The 9th Circuit recently reversed and remanded a Central District of California’s dismissal of a case involving an attempt by the Ray Charles Foundation to invalidate terminations of copyright transfer effected by 7 of Charles’ 12 heirs. The 9th Circuit found that the Foundation had standing to sue the 7 heirs and challenge the validity of their terminations.
Terminating transfers of copyright rights is one of the most arcane areas of copyright law. When Congress amended the Copyright Act in 1976, it eliminated the 2-term structure of copyright, whereby an author received an initial term of copyright and the could file a renewal notice to further extend the term. In its place, Congress created a single term of copyright, but provided [nearly all] authors or their heirs the inalienable right to terminate any transfer of copyright ownership at some specified future date. The public policy rationale for both constructs is the belief that authors need to be protected “against unremunerative transfers … because of the unequal bargaining position of authors, resulting in part from the impossibility of determining a work’s value until it has been exploited.” H.R. Rep. No. 94-1476, at 124 (1976).
As relevant here, the 1976 Act contains two separate provisions that govern how and when an author may terminate a transfer. Sec. 203(a) covers grants made on or after Jan. 1, 1978 (the effective date of the 1976 Act), which Sec. 304(c) covers grants made before Jan. 1, 1978. While both sections specify who may file a termination of transfer (the author or her heirs), neither section specifies who may challenge a termination. In this case, the 9th Circuit had to determine whether the Foundation had standing to challenge the terminations filed by the 7 heirs.
Noting that the Act does not specifically provide for a private right of action to challenge a termination, the Court of Appeals concluded that the Copyright Act created an implied private right of action to challenge terminations. Next, the 9th Circuit looked at “whether Congress intended to allow a party receiving royalties under a contractual assignment or will to challenge the validity of termination notices.” To answer that question, the 9th Circuit considered whether the Foundation fit within the “zone of interest” of this implied right. In concluding that it did, the Court noted that the Foundation had a material interest in the dispute (e.g., the future payment of royalties), had the proper incentive to forcefully litigate the dispute (more on that below), and resolution of the dispute in its favor would satisfy its grievance with the 7 heirs.
One may wonder why the owner of the copyright (in this case, Warner Chappell, one of the 3 major music publishers and sister company to Warner Music Group) wasn’t the one bringing this litigation. After all, if the terminations are valid, then Warner Chappell runs the risk of losing its share in those future royalties as well. The 9th Circuit reasoned that Warner Chappell’s interest was actually less direct than the Foundation’s. It is common practice for music publishers to renegotiate with songwriters after receiving a termination notice, so the 9th Circuit concluded that Warner Chappell (a) didn’t want to litigate and make the 7 heirs angry because (b) its most likely worst outcome was receiving less royalties in the future, not receiving no royalties in the future.
The Circuit’s decision is here: