Google v. Oracle: The Curse of Being Popular?

A Look at Google’s “Lock-In” Argument and Whether User Investment (or Expectation) Should Be Considered In Assessing Copyrightability.

Google is currently petitioning the Supreme Court to hear Google v. Oracle, a dispute over the copyrightability of certain lines of computer code used in Oracle’s Java platform. The case is another gloss on copyright’s most ubiquitous issue – what constitutes protectable expression as opposed to a non-protectable idea or function. As expected, much of Google’s argument concerns the proper jurisdictional limits of copyright law and patent law. However, it was a separate user-centric argument from Google – termed the “lock-in effect” – that jumped out at me. In this post, I want to discuss Google’s lock-in argument and whether user-based considerations, such as user investment or expectations, have a role in determining whether a creative work is copyrightable.

For those unfamiliar with Google v. Oracle, the case concerns source code Google utilized in its Android platform for mobile devices. In the 1990s, Sun Microsystems (which would be later acquired by Oracle in 2010) developed the Java programming language and Java software platform. The Java language was a series of words and symbols along with syntax rules to allow programmers to write code. The Java platform was a means to allow programmers to write code that would run on different operating systems and devices – hence it’s slogan, “Write once, run anywhere.”

Included in the platform were ready-to-use, pre-written Java programs (or “packages”) to perform common functions, which would allow programmers to focus on developing their own programs. The packages consisted of two types of source code – declaring code and implementation code. The declaring code (also known as a “method header”) is an expression that identifies the pre-written function. The implementation code is the step-by-step instructions for carrying out the declared function.

To promote its platform, Sun (and Oracle) created a two-tier licensing scheme. The first tier was an “open source” license where programmers could use the software packages, so long as they contributed back their creations. The second tier was for those users who wished to utilize the Java platform to create their own programs, but wanted to retain control of their proprietary work. There, a business, like Google, could purchase a license to use Oracle’s declaring code but develop its own implementation code.

Although Google and Sun (and later Oracle) entered negotiations about a possible licensing deal for the Java platform, no agreement was reached. Notwithstanding the failed negotiations, Google made verbatim copies of the declaring code in thirty-seven packages created by Oracle, and duplicated the structure, sequence and organization of the Java Application Programming Interface into its Android platform. Google did, however, write its own implementation code.

Oracle filed suit, alleging Google’s Android platform infringed copyrights and patents Oracle held in the Java platform. On the copyright issue, the district court held that Oracle’s method headers were not subject to copyright protection. According to the court, “[s]o long as the specific code used to implement a method is different, anyone is free under the Copyright Act to write his or her own code to carry out exactly the same function used . . . in the Java [platform]. It does not matter that the declaration or [packages] are identical.” Oracle Am., Inc. v. Google, Inc., 872 F. Supp. 2d 974 (N.D. Cal. 2012). On appeal, the Federal Circuit reversed, finding that Oracle’s packages were original and entitled to copyright protection. Oracle Am., Inc. v. Google, Inc., No. 13-1021 (Fed. Cir. May 9, 2014).

Although the Federal Circuit remanded the case to determine the issue of fair use, Google filed a petition for writ of cert directly to the Supreme Court on October 6, 2014 (available here). As noted earlier, the Supreme Court has yet to decide whether it will hear the case, but did invite the U.S. Solicitor General to submit a brief in the case.

The issue itself is not particularly novel. Once you strip the case of its references to smartphones and operating systems, the question is simply, “Is this a copyrightable work?”

Under Section 102 of the Copyright Act, copyright protection extends to original works of authorship fixed in a tangible medium. However, protection does not “extend to any idea, procedure, process, system, method of operation, concept, principle, or discovery, regardless of the form in which it is described, explained, illustrated, or embodied in such work.” This reflects copyright’s basic distinction – an expression is protected, while an idea is not.

In its petition, Google argues that Oracle’s method headers, while original, are ineligible for copyright protection. According to Google,

There is no dispute, for example, that the implementing code that instructs a computer how to perform a method may be subject to copyright protection. . . . But whether the method headers are entitled to protection is exclusively a question for patent law because the headers constitute, or embody, a system or method of operating the pre-written programs.

Oracle Am., Inc. v. Google, Inc., No. 14-410, Petitioner’s Writ for Certiorari at p. 27.

Why do the method headers constitute a system or method of operation? Google makes two arguments. First, the code was “necessary” to access certain functionalities in the Java platform. Second,

[p]rogrammers have invested significant time and effort in learning the Java language, including the shorthand commands. But now, long after Sun lured computer programmers into the Java community and after any patent protection likely would have expired, Sun’s successor Oracle is attempting to build a wall around use of Java’s method headers.

Id. at p. 32. (Internal citation omitted).

The latter is the “lock-in” argument. According to Google, programmers’ investment of time and effort caused them to be bound to the Java platform. Google included the shorthand commands to accommodate (if not capitalize on) programmers’ familiarity with the language. To permit Oracle to copyright its shorthand commands after programmers were “lured” into the Java community would essentially amount to fraud. Instead, the shorthand commands should be considered the basic vocabulary of the Java language, which the copied method headers operate.

The (perhaps unintended) thrust of Google’s argument is that downstream factors, such as how consumers interacted with the work, could impact whether copyright protection ever attached to the work in the first place. This notion would carry a steep price for copyright holders; namely, that user considerations, such as popularity or familiarity, could eventually invalidate their copyright interests and force their works into commons. (Ed. Note: An example of one such argument and its flaws can be found in Terry Hart’s post on Martin Luther King, Jr. and his I Have A Dream speech). Is there any precedence for such a concept? In intellectual property, Google’s argument does resemble the trademark concept of genericide.

In trademark law, trademarks protect a business’s use of words, symbols, or images that identify the business as a particular source of a good or service used in commerce. The theory behind doing so is that protecting a business’s mark will, in turn, promote market efficiency. Mark P. McKenna, The Normative Foundations of Trademark Law, Vol. 82:5 Notre Dame L. Rev. 1840, 1844 (2007). Consumers can distinguish between the goods and services of competing businesses, reducing consumer search costs, and consumer recognition of brand origin will encourage businesses to invest in product (and brand) quality. Id. at 1844-1845.

But not all terms can be trademarked. Specifically, generic terms. Why? Because “[g]ranting exclusive use of a term that is the only publicly recognized name for a category of goods unfair limits competition because it confers a monopoly on the trademark owner by rendering competitors unable to describe their goods effectively. . . Competitors are hampered in the sale of their goods, and consumers cannot discover whether products similar to the trademarked goods are available from other sources.” Jacqueline Stern, Genericide: Cancellation of a Registered Trademark, 51 Fordham L. Rev. 666, 675 (1983) (available at http://ir.lawnet.fordham.edu/flr/vol51/iss4/4).

Some trademarks can become generic, however, and lose protection. Under Section 1127 of the Lanham Act, a trademark loses its legal protection if the mark becomes the common name of the relevant product or service, as used by the consuming public or commercial competitors. See also Bayer Co., Inc. v. United Drug, Co., 272 F. 505 (S.D.N.Y. 1921) (the test is one of public perception). This is known as genericide and it has led to the terms aspirin, thermos, escalator, and trampoline losing their legal status as trademarks.

Essentially, once the public is locked in (or invested) to a certain understanding – that the mark merely represents a generic term for the good or service – it serves the market to treat the mark as a generic term. There is a sound rationale for that conclusion. If marks are intended to distinguish goods and services of competing businesses, but users are only familiar with a particular term as an indicator of a common category of goods or services, not a particular business, the mark serves no value as a source of origination. Instead, continued protection of the mark could disrupt market balance by conferring an unfair competitive advantage to a business or creating opportunities for consumer misunderstanding.

Is there any comparable rationale in copyright law for granting weight to user investment or expectation in determining whether a work is copyrightable? There doesn’t appear to be.

Unlike trademark law, the primary objective of copyright law is to incentivize creation. Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 349-350 (1991). Google’s position appears to undermine that objective.

First, downstream considerations would distort the legal rights of copyright holders and the public. Under the Copyright Act, copyright protection attaches once an original work is fixed in a tangible medium. 17 U.S.C. § 102(a). User investment and expectation, however, place importance in considerations that could not exist until after the work was fixed. Would copyright protection initially attach to Oracle’s declaring code at its release, but later enter the public domain when it became popular? If so, when does a work become so popular that it loses copyright protection?

Second, if downstream considerations could strip Oracle of its work’s copyright protection, what incentive would Oracle have to provide that additional content? And, what about other creators? While the pre-written programs were certainly an attractive perk to programmers, it is undoubted that it also granted programmers leeway to focus on other original creations.

Consider the merits of Google’s argument outside of the context of computer programming. A stage performer no doubt invests time and energy in learning his or her lines for a play. Does that mean that would be an appropriate rationale to divest the screenplay’s author of their copyright interest in the work? Most scholars would certainly agree it would not.

Furthermore, Google’s position lacks statutory support. Unlike Section 1127 of the Lanham Act, there is no provision in the Copyright Act that suggests user investment or expectation can deprive a work of copyright protection. Instead, copyright law considers the work itself. To that end, Congress emphasized that the appropriate dividing line for copyright protection is whether a creation is an expression, not merely an idea.

The closest analog to user expectation in copyright is scènes à faire – the principle that copyright protection does not extend to expressions or natural similarities that are mandated by the genre. The common example is that, in the crime genre, the inclusion of disgruntled cops, foot chases, or conversations in a bar or precinct would, generally, not be copyrightable elements as they are stereotypical ideas that naturally flow from the genre itself. See Walker v. Time Life Films, Inc., 784 F.2d 44 (2d Cir. 1986). While a consumer may come to expect a genre to embody certain ideas and generalized expressions, scènes à faire examines the genre itself, not user expectations. Moreover, those genre-mandated elements remain distinct from any expressions not necessary for the genre. The latter of which remain copyrightable expressions.

Some courts have applied the concept of scènes à faire to computer programs, finding that there are certain elements and arrangements that naturally flow from the medium. See e.g., Computer Assoc. Int’l, Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992) (finding it customary to list variable declarations at the beginning of a source code). But while general ideas of how to structure and organize code are unprotected, they remain “distinct from the underlying computer code because while code is necessary for the program to work, its precise formulation is not.” Lotus Dev. Corp. v. Borland Int’l, Inc., 49 F.3d 807, 816 (1st Cir. 1995), aff’d 516 U.S. 233 (1996). Paradoxically, Google cited Lotus as support for its position.

This is not to say that there is no role in copyright for user considerations. Specifically, those considerations appear apt, if not required, for a thorough application of the fair use defense. 17 U.S.C. § 107(1) (analyzing “the purpose and character of the [allegedly infringing] use”). To some, it may be a distinction without a difference to analyze user considerations during the fair use analysis instead of when assessing copyrightability. That distinction, however, could have a significant impact on an author’s rights and legal remedies as a determination that an element is not copyrightable puts it into the commons without any consideration of how it is subsequently used.

For me, the issue is where Oracle’s declaring code falls on the idea – expression spectrum. I don’t believe user-focused considerations assist that inquiry. Copyright law doctrines, such as scènes à faire, appear well suited to the task by delineating which expressions are copyrightable at the time of creation. The focus on ex-post considerations, such as user familiarity, undermine copyright’s basic principles and threaten to penalize a copyright holder for creating a successful work that has achieved market saturation.

Fair Use and Market Harm: Use It or Lose It?

Fair use is complicated. Anyone with a passing familiarity with copyright law will tell you so. The doctrine, originally a judicial creation, was codified by Congress as Section 107 in the Copyright Act of 1976. According to Section 107, “fair use of a copyrighted work . . . is not an infringement of copyright.”

But how do we determine whether a use is a fair use? There is no bright-line rule. Instead, Section 107 sets forth several non-exclusive factors that should be given consideration, such as:

(1) The purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) The nature of the copyrighted work;
(3) The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) The effect of the use upon the potential market for or value of the copyrighted work.

Congress believed that “the endless variety of situations and combinations of circumstances that can rise in particular cases preclude[d] the formulation of exact rules in the statute. . . [C]ourts must be free to adapt the doctrine to particular situations on a case-by-case basis.” H.R. Rep. 94-1476, at 66 (1976).

To say the application of fair use has been varied would be quite an understatement. Courts disagree on which of the above factors should be given the greatest weight. Compare Kienitz v. Sconni Nation LLC, No. 13-3004 (7th Cir. Sept. 15, 2014) (finding that of the fair use factors, “the most important usually is the fourth (market effect)”) with Cario v. Prince, 714 F.3d 694 (2d Cir. 2013) (holding the first fair use factor – whether a use is “transformative” – is the most important). And commentators cannot even agree as to whether fair use is a right or a privilege.

Instead of addressing which fair use factor should be given the greatest weight, this post only aims to examine the application of the fourth fair use factor – the effect of the disputed use upon the potential market for or value of the copyrighted work. In particular, how the Eleventh Circuit (mis)applied that factor in its recent decision Cambridge Press v. Patton, et al., No. 12-14676 (11th Cir. Oct. 17, 2014) (often referred to as the Georgia State University e-reserve case) and the repercussions it may have on creator rights.

For the unfamiliar, in 2008 three academic publishers (Cambridge University Press, Oxford University Press, and Sage Publications) filed suit against Georgia State University for copyright infringement. The publishers alleged that the University had encouraged professors to use copyrighted works in digital coursepacks, as opposed to print coursepacks, to avoid the payment of permission fees (a license) to the publishers.

The district court ruled that the University’s practice was a fair use. Many copyright scholars, however, felt the court’s reasoning was suspect. While the court analyzed the four factors set forth in Section 107, it conveyed equal weight to each factor and made its final determination by simply tallying which party had the most fair use factors in their favor. Moreover, in its evaluation of the third fair use factor – the amount and substantiality of the portion used – the court created a bright-line rule, holding that if the amount of copying fell within 10% of the original or one-chapter, then the third factor favored a finding of fair use.

Unsurprisingly, the publishers appealed the district court’s ruling to the Eleventh Circuit. In an eagerly anticipated decision, the Eleventh Circuit unanimously reversed the district court’s decision. The Court ruled that the district court erred “by giving each of the four fair use factors equal weight, and by treating the four factors mechanistically” instead of undertaking a “holistic analysis” and carefully balancing the four factors. Cambridge Press at *110. In addition, the Court held that it was error for the district court to adopt the 10% of one-chapter bright-line rule to analyze the third factor. Instead, the court should have evaluated the amount taken from a qualitative and quantitative perspective to determine whether the copying “was reasonable in light of the pedagogical purpose of the use and the threat of market substitution.” Id. at *111.

While, on its face, the decision was a victory for the publishers, the majority’s analysis of the fourth fair use factor left the publishers’ chances of success on remand quite murky. (Judge Vinson, who authored a separate concurrence, also took issue with the majority’s application of the principle of “media neutrality.”)

In its evaluation of the fourth fair use factor, the Eleventh Circuit analyzed the digital licensing market available for the publishers’ works. It held:

We note that it is not determinative that programs exist through which universities may license excerpts of Plaintiffs’ works. In other words, the fact that Plaintiffs have made paying easier does not automatically dictate a right to payment. “[A] copyright holder can always assert some degree of adverse [effect] on its potential licensing revenues as a consequence of the secondary use at issue simply because the copyright holder has not been paid a fee to permit that particular use.” The goal of copyright is to stimulate the creation of new works, not to furnish copyright holder with control over all markets. Accordingly, the ability to license does not demand a finding against fair use.

Nevertheless, “it is sensible that a particular unauthorized use should be considered ‘more fair’ when there is no ready market or means to pay for the use, while such an unauthorized use should be considered ‘less fair’ when there is a ready market or means to pay for the use. The vice of circular reasoning arises only if the availability of payment is conclusive against fair use.” Put simply, absent evidence to the contrary, if a copyright holder has not made a license available to use a particular work in a particular manner, the inference is that the author or publisher did not think that there would be enough such use to bother making a license available. In such a case, there is little damage to the publisher’s market when someone makes use of the work in that way without obtaining a license, and hence the fourth factor should generally weigh in favor of fair use. This is true of Plaintiffs’ works for which no license for a digital excerpt was available.

Id. at 95-96. But see id. at 96 n. 32 (“Of course, it need not always be true that a publisher’s decision not to make a work available for digital permissions conclusively establishes that the publisher envisioned little or no demand, and the value of the permissions market is zero.”)

