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:

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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Apparently ‘Nuff Was Said… Marvel and Kirby Settle Lawsuit

In an earlier post I discussed a lawsuit between Marvel and the heirs of Jack Kirby, the legendary comic creator. The suit concerned who was the statutory author of several superhero characters, including Captain America, the X-Men, and Spider-Man, just to name a few. Kirby’s heirs asserted that Kirby, under the Copyright Act of 1909, was the statutory author and, therefore, they could exercise termination rights over the properties (and recapture the copyright in the works notwithstanding any agreement to the contrary) pursuant to the Copyright Act of 1976.

However, today the Hollywood Reporter reported that the parties announced a settlement. This announcement comes only days before the Supreme Court would have discussed the case at conference and decided whether to grant cert. Today’s settlement is sure to disappoint many who had kept a close eye on this case as a decision from the Supreme Court had the potential to cause massive reverberations throughout the entertainment industry.

While I was very interested to see if the Supreme Court would grant review and, if so, how the case would have come down, I am not surprised to see a settlement. As I had previously noted, there were compelling arguments made by both sides as to whether commissioned works, such as Kirby’s, were even eligible to be works made for hire under the Copyright Act of 1909. On the one hand, the Copyright Act of 1909 left several terms undefined, which properly fell to the courts to construe. But, on the other hand, it was clear that the Second Circuit cases that developed the “instance and expense” test rested on highly suspect grounds.

It remains unclear whether commissioned works can be works made for hire under the Copyright Act of 1909, but, for now, “instance and expense” is still the test in the Second Circuit. It would be foolish, however, to think that this issue will not arise again. Given the Supreme Court’s interest up until this point as well as the amicus briefs filed by several entertainment labor unions and respected intellectual property experts, it may not be too long before the next challenge. But, instead of a superhero, we might be hearing about a (music) superstar. Not that the two are mutually exclusive…

Debut_of_Dazzler(Well, maybe they are.)

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Image: “Debut of Dazzler” by [1]. Licensed under Fair use of copyrighted material in the context of Dazzler via Wikipedia –

‘Nuff Said?

A Look At Kirby v. Marvel Characters, Inc. And Works Made For Hire Under The Copyright Act Of 1909.

I’m a comic book fan. Correction, I am a big comic book fan. (Ed. Note: Do yourself a favor and read Saga, Black Science, American Vampire, and Kieron Gillen’s run on Journey Into Mystery). But I’m also a copyright fan (not that the two are mutually exclusive), and there is a potentially monumental case currently going to conference before the Supreme Court on September 29, 2014 – Kirby v. Marvel Characters, Inc.

Jack Kirby is a legend. He’s not only credited with creating some of the most iconic characters in comics – Captain America, the X-Men, Spider-Man, and Groot – he’s often cited as the inspiration for fellow creators and the direction of the medium. It’s no understatement to say that his contributions to the medium continue to impact the entertainment industry and pop culture at-large. However, who is the author of several of his creations, as defined by the Copyright Act, has been the subject of much dispute.

FantasticFour-FF comparison

Between 1958 and 1963, Kirby worked as a freelance artist, creating works and characters he sold to various publishers, including Marvel. Kirby worked out of his basement, using supplies he himself furnished. Kirby frequently worked with Marvel and collaborated with Marvel Editor Stanley Lieber (more popularly known as Stan Lee) on several projects. In those dealings, Kirby would operate under the “Marvel Method,” whereby Lee and Kirby would meet at a “plotting conference” and discuss a brief outline or synopsis Lee had prepared. Kirby would then draw the work based on Lee’s notes and, thereafter, Lee would insert dialogue and captions. According to Lee, Lee could edit and make changes or reject Kirby’s creations, although he often gave Kirby more leeway than other artists. Marvel, in turn, would pay a flat fee for Kirby’s pieces it accepted, but Kirby would not be compensated for any work that was rejected.

On September 16, 2009, Jack Kirby’s heirs served Marvel Comics with termination notices for 45 comics that Marvel published between 1958 and 1963. Kirby’s heirs sought to exercise termination rights under Section 304(c) of the Copyright Act of 1976. That provision grants authors (or certain heirs) an inalienable right to recapture their copyright, notwithstanding any agreement to the contrary, at certain intervals. 17 U.S.C. Section 304. Congress created the termination right (and retroactively extended it to works created under the 1909 Act) to “relieve authors of the consequences of ill-advised and unremunerative grants. . .” Mills Music, Inc. v. Snyder, 469 U.S. 153, 172-73 (1985). But termination rights do not apply to a grant of rights in a work made for hire. 17 U.S.C. Section 304(c).

