The Right of Termination in Copyright Law: The Second Circuit's Decision in Penguin Group (USA) Inc. v. Steinbeck Bodes Well for Authors

Loyola Marymount University and Loyola Law School Digital Commons at Loyola Marymount University and Loyola Law School Loyola of Los Angeles Law Review Law Reviews 9-1-2009 The Right of Termination in Copyright Law: The Second Circuit's Decision in Penguin Group (USA) Inc. v. Steinbeck Bodes Well for Authors Michael A. DeLisa Recommended Citation Michael A. DeLisa, The Right of Termination in Copyright Law: The Second Circuit's Decision in Penguin Group (USA) Inc. v. Steinbeck Bodes Well for Authors, 43 Loy. L.A. L. Rev. 273 (2009). Available at: https://digitalcommons.lmu.edu/llr/vol43/iss1/4 This Notes and Comments is brought to you for free and open access by the Law Reviews at Digital Commons @ Loyola Marymount University and Loyola Law School. It has been accepted for inclusion in Loyola of Los Angeles Law Review by an authorized administrator of Digital Commons@Loyola Marymount University and Loyola Law School. For more information, please contact . THE RIGHT OF TERMINATION IN COPYRIGHT LAW: THE SECOND CIRCUIT'S DECISION IN PENGUIN GROUP (USA) INC. V. STEINBECK BODES WELL FOR AUTHORS Michael A. DeLisa * Recently, the U.S. Court of Appeals for the Second Circuit decided in Penguin Group (USA) Inc. v. Steinbeck that a new agreement made by an author's surviving spouse may supersede the author's previous copyright grant, and consequently extinguish the right of the author's other heirs to reclaim the copyright through the invocation of a statutory termination right. Section 304(c) of the Copyright Act of 1976 permits publishers to hold the copyright granted to it by authorsfor the statutory period, after which time the author or the author's heirs may terminate the originalgrant and recapture the copyright. However, an author's termination right under section 304(c) applies only to grants made prior to January 1, 1978. Authors may not terminate grants that are made on or after this date. But what happens when an author grants a copyright before January 1, 1978, and subsequently, the author's surviving spouse enters into an agreement to re-grant the copyright after this date? Has this subsequent agreement extinguished the section 304(c) right of termination? In Penguin Group, the Second Circuit held that this subsequent agreement superseded the prior pre1978 grant and extinguished the statutory termination right of the author's other heirs. However, this decision should not be perceived as a defeat for copyright holders. Indeed, the ability and prerogative to consent to the extinguishment of their statutory termination right should be perceived as an enormous bargaining chip that authors and their heirs can use in their subsequent negotiations with publishers. * J.D. Candidate, May 2010, Loyola Law School Los Angeles; B.A., University of Miami. I would like to thank the editors and staff of the Loyola ofLos Angeles Law Review for their hard work on this Comment. A special thanks to Bryan Swatt, Professor Jay Dougherty, and Sabina Jacobs for their invaluable help. As always, a thank-you to my wife and family for their continuing encouragement and support. LOYOLA OF LOS ANGELES LA WREVIEW 274 [Vol.43:273 I. INTRODUCTION One quality that makes copyright such a unique form of property is that "unlike real property and other forms of personal property, [it] is by its very nature incapable of accurate monetary evaluation prior to its exploitation."' Thus, an author just beginning her career commonly contracts with a publisher for terms that are not advantageous (and for a comparatively small sum) because of the unknown potential of her work. If the work later proves to be hugely successful, the publishing company receives a windfall, and the author (and her heir) loses the opportunity to reap the benefits of her creativity. In part to address this problem, section 304(c) of the Copyright Act of 1976 permits the publisher to hold those rights granted to it until a statutory period expires, at which time the author (or her heirs) may exercise a termination right that allows her to terminate the original grant and recapture the copyright.' The author's termination right under section 304(c) applies only to grants "executed before January 1, 1978." 3 Thus, authors may not terminate grants made on or after January 1, 1978.4 A problem arises when the following scenario occurs: an author makes an original grant of rights to a publisher before 1978, and later, after the author's death, the author's surviving spouse or heirs re-grant those rights in a subsequent post-1977 agreement with the publisher. The issue then becomes whether the post-1977 agreement supersedes the original grant, thereby extinguishing the section 304(c) right of termination. The Southern District of New York's decision in Steinbeck v. McIntosh & Otis, Inc.5 was notable because the court held that a subsequent agreement between John Steinbeck's widow and the publisher could not supersede and extinguish the Steinbeck heirs' right of termination.' Recently, however, the district court's decision was reversed and remanded by the U.S. Court of Appeals for the 1. 3 MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT § 9.02 (2006). 2. See 17 U.S.C. § 304(c) (2006); Mills Music, Inc. v. Snyder, 469 U.S. 153, 172-73 (1985) ("[T]he termination right was expressly intended to relieve authors of the consequences of ill-advised and unremunerative grants that had been made before the author had a fair opportunity to appreciate the true value of his work product."). 3. 17 U.S.C. § 304(c) (emphasis added). 4. See id. Grants or agreements made on or after January 1, 1978 are sometimes referred to as "post- 1977" grants or agreements. 5. 433 F. Supp. 2d 395 (S.D.N.Y. 2006). 6. Id. at 401. Fall 2009] TERMINATIONRIGHTIN COPYRIGHTLAW 275 Second Circuit in Penguin Group (USA) Inc. v. Steinbeck.7 In Penguin Group, the appellate court held that a new agreement (made by an author's surviving spouse) can in fact supersede a prior grant, thus extinguishing another heir's right to reclaim a copyright through the invocation of a statutory termination right. 8 The Second Circuit's decision in Penguin Group resulted in a dramatically different resolution as compared to the holding in a recent Ninth Circuit case that was based on a similar set of facts. In Classic Media, Inc. v. Mewborn,9 the court concluded that a subsequent, post-1977 agreement made by an author's heir did not extinguish that heir's right of termination because such an agreement was an inconsequential "agreement to the contrary." " At first glance, the Second Circuit's holding in Penguin Group seems like it will have a negative effect on the rights of authors' heirs. '" The perception is that this holding could allow publishers to take advantage of an author's heirs by executing unfair post-1977 agreements which would extinguish the heirs' right of termination. 2 The assumption is that by giving publishers the ability to extinguish authors' termi (...truncated)