The Court’s analysis, however, distorts the fair use inquiry required by the Copyright Act.

Congress unambiguously stated that courts should consider the impact a disputed work would have on “the potential market for or value of the copyrighted work.” But the Eleventh Circuit’s logic creates a presumption that ignores potential markets by presuming that the copyright holder’s lack of presence in a market indicates that there is no value to derive from that market.

The implications of such a presumption are quite troubling. If any untapped market is a market that the copyright owner has deemed to lack value, then any use of the copyrighted works in those markets could not deplete the work’s value. That essentially renders the term “potential” in Section 107(4) moot as only a market where the work is not currently utilized in is a potential market and, according to the Eleventh Circuit, those markets have, at best, a de minimis value.

For purposes of illustration, consider the impact the Eleventh Circuit’s holding, when taken to its logical conclusion, would have on the film industry. Studios often utilize a “standard release” model where a film is first released in movie theaters for an exclusive period of time. Thereafter, the film is made available for purchase on home video platforms (such as DVD) or digital download and that period will often be exclusive to those markets. Then, the film is made available through video-on-demand or streaming services and, eventually, broadcast television.

Do Disney and Marvel Studios believe that Guardians of the Galaxy, its epic summer blockbuster that has grossed over $770 million theatrically worldwide, will have no value on home video platforms? According to the Eleventh Circuit, it must be, as the film has yet to be released on home video, leading to the presumption that the “publisher did not think that there would be enough [demand for] such use to bother making a license available.”

Obviously most would acknowledge that Disney and Marvel Studios believe the film will be (significantly) valuable in the home video market, so why the staggered release schedule? A simultaneous multi-platform release of the film might jeopardize the overall profitability of the work, while a staggered release is the best means to extract the most value from the work. In the film industry, downstream markets (home video, streaming services, and television licensing) often provide the bulk of returns on the work to the author over the long run, but box-office performance drives public perception of and future interest in the film and future interest. That perception impacts the downstream demand for the work, the value or price-point of downstream licensing deals, and the ability to secure future financing for subsequent studio projects. A simultaneous release may also cause the work to cannibalize its own profits if the different markets could act as substitutes for one another. If the goal of copyright law, as the Eleventh Circuit acknowledges, is to stimulate the creation of new works, then it is paramount to protect the release model (and downstream potential markets), even if it delays the license of the work to other platforms.

Some would be quick to point out that the Eleventh Circuit only raises the presumption of no market harm when there is no current market and that the copyright owner may rebut that presumption with evidence to the contrary. But how do we determine which markets possess potential value streams that would result in substantial market harm to the copyright owner if the disputed work or practice are found permissible?

Do we look at industry practice? Returning to the film industry, while the standard release model is common, simultaneous or direct-to-video release does occur. Instead, should we look at common markets to which copyright owners often expand? Well, in the publishing industry, print and digital releases are quite common. And, in Cambridge Press, the three publishers had already released some works digitally, but the Court still found that the evidence indicated the digital market had no value. Moreover, the digital coursepacks did substitute for the original print market “that had previously required the payment of permission fees[.]” Id. at *120 (Vinson, J., concurring). Lastly, how should copyright owners react to new, burgeoning platforms? Are copyright owners required to utilize those new platforms even if the value is speculative?

Thus, the Eleventh Circuit’s decision threatens to impose an affirmative requirement on copyright owners to license their works across markets and media platforms lest they risk an adverse finding of fair use. This requirement essentially converts a copyright owner’s exclusive bundle of rights under the Copyright Act to a mere right of first refusal.

“[A]lthough dissemination of creative works is a goal of the Copyright Act, . . . nothing in the copyright statutes would prevent an author from hoarding all of his works during the term of the copyright.” Stewart v. Abend, 495 U.S. 207, 228-29 (1990). In fact, the Act’s grant to the author of a limited monopoly over use of the work was to motivate creative activity that would eventually pass to the public. See Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417 (1984). The Eleventh Circuit gives little consideration to this delicately struck balance by requiring copyright owners to “use it or lose it.” This proposition proves particularly worrisome for smaller content creators who may lack the desire, resources, insight, or opportunity to utilize their works in certain markets or mediums or those creators simply wishing to develop a better appreciation for their works’ true value.

