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<a href="https://ipintelligencereport.bakerhostetlerblogs.com/wp-content/uploads/sites/11/2012/10/superman_kryptonite11_138.jpg"><img class="alignleft wp-image-949" src="https://ipintelligencereport.bakerhostetlerblogs.com/wp-content/uploads/sites/11/2012/10/superman_kryptonite11_138-233x300.jpg" alt="" width="196" height="260" /></a>The Copyright Act’s provisions concerning termination rights are complex and nuanced: these rights are available only under certain circumstances and only during specified periods of time.  And that is not surprising, as these rights allow an author or an author's beneficiaries to recapture potentially valuable rights that were previously assigned—basically, an author or her heirs have a statutory right to opt out of an assignment of the copyright.

Last spring, a case involving Victor Willis of the musical group Village People <a title="It Doesn’t Take the Entire Village" href="https://ipintelligencereport.bakerhostetlerblogs.com/2012/05/11/it-doesnt-take-the-entire-village/">presented a straight forward application of the law</a>.  A more recent set of cases, involving the rights to Superman, demonstrate some of the complexities of the law.

In 1932, Jerome Siegel and Joseph Shuster created the now famous superhero character Superman. The most recent decision involves Shuster’s heirs.

Quick Primer on Termination Rights Under the 1976 Copyright Act

Generally. The Copyright Act of 1976 included termination rights, which were written into the law to reapportion the balance of power between authors and publishers, allowing authors (or their heirs) a chance to reclaim their works by terminating assignments. As the Court of Appeals for the Second Circuit explained, this apportionment of rights "permit[s] a publisher the opportunity to reap the initial rewards of an early investment in young talent, but it allow[s] authors to revisit the terms of earlier grants of rights once the long-term success of their works become[s] apparent."

Because these cases concern Superman—which was copyrighted in 1938—and assignments that existed as of January 1, 1978, the two provisions that apply are sections <a href="http://www.law.cornell.edu/uscode/text/17/304">304(c) and 304(d)</a> of the Copyright Act.

Original Termination Opportunity. Generally speaking, section 304(c) of the Copyright Act permitted the termination of an assignment during a five-year period beginning at the end of 56 years from the date of copyright, as long as other statutory formalities were met. Thus, here, the original 56-year term would have ended in 1994.

Second Chance. If an author (or his heirs) misses the first opportunity under section 304(c), the Copyright Act offers a second opportunity under section 304(d), if the first opportunity expired prior to 1998. Under those circumstances, termination can be affected any time during the five-year period beginning at the end of 75 years from the date of copyright, as long as other statutory formalities were met, including that at least 50% of the potential right-holders join in the termination. This provision was enacted in 1998 as part of the Sonny Bono Copyright Extension Act. The 75-year term in this case would end in 2013.

Both section 304(c) and section 304(d) are worded such that a copyright holder cannot be forced to waive or prematurely waive the ability to recapture copyrights by terminating agreements.

Salient Facts

<a href="https://ipintelligencereport.bakerhostetlerblogs.com/wp-content/uploads/sites/11/2012/10/250px-Superman_1.jpg"><img class="alignright size-medium wp-image-950" src="https://ipintelligencereport.bakerhostetlerblogs.com/wp-content/uploads/sites/11/2012/10/250px-Superman_1-212x300.jpg" alt="" width="212" height="300" /></a>In 1938, Siegel and Shuster assigned to DC Comics the “exclusive right to the use of the [Superman] characters and story.”  The validity of this assignment (the "1938 Assignment") was affirmed in 1947, after Siegel and Shuster failed in an effort to rescind the 1938 assignment.

The copyright to Superman was renewed in the 1960’s, and in 1969, Siegel and Shuster brought another lawsuit against DC Comics, seeking a ruling that they owned the renewal copyright. In 1973, the U.S. District Court for the Southern District of New York<a href="http://www.leagle.com/xmlResult.aspx?xmldoc=19731396364FSupp1032_11249.xml&amp;docbase=CSLWAR1-1950-1985"> upheld </a>the 1938 Assignment, and in 1974, that decision was <a href="http://scholar.google.com/scholar_case?case=4078874509838318097&amp;q=siegel+v+national+periodical+publications+1974&amp;hl=en&amp;as_sdt=2,33">affirmed</a> by the Second Circuit Court of Appeals.

Because the terms of the 1938 Assignment were out of date and Siegel and Shuster were suffering financial difficulties, in 1975, DC Comics paid Siegel and Shuster significant sums of money and benefits to Siegel, Shuster and their families. In exchange, Siegel and Shuster once again conceded that all copyright interests belonged to DC Comics.

Shuster died in 1992 survived by his brother Frank and sister Jean Peavy. Peavy was Shuster’s sole heir. After Shuster’s death, Peavy and Frank met with DC Comics. At that time, Shuster’s siblings entered into another deal with DC Comics (the "1992 Agreement"), whereby DC would pay off all of Shuster’s debts at his death, and would make payments of $25,000 per year to Shuster’s siblings. In exchange, Peavy and Frank Shuster agreed not to challenge DC’s right to the copyright to Superman.

After Peavy learned that Siegel’s heirs made claims to terminate the assignment from Siegel, Peavy told DC Comics that she would not challenge the 1992 Agreement, but asked for a “bonus.” Although DC Comics indicated that it had no such obligation, it made additional payments to Jean in amounts of $10,000 to $25,000 from 1993-2001.

In 2001, Shuster’s heirs transferred all of their rights, including their termination rights to the Superman properties, to their attorney Mark Toberoff and one of his companies Pacific Pictures Corporation (“PPC”).

In 2003, Peavy's son, Mark Warren Peary (born “Peavy”) served a notice on DC Comics, seeking to terminate all the prior grants of rights. Peavy’s claim is pursuant to section 304(d) of the Copyright Act.

In 2010, DC Comics brought a declaratory judgment action against, among others, PPC. Toberoff, Peavy and Peary (the “Defendants”).

Analysis

As stated above, section 304(d) of the Copyright Act is only relevant to assignments granted prior to 1978.
The District Court first considered the operative agreement: was it the 1938 Agreement, one of the subsequent agreements entered into between Shuster and Siegel before 1978, or the 1992 Agreement. The 1992 Agreement included language that for the amounts paid by DC, it was settling all “rights . . . which [Peavy] may have . . . whether now or hereafter existing regarding any copyrights . . . in any and all work created . . . [by] Joseph Shuster . . . In any event, you now grant to us any such rights . . .”

The Defendants argued that the 1992 Agreement was not meant to supersede the 1938 Assignment. The District Court disagreed. Relying on the language above, it found that “the 1992 Agreement first settled all claims, and then granted DC [Comics] ‘such rights’ as were just settled, essentially revoking and regranting all copyright agreements and interest.”

Citing other cases, the District Court found that when a renegotiation of rights results in a “re-granting” of rights by the rights-holder (as most such renegotiations do), the initial grant is superseded and the operative agreement is the one stemming from the renegotiation. In other words, Peavy entered into the 1992 Agreement to renegotiate the terms of the parties’ prior agreements to her benefit, which exhausted the opportunity provided by section 304(d) to revisit the terms of Shuster’s 1938 Assignment. Here, that proved detrimental, as section 304(d) requires that the “grant” being terminated be entered prior to 1978.

The Defendants also argued that the termination rights under section 304 are meant to be broad and that “any agreement that purports to waive, settle or limit the termination right is unenforceable.”  The Defendants cited to the central purpose of the termination provisions (i.e. that authors should be able to recapture rights) and the express language that an agreement purporting to waive such rights would be deemed invalid. Likewise, Defendants pointed to the principle that the statute does not allow for the trading of future rights. The Court disagreed, finding that those provisions were not meaningful here. The Court explained that section 304(d) was enacted subsequent to the 1992 Agreement, and thus the 1992 Agreement could not waive rights under section 304(d). Rather, the Court held, the 1992 Agreement could not be deemed contrary to section 304(d) “solely because it had the effect of eliminating termination rights that did not yet exist.” Rather, the 1992 Agreement merely superseded the 1938 Assignment and thus rendered section 304(d) inapplicable.

The Court reached the opposite ruling with respect to the notices of termination. DC Comics argued that the notices sent by Peavy and Peary were defective. As noted above, such notices must be signed by at least 50% of the rights-holders. Here, Peavy and Peary entered into the 2001 contract assigning all of their rights, meaning that the notices sent by Peary in 2003 were legally deficient—neither Peary nor Peavy had ownership rights. Defendants argued that the 2001 contract was legally invalid, as it could not trade or waive future rights prior to the statute allowing for it. The Court, while noting its distaste for Defendants’ conduct, nonetheless sided them.  A copy of the Court's decision is <a href="https://ipintelligencereport.bakerhostetlerblogs.com/wp-content/uploads/sites/11/2012/10/Superman.pdf">attached here</a>.

The recapture of copyright ownership—termination rights—is an area of law in which there is increasing litigation. And that is to be expected, as for many of these works significant money hangs in the balance. Thus, understanding the statute and complying with its requirements will certainly impact the ability to terminate a particular grant.  That these cases are highly fact dependent is highlighted by the fact that, Siegel's heirs won their own lawsuit against DC Comics on the same issue, which is now on appeal and set to be argued before the Ninth Circuit next month.

Pocket Full of Kryptonite: California Court Rules that Superman Heirs Forfeited Termination Rights