The notices sought to terminate Kirby’s assignment of his copyrights in several works, including Amazing Fantasy, The Amazing Spider-Man, The Avengers, The Fantastic Four, The Incredible Hulk, and Journey Into Mystery; comics that introduced many iconic characters that are commonly associated with Marvel Comics today. In response, Marvel filed a suit for declaratory judgment in the Second Circuit, claiming that Kirby’s creations were works made for hire under the Copyright Act of 1909. Hence the current dispute, if Kirby’s created works made for hire, then Kirby’s heirs could not exercise termination rights because Marvel would be the works’ author and own the copyrights.

Because the works were created between 1958 and 1963, the Copyright Act of 1909 dictates who possesses ownership rights in the disputed works. Section 8 of the 1909 Copyright Act provides “the author . . . of any work made the subject of copyright by this Act . . . shall have copyright for such work under the conditions and for the terms specified in this Act[.]” Section 62 of the 1909 Act states: “author shall include an employer in the case of works made for hire.” 17 U.S.C. Section 26 (1976 ed.) (repealed). However, the Act did not further define “employer” or “works made for hire.”

In the 1950-1960s, Congress undertook a comprehensive revision of the Copyright Act and, ultimately, enacted the Copyright Act of 1976. Unlike the 1909 Act, Section 101 of the 1976 Act did define a “work made for hire.” It states that a “work made for hire” is:

(1) a work prepared by an employee within the scope of his or her employment; or

(2) a work specially ordered or commissioned for use as a contribution to a collective work, as part of a motion picture of other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.

17 U.S.C. Section 101. While the 1976 Act did not define “employee” or “scope of employment,” it “clearly delineates between works prepared by an employee and commissioned works.” Community for Creative Non-Violence v. Reid, 490 U.S. 730, 742 (1989).

Because the Kirby’s works were created under the 1909 Copyright Act, the district court applied its “instance and expense” test. Marvel Worldwide, Inc. v. Kirby, 777 F. Supp. 2d 720 (S.D.N.Y. 2011). Under the “instance and expense” test, the court examined whether Marvel induced the creation of the work and the extent of resources Marvel invested in the creation of the work. Id. at 738. The court found that Kirby’s works were created at the “instance and expense” of Marvel, which raised a rebuttable presumption that the works were “made for hire.” Id. at 738-743. However, the court found that Kirby’s heirs did not rebut that presumption and, therefore, the works were “made for hire” and not subject to termination rights. Id.

The decision was affirmed by the Second Circuit Court of Appeals. Marvel Characters, Inc. v. Kirby, 726 F. 3d 119 (2d Cir. 2013). On March 21, 2014, Kirby’s heirs filed a Petition for Writ of Certiorari with the Supreme Court to appeal the Second Circuit’s decision. In their petition, they argue the Second Circuit erred by utilizing its “instance and expense test” to find Kirby’s works were “made for hire” because only works created within a “traditional employment” relationship could be a work-for-hire under the 1909 Copyright Act. (Kirby’s heirs raised additional legal arguments, including, inter alia, the Second Circuit’s decision constitutes a violation of the Takings Clause and due process. However, the case will likely turn on the first issue – whether works made for hire under the 1909 Act can only be made by traditional employees.)

Without revisiting the particulars of the “instance and expense” test, suffice to say, commissioned works created by non-traditional employees are potentially works made for hire under the test. See e.g., The Estate of Burne Hogarth (“Hogarth”), 342 F. 3d 149 (2d Cir. 2003) (affirming the district court’s ruling that “in the Second Circuit an independent contractor is an ‘employee’ and a hiring party is an ‘employer’ for purposes of the [1909 Act] if the work is made at the hiring party’s instance and expense”). Thus, if the test is appropriate, the commissioning party could be an author pursuant to the 1909 Act. Assuming the Second Circuit applied the “instance and expense” test correctly (as it appears to have done), Kirby’s heirs can only prevail if the Supreme Court finds the test should not have been applied to the 1909 Act. But was it wrong? As Marvel argues in its brief in opposition, each circuit has uniformly adopted the “instance and expense” test.

Kirby’s heirs make three notable arguments against the “instance and expense” test: (1) the test violates the Supreme Court’s holding in Community for Creative Non-Violence v. Reid (“CCNV”); (2) Congress intended only works created in the context of traditional employment to be a work-for-hire under the 1909 Copyright Act; and (3) the test’s consideration of post-creation contingencies when determining authorship is impermissible under the 1909 Act.