To its credit, the bulk of the Eleventh Circuit’s decision is a well-reasoned analysis of the fair use doctrine and its proper application in light of the goals of copyright law. The Court properly recognized that certain factors in the analysis support a finding of fair use (educational) and others that do not (non-transformative). And while the market impact analysis, as interpreted by the Eleventh Circuit, may not prove dispositive to the district court’s finding on remand, the Court’s reasoning threatens to unbalance the fair use analysis and prejudice content creators. It will be interesting if the Eleventh Circuit agrees and grants the publishers’ en banc appeal.

For those who may be interested, check out this article about an author’s perspective on the process and concerns of licensing a novel for film. You can also read my earlier post on the fair use defense in the case of digitization projects.

Follow me on Twitter: @copyistculture

Superman’s Kryptonite: The Termination Right Loophole

Superman. He’s faster than a speeding bullet, more powerful than a locomotive, and able to leap tall buildings in a single bound. But, recently, he was bested by DC Comics with something more potent than kryptonite – the termination right loophole. In a series of decisions, the Ninth Circuit has created a loophole that allows an author’s successor (when different from the author’s statutory heirs) to deprive the author’s statutory heirs of the inalienable termination rights conferred by the Copyright Act. And, unfortunately, when the Supreme Court was presented an opportunity to correct this manufactured loophole in Peary v. DC Comics, the Court declined to do so by denying certiorari.

On October 6, 2014, the Supreme Court announced it would not be granting review in Peary v. DC Comics. The case, on appeal from the Ninth Circuit, concerned the copyright to DC Comics’ most iconic character, Superman. The issue was whether the estate of Joseph Shuster, co-creator of Superman, could exercise termination rights provided by the Copyright Act to reclaim its portion of the character.

Joseph Shuster and Jerry Siegel created Superman in 1934. In 1938, they transferred their copyright in the character to DC Comics’ predecessor for a one-time payment of $130 (the “1938 grant”). In 1975, Warner Communications, DC Comics’ parent company, executed an agreement with Shuster and Siegel to provide them each a life pension and Shuster’s brother, Frank, was provided a survivor benefit. In return, Shuster and Siegel re-acknowledged that DC Comics owned all rights to Superman.

In 1992, Shuster passed away and was survived by his siblings, Frank and Jean Peavy. Shuster’s siblings asked DC Comics to increase Frank’s survivor pension and DC Comics agreed to do so. To effectuate that arrangement, the parties executed a pension agreement (the “1992 agreement”), which included a provision that stated the agreement “fully settles all claims” regarding “any copyrights, trademarks, or other property right[s] in any and all work created in whole or in part by . . . Joseph Shuster” and further “now grant[s] to [DC] any such rights.” In 2003, Mark Peary, acting as executor of the Shuster estate, filed a termination notice pursuant to Section 304(d) of the Copyright Act to reclaim the copyright in Superman that Shuster had assigned in the 1938 grant. DC Comics resisted and litigation ensued.

Under Section 304 of the Copyright Act of 1976, an author (or, if deceased, his statutory heirs: widow, children, and grandchildren) may terminate a grant made by the author or his beneficiaries prior to January 1, 1978 “notwithstanding any agreement to the contrary.” The termination right may be exercised “fifty-six years from the date the copyright was originally secured.” Section 304(c)(3). (Later, the Sonny Bono Copyright Term Extension Act extended the termination provision to the author’s estate if there is no living widow, children or grandchildren of the author. Additionally, it expanded the time frame to exercise the termination right an additional twenty years, as long as the right had not previously been exercised.)

In an unpublished opinion, the district court for the Central District of California ruled that the Shuster estate could not exercise the Section 304 termination. According to the district court, the 1992 agreement superseded the 1938 grant as an implicit revocation and re-grant of the copyright to DC Comics. As such, there was no pre-1978 copyright grant subject to termination under Section 304.

