On June 3, 2020, the U.S. Copyright Office (“Office”) issued a notice of proposed rulemaking and a notice of inquiry to request public comment concerning efforts to modernize the recordation of termination notices. Copyright owners should be aware of these potential changes as they are likely to ameliorate the burdens they face when attempting to exercise their statutory right to terminate copyright transfers to third parties. This post provides a primer on the statutory termination right and the Office’s proposed rule changes. The deadline for interested parties to submit written comments regarding the proposed changes is July 6, 2020.
Overview & Importance of the Statutory Termination Right
The Copyright Act provides eligible authors or their heirs the right to terminate an agreement that transferred or licensed the author’s copyright to a third party. Consequently, authors are able to regain control of their previously-granted copyright interests. This statutory right, which is set forth in 17 U.S.C. §§ 203 and 304(c), is available to authors only during a five-year window. For a majority of authors, specifically those that executed grants on or after January 1, 1978, this window begins either thirty-five years from the execution date or, if the grant conveys publication rights, forty years from the execution date or thirty-five years from the publication date, whichever is earlier. For grants executed before January 1, 1987, termination may commence starting fifty-six years after the date the copyright was originally secured. However, if the pre-1987 grant involves a work created on or after that date, the termination period begins thirty-five years after the date the work was created. Because statutory termination is a use-it-or-lose-it right, it is crucial that authors are cognizant of, and accurately calculate, the start and end dates of the five-year window applicable to their grants.
In enacting the statutory termination provisions, Congress sought to protect authors from unprofitable and inequitable agreements entered into when they had little bargaining power and before the value of the copyrighted work was known or ascertainable. By giving authors the opportunity to renegotiate contracts on more favorable terms or enter into new, more lucrative arrangements, the termination right attempts to correct the bargaining imbalance between the author and grantee while also allowing authors to enjoy the later economic success of their works. Importantly, Congress provided that the termination right cannot be waived by contract or otherwise, ensuring that authors can effectively exercise this right.
There are a few limitations on the statutory termination right. First, the termination right extends only to U.S. copyrights — it does not apply to grants involving other federal or state rights, including trademark and publicity rights, or rights arising under foreign laws. Additionally, grants made by will and grants involving a work made for hire are not eligible for statutory termination. The rationale behind the latter exception is that the commissioning party is deemed the initial copyright owner so there are no rights for the work’s creator to recapture. A final limitation is that termination does not affect derivative works created under the grant prior to the termination date. In that case, the grantee is free to continue using and profiting from those works post-termination. Notably, this exception is essentially a special dispensation for movies as it was incorporated within the statute after film producers demanded protection of their investment in creating the derivative work and thus their continued ownership of the copyright for the full term.
Successfully terminating a copyright transfer is a complicated process, requiring authors to comply with a number of eligibility, timing, and filing formalities. These rules differ based on which of the two statutory provisions mentioned above apply, which in turn depends on various factors such as when the grant was made, who executed the grant, and when the copyright was originally secured by the author. Under both termination provisions, there are three general steps authors must take to regain the rights to their works. First, the author must select the specific date that the termination goes into effect (i.e., effective date of termination), which must fall within the five-year termination period. Next, the author must serve the grantee with a notice of termination no less than two or more than ten years before the effective date of termination. The notice must comply with the format, content, and manner-of-service requirements specified in the statute and regulations. Lastly, the author must submit a copy of the as-served notice to the Office for recordation before the effective termination date. The recordation submission must also meet certain statutory and regulatory requirements concerning format and content. While some errors in complying with these rules may be deemed harmless, others could render the attempted termination invalid, potentially resulting in the loss of the termination right.
The termination right is a powerful tool for authors that can be used in a number of ways. For example, when a copyrighted work is performing better than expected, the author can unilaterally terminate the outdated contract and enter into a new arrangement to reap the increased value of the work. In the context of commercially unsuccessful copyrights, authors can utilize this tool to cancel contracts which otherwise bar them from exploring alternative channels to exploit the work’s value, such as digitizing a printed book in an effort to reach a wider audience. Additionally, even when copyrighted works are successful, authors who disagree with the rightsholder’s approach to exploiting their creation, like the price of the work, can end that contractual relationship and find a grantee more aligned with their vision for promoting and distributing the work.
Outline of the Proposed Rules & Subjects of Inquiry
The Office has proposed six amendments to its regulations governing the recordation of termination notices. The underlying rationale for these proposals is to improve the Office’s efficiency in processing termination notices while also easing the authors’ burden of complying with the complex statutory and regulatory formalities to reclaim ownership of their works.
The first two amendments proposed by the Office are to restore its discretion to record untimely notices if equitable circumstances warrant and to expand the scope of a 2017 interim rule citing examples of untimely filings by clarifying that submitting the notice for recordation on, as well as after, the effective date of termination is untimely. Additionally, the Office advocates for an amendment that extends the harmless error rule so that, in addition to defects in the notice, it applies to compliance errors with the Office’s recordation requirements. This would mean that immaterial defects in manner-of-service information, which must accompany the notice submitted to the Office, would not render the notice invalid. Such a change ensures that these insignificant, ministerial errors are not fatal, preventing authors from exercising their termination right.
Another change advanced by the Office is to broaden the acceptable methods of serving the grantee with notice to include courier delivery (e.g., FedEx and UPS) and email, but only if the recipient consents to electronic delivery. This would benefit both the author and grantee, allowing for faster and arguably more convenient service of the termination notice. Moreover, the Office proposes allowing authors to identify the works subject to termination by their title, registration number, or both. Currently, only the first and third options are permitted. Although this appears to allow authors greater flexibility in identifying works subject to the notice, in reality, the new option of listing only the registration number may not be advisable given that an error in the number provided could affect the validity of the notice. This could jeopardize or even extinguish the author’s termination right.
The Office’s final proposal is to set the date of recordation as the date the notice is received by the Office rather than the current approach of conditioning the date upon receipt of all elements required for recordation, including the prescribed fee and statement of service. This is a particularly noteworthy amendment given that this rule has essentially remained unchanged since it was implemented in 1977. The stated purpose of this amendment is to address the serious consequences authors face when errors in recordation submissions, such as an improper fee or a missing statement of service, push the date of recordation to the date the oversight is corrected. For example, if the correction occurs after the effective termination date, thereby rendering the notice untimely, the author must amend the notice by changing the effective date to at least two years later and then re-serve and re-file the notice, which would be possible only if sufficient time remained within the five-year termination window. Notably, authors should be aware that if this proposed rule is enacted and the Office subsequently experiences administrative hardship from delays in submitting payment, it may reincorporate receipt of the prescribed fee as part of the requirements for determining the recordation date.
In addition to the proposed amendments, the Office clarifies its examination practices for notices pertaining to multiple grants — i.e., notices seeking to terminate more than one grant between the same party or more than one grant relating to the same work. Specifically, the Office states that authors may record a single notice covering multiple grants as long as those grants contain commonalities as to either the grantees or the works. This is especially beneficial for grantors who will only need to pay one recordation fee for such grants. However, the Office also states that an additional fee may be charged if it experiences an increase in processing time. Lastly, the Office seeks public comment on developing an optional sample form for termination notices and on regulatory changes to address concerns with third party agents failing to comply with the recordation requirements when filing on the author’s behalf. Copyright owners should stay tuned for a later update on whether these rules have been enacted.