG continued to assert its copyright rights after proper notice of termination. Because these musicians filed suit within three years from that date, their claims were not time-barred.

Declaratory judgment. Those musicians whose termination rights had still not expired sought a declaratory judgment that their termination notices were valid and that their grants were terminable. The court, however, refused this request. UMG had not yet ignored their termination requests, rendering the declaratory judgment premature and unnecessary.

Termination notices. UMG also sought dismissal on the ground that the termination notices themselves were flawed. While it was true that some notices contained errors, such as wrongful guesses at the actual date of the original contract, those errors were made in good faith. The errors did not deprive UMG of notice of what was intended to be terminated. In fact, the court characterized the errors as "harmless."

Grantor termination. The court, however, was more receptive to the argument that Section 203 of the Copyright Act provides that the termination right only applies when the original contract was signed by the artist himself or herself. In this case, the contracts involving Waite and Ely were signed by a third party that represented them. Because the artists were not the "grantor," they could not terminate the grant of the copyright. The law was clear, even if the result might be unfair. As a result, the court granted UMG’s motion to dismiss any claims filed by Waite and Ely involving original contracts signed by third parties.

Early work. Section 203 was also clear that it applied only to grants executed on or after January 1, 1978, no matter when the work was created. A different Copyright Act section, Section 304(c), applies to grants of renewal rights executed before January 1, 1978. Section 304(c), however, requires that the work be created and copyrighted before January 1, 1978. As a result, a gap has been created for those works in which the grant was executed before January 1, 1978, but the work was created on or after January 1, 1978. Because of the interplay of those two provisions, no termination is permitted for those works. The Copyright Office nevertheless sought to plug the gap by saying that it would treat some cases under Section 203. The courts, though, are the ultimate determiner of how these claims will be treated. The court then granted UMG’s motion to dismiss any of Ely’s recordings created prior to January 1, 1978, because his termination notice failed to provide the creation date, which meant that UMG could not determine which work he sought to terminate. The problem with the notice was that it listed the publication date while the complaint referred to it as the release date. The creation date was the key date, and it was missing from the notice.

The court, therefore, denied UMG’s motion to dismiss, except that it granted the motion to dismiss as it applied to (1) the request for declaratory relief, (2) Waite and Ely’s claims based on third-party signatures, and (3) Ely’s claim for his 1976 agreement for recordings made prior to January 1, 1978.

This case is No. 1:19-cv-01091-LAK.

Attorneys: David Michael Perry (Blank Rome, LLP) for John Waite. Lauren Marie De Lilly (Sidley Austin LLP) for UMG Recordings, Inc.

Companies: UMG Recordings, Inc.

MainStory: TopStory Copyright GCNNews NewYorkNews

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