News

Law360, New York (November 26, 2012, 10:00 PM ET) — Musicians who recorded hit songs in the late 1970s will gain the right to reclaim ownership of their work starting in January under a 1978 copyright law provision, and while record labels are expected to fight to retain control of lucrative music, 2013 is unlikely to bring a flood of litigation, attorneys said.

Revisions to the Copyright Act that took effect at the beginning of 1978 gave authors of new works the ability to terminate the assignment of rights to entertainment companies after 35 years. As a result, termination rights will become available on Jan. 1, 2013, for any sound recordings for which the rights were assigned on Jan. 1, 1978, and will kick in for other 1978 works throughout the year.

Although termination rights give artists the potentially valuable ability to control distribution of their works — which labels will seek to curtail as much as possible — the cost of litigation and other factors likely will mean a court battle over the issue may not arise for some time, said Paul Fakler of Arent Fox LLP (/firms/arent-fox).

“There are very few albums that are worth so much money where it even remotely makes sense to fight with the label,” he said. “There are so many things that have to line up to get one of these cases that it could be we don’t see one for a couple of years, even though 2013 is here.”

Rather than taking the fight to court, it is far more likely
that a copyright termination notice from an artist will serve
as a jumping-off point for negotiations with the label on a
new contract, said Eric Custer of Manatt Phelps & Phillips LLP (/firms/manatt-phelps).

“New deals will be made, and it won’t lead to litigation unless the artist really can’t stand their label or really wants to take control of their work,” he said. “There will be some examples where people want to prove a point, but whether the case will proceed to a resolution on the legal issues is hard to say.”

Congress created the copyright termination right to allow authors to renegotiate their deals once the true value of the work becomes known, since many artists often sign over their copyrights to record labels without any idea of whether the work will be successful.

Even if most artists never actually reclaim the rights to their work and use the threat of termination to leverage a better deal, the copyright termination provision may have served its purpose of improving the bargaining power of artists, said Ken Basin of Greenberg Glusker Fields Claman & Machtinger LLP (/firms/greenberg-glusker).

“I don’t think this will create a massive upheaval for the industry, but with respect to really popular works, it could realign the revenue-sharing balance between companies and artists,” he said.

The copyright termination statute requires artists to notify the label two years in advance of their intent to terminate the rights, so labels have been aware since at least 2011 of any potential terminations next year, providing time to reach a new deal.

In addition, the 35-year mark is “less like a deadline than an opening bell,” said Dori Ann Hanswirth of Hogan Lovells (/firms/hogan-lovells). The termination window lasts five years, so a copyright grant made in 1978 can be terminated any time between 2013 and 2018, giving artists who have not yet served a termination notice plenty of time.

“With that much time in hand, it is unlikely that all, or even most, of the 1978 grants will be disputed next year,” Hanswirth said. “A gradual stream of increased termination activity is the more likely outcome.”

A copyright termination dispute that may lead to litigation likely will involve an album that still is selling enough today for it to be worthwhile for the artist to invest in the legal cost of reclaiming it, attorneys said.

In addition, it would likely have to be recorded by an artist who is no longer releasing music, since anyone from the 1970s who is still popular today probably has enough pull to secure a new deal without going to court and may not want to antagonize their label.

“It would have to be an artist with deep pockets as well,” said Bryan Sullivan of Early Sullivan Wright Gizer & McRae LLP. “But if it’s valuable enough, there’s going to be an artist who will fight it.”

Even in cases where a lawsuit is filed, it may be more advantageous to both the artist and the label to negotiate a new deal rather than pursue the case to a resolution, Custer said.

“Presumably there will be some splashy case filed in 2013, but how quickly it will move and how strongly they’ll want to litigate is hard to say,” he said. “I wouldn’t be surprised if there’s a settlement for improved deal terms and the parties are not prepared to fight to the ends of the earth.”

There are a few situations in which a copyright termination lawsuit may arise, attorneys said. For instance, an artist could notify the label of his or her intent to terminate the copyright, leading the label to file a suit seeking to have the termination declared invalid.

If the label ignored a termination notice, the artist could sue, claiming that continued sales of music for which the rights have been reclaimed constitutes infringement. Or if the artist reclaimed the rights and started selling the music themselves, the label might sue them for infringement.

Any termination suit that is fully litigated will be closely watched, as it will establish precedent on important areas of music copyright law that have never been examined by a court, attorneys said.

For one, termination rights do not apply to works made for hire, which the Copyright Act defines as a work done by an author in the scope of his or her employment. Record labels are expected to fight back against termination notices by arguing that the musician’s work was made for hire, but whether that designation can apply to sound recordings has never been legally resolved.

The record industry has taken the position that sound recordings fall into two categories of works that the law identifies as per se works for hire: compilations or contributions to collective works. Artists maintain that neither of those categories apply to albums by most musicians, and a termination suit will provide a test case on the issue.

Essentially the only way a copyright termination wouldn’t be effective would be if the work is found to have been made for hire, so “it’s close to inevitable that we’re eventually going to hit a case that deals with that,” Fakler said.

While artists would prefer a court ruling that says sound recordings can never be considered a work made for hire, it will likely have to be resolved on a case-by-case basis, he said.

“Work for hire can be so fact-specific that whether one decision will stick and solve the whole problem seems unlikely,” Fakler said.

Another unresolved question, particularly for cases involving songs from 1978, is whether the termination right attaches to the date the song was assigned to the label after it was recorded or the date when the artist signed with the label, Custer said.

Labels are expected to argue that artists don’t have a termination right to albums recorded in 1978 if it was made under a record deal signed years before, he said. The courts will have to address the issue because the statute is not clear on that point.

The intricacies of copyright law present many complications like that, and labels can be expected to “argue everything under the sun,” Custer said. At a certain point, it may not be worth it for artists to fight out every point, leading to a settlement, he said.

There is so much uncertainty around how copyright termination for sound recordings will work that disputes will be resolved without litigation whenever possible, Hanswirth said.

Any artist that has a valuable recording from the late 1970s should be filing a notice to reclaim the rights now and using that to negotiate a new agreement, she said.

“In a reasonable, rational world, that’s what would happen in the next year, but there will always be disputes,” she said.

Source: Ryan Davis, Law360