On appeal, the Ninth Circuit affirmed the lower court’s holding. Relying upon its prior decision in Milne ex rel. Coyne v. Stephen Slesinger, Inc., 430 F.3d 1036 (9th Cir. 2005), the Court rejected the Shuster estate’s argument argued that the 1992 agreement constituted an invalid “agreement to the contrary.” The Court reiterated that

Congress specifically stated that it did not intend for the [copyright] termination statute to “prevent the parties to a transfer or license from voluntarily agreeing at any time to terminate an existing grant and negotiating a new one[.]” H.R. Rep. No. 94-1476, at 127 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5743. Congress further stated that “nothing in this section or legislation is intended to change the existing state of the law of contracts concerning the circumstances in which an author may terminate a license, transfer or assignment.” H.R. Rep. No. 94-1476, at 142, 1976 U.S.C.C.A.N. at 5758. Congress therefore anticipated that parties may contract, as an alternative to statutory termination, to revoke a prior grant by replacing it with a new one. Indeed, Congress explicitly endorse the continued right of “parties to a transfer or license” to “voluntarily agree[] at any time to terminate an existing grant and negotiat[e] a new one.” H.R. Rep. No. 94-1476, at 127, 1976 U.S.C.C.A.N. at 5743.

DC Comics v. Peary, No. 12-57245, at 6 (9th Cir. 2013) (not for publication), quoting Milne, 430 F.3d at 1045-46.

While the Shuster estate appealed the Ninth Circuit’s decision, the Supreme Court did not grant further review. Despite the Court’s denial of certiorari, there are several reasons why Peary v. DC Comics and the Ninth Circuit’s termination right decisions continue to warrant reversal.

First, the legislative history of the termination right evidences Congress’ intent to make the right inalienable. Prior to the Copyright Act of 1976, there was no termination right. Instead, there was a reversionary renewal right whereby an author and his family possessed the exclusive right to renew a copyright. Pub. L. No. 349, Sections 23-24 (1909). However, in Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643 (1943) the Supreme Court held an author could assign away his right to renew the copyright. As a result, the reversionary right was not truly “exclusive” and publishers began requiring authors to assign them the right to renew as a condition of publishing their work. Peter S. Menell and David Nimmer, Pooh-Poohing Copyright Law’s Inalienable Termination Rights, 57 J. Copyright Soc’y U.S.A. 799, 804-805 (2009), Available at: http://scholarship.law.berkeley.edu/facpubs/1229.

In response, Congress eliminated the reversionary provisions and replaced it with an inalienable termination right in the Copyright Act of 1976 – Sections 203 and 304. H.R. Rep. No. 94-1476, at 124 (1976). Unlike the renewal right, Congress provided that the termination right may be exercised “notwithstanding any agreement to the contrary.” Specifically, Congress wanted to end the use of “contingent future interests as a form of speculation.” Id. at 128. Thus, the only permissible further grants would be ones “made after the effective date of the termination” or a right of “first refusal.” Id. at 127.

Congress believed an inalienable termination right was “needed 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.” Id. Permitting recapture of the copyright would “relieve authors of the consequences of ill-advised and unremunerative grants. . .” Mills Music Inc. v. Snyder, 469 U.S. 153, 172-73 (1985).

But what about the Subcommittee Report excerpt in Milne? While it appeared to support the Ninth Circuit’s position that a revocation and re-grant is always permissible, when viewed in its entirety, it in fact does the opposite. The Report actually states, “Section 203 would not prevent the parties to a transfer or license from voluntarily agreeing at any time to terminate an existing grant and negotiating a new one, thereby causing another 35-year period to start running.” H.R. Rep. No. 94-1476, at 127-128.

Congress was specifically referring to the Section 203 termination right – not the Section 304 termination right. While structurally similar, the termination provisions differ as to which copyright grants are terminable. As noted earlier, Section 304 allows an author (or, if deceased, his statutory heirs) to terminate a grant made by the author or his beneficiaries prior to January 1, 1978. Section 203 allows an author (or, if deceased, his statutory heirs) to terminate a grant made on or after January 1, 1978 by the author, but not grants made by the author’s beneficiaries, “at the end of thirty-five years from the date of execution of the grant.

Why is that distinction important? Because the 1992 agreement executed by the Shuster siblings, if valid, would extinguish any statutory heirs’ potential termination right as (1) there would no longer be a pre-January 1, 1978 grant subject to Section 304 and (2) the existing copyright grant would be a post-January 1, 1978 grant by someone other than the author not subject to termination under Section 203. While the Subcommittee Report indicated that Section 203 should not be read to “prevent the parties . . . from voluntarily agreeing at any time to terminate an existing grant and negotiating a new one,” it limited the foregoing to situations where it would trigger “another 35-year period to start running.” Id. at 127. (Emphasis added.) Since only a post-January 1, 1978 revocation and re-grant by the work’s author would trigger another 35-year period, Congress only intended to permit an author to effectuate such a transaction.

Despite Congress’ clear intent, the Ninth Circuit in Milne, supra, created a loophole that would allow the termination right to be extinguished. In Milne, the Court upheld a transaction that invalidated a termination right, holding that because the right was used “as an advantageous bargaining chip,” Congress’ goal was achieved. 430 F.3d at 1046. The Court conveniently ignored how a testamentary trust, not the author’s statutory heirs (his son and granddaughter), made the revocation and re-grant. Pooh-Poohing Copyright Law’s Inalienable Termination Rights, supra, at 820-21. But even if the author’s statutory heirs had been the contracting party, the agreement still impermissibly relied on speculative future interests. The termination right at issue did not mature until 1986, but the revocation and re-grant occurred in 1983. Thus, the consideration in the agreement was the contingent interest of the author’s living statutory heirs in 1983, which could have been different from the author’s statutory heirs at the time the right matured three years later.

In DC Comics v. Peary, the Ninth Circuit pushed the envelope even further. Unlike Milne, where the re-grant explicitly revoked the prior copyright assignment, the Court found the 1992 agreement, which made no reference the 1938 grant, implicitly waived that grant. DC Comics v. Peary, No. 12-57245, at 10-11 (9th Cir. 2013) (Thomas, J., dissenting) (not for publication). Moreover, that agreement was executed by the Shuster siblings despite the fact that: (1) the termination right for that copyright grant had not yet matured and, (2) at in 1992, the Shuster siblings were not even potential statutory heirs capable of possessing a termination right, mature or not. Id. at 9-10. In fact, it was not until 1998, when the Sonny Bono Copyright Term Extension Act extended the termination right to an author’s estate (in the event the author’s widow, children and grandchildren were not living) that the Shuster siblings could have an interest in the termination rights. So the only way that the 1992 agreement could have used the termination right as “an advantageous bargaining chip” was as speculation that the termination right may one day extend to the Shuster estate.

Although the DC Comics v. Peary decision is unpublished, possessing limited precedential effect, the fate of many statutory heirs’ termination rights is murky at best. Any number of “agreements” could potentially extinguish a statutory heir’s termination right. A revocation and re-grant need not be made explicit. Nor is there a requirement that the termination right need first mature to be considered a bargaining chip. The right may be waived by someone that would not actually possess the termination right once mature. And, more alarming, it appears the Ninth Circuit will uphold a waiver executed by someone (or some entity) who is not even a potential statutory heir. What could be worse? The Ninth Circuit’s flawed interpretation has been adopted by the Second Circuit. See e.g., Penguin Group (USA), Inc. v. Steinbeck, 537 F.3d 193, 197 (2d Cir. 2008), cert denied, 129 S. Ct. 2383 (2009).

The impact of the Ninth Circuit’s gaffe is serious. “One particularly pernicious consequence of the Ninth and Second Circuits’ rules arises when the author’s successor is not the same person as the statutory holder of termination rights. In that circumstance, the Ninth and Second Circuits give the former a unilateral power to sacrifice the rights of the latter.” Peary v. DC Comics, No. 13-1523, Petitioner’s Writ for Certiorari at p. 27-28. The loophole actually encourages an author’s successor to negotiate a sweetheart deal for itself and preempt the exercise of termination rights by an author’s statutory heirs. Steinbeck, 537 F.3d at 197 (upholding a post-January 1, 1978 grant that increased royalties for the author’s widow but excluded the author’s children from a previous marriage by relying on the Ninth Circuit’s decision in Milne).

So what proved to be the Shuster estate’s kryptonite? Selective reading by the Ninth Circuit. While it may be too late to save Superman, hopefully someone else can fly to the defense of the termination right soon.

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