In CCNV, the Supreme Court was asked to resolve how to determine whether a work is a “work made for hire” as defined in Section 101 of the 1976 Copyright Act. CCNV, 490 U.S. at 732. The dispute was between a sculptor and the commissioning party. Because a sculpture is not a commissionable work-for-hire under the 1976 Act, the case turned on whether the sculptor was an “employee” or an “independent contractor.” Id. at 738. In doing so, the Court considered various tests that circuits had used to determine who was an “employee,” including the Second Circuit’s “control” test (which closely tracks the “instance and expense” test). Id. at 739. The Court rejected the “control” test, reasoning that the test conflicted with the plain language of the 1976 Copyright Act. Id. at 741. According to the Court, the Act clearly delineated between works prepared by an employee and commissioned works, but the overbroad “control” test threatened to ignore that delineation as it could potentially convert a commissioned work into one prepared by an employee. Id.

The Court found “[t]he structure of Section 101 indicate[d] that a work for hire can arise through one of two mutually exclusive means, one for employees and one for independent contractors[.]” CCNV, 490 U.S. at 742-43. And, where Congress did not define certain terms in the statute, it was obligated to read those terms in accordance with their common law definition. Id. at 741. Thus, when defining who is an “employee,” “ordinary canons of statutory interpretation indicate[d] that the classification of a particular hired party should be made with reference to agency law.” CCNV, 490 U.S. at 742-43. Thus, under the 1976 Copyright Act, courts should first resolve whether, under the general common law of agency, the work was prepared by an employee or independent contractor. Id. at 751. In doing so, the courts should consider the skill required, source of instrumentalities, location of the work, duration of the relationship, whether the hiring party had the right to assign additional projects, extent of the hiring parties discretion, method of payment, provision of benefits, and other related factors. Id. at 751-52, citing Restatement Section 220(2). Based on that determination, the courts should then apply the applicable subsection of Section 101. Id. at 751.

Kirby’s heirs argue that “[l]eading commentators read CCNV as overruling the ‘instance and expense’ test under both the 1976 and 1909 Acts,” but the Second Circuit has not reconciled its application of the test with works for hire under the 1909 Act. But does CCNV reject the use of the “instance and expense” test under the 1909 Act?

In recounting the legislative history surrounding the 1976 Act, the Court discussed works made for hire under the 1909 Act. The Court noted:

Because the 1909 Act did not define “employer” or “works made for hire,” the task of shaping these terms fell to the courts. They concluded that the work for hire doctrine codified in Section 62 referred only to works made by employees in the regular course of their employment. As for commissioned works, the courts generally presumed that the commissioned party had impliedly agreed to convey the copyright, along with the work itself, to the hiring party.

CCNV, 490 U.S. at 744.

In CCNV, the commissioning party argued that the 1976 Acts actually adopted the view that “an employment relationship exists sufficient to give the hiring party copyright ownership whenever that party has the right to control or supervise the artist’s work” because Congress did not explicitly reject a line of cases utilizing that test for the 1909 Act. Id. at 748. The Court, however, was not persuaded. It found that “Congress’ silence is just that – silence.” Id. at 749 (quoting Alaska Airlines, Inc. v. Brock, 480 U.S. 678, 686 (1987)). “At that time, [] the courts had applied the work for hire doctrine under the 1909 Act exclusively to traditional employees. Indeed, it was not until after the 1965 compromise was forged and adopted by Congress that a federal court for the first time applied the work for hire doctrine to commissioned works.” Id. But, the Court’s opinion passed no judgment on whether it was appropriate to do so.

The Court’s holding did not address whether the courts’ interpretation of works made for hire under the 1909 Act had only been applied to works prepared by an employee (thus far) or only applied to works prepared by an employee. If the 1909 provision only encompassed the latter, then why did Congress modify the provision to include “employee” and “scope of employment”?

Furthermore, the Court rejected the notion that “employee” in the 1976 Act referred “only to formal, salaried employees.” CCNV, 490 U.S. at 743 (“While there is some support for such a definition in the legislative history . . . the language of Section 101(1) cannot support it.) How could Section 101(1) of the 1976 Act, which explicitly limited works made for hire to an employee preparing works in the scope of their employment, be more restrictive than the 1909 Act, which, facially, had no similar constraints? [Ed. Note: This is essentially the inverse of Bruce Lehman’s argument – “There is no reasonable explanation how “employer” could have a broad scope in the 1909 Act when as CCNV held it has a narrow scope in the 1976 Act bound by the common law of agency and traditional employment.” Brief of Amici Curiae Bruce Lehman at p. 12.]

Kirby’s heirs argue that “[n]othing in the text of the 1909 Act’s ‘work for hire’ provision indicates that Congress used the word ‘employer’ to describe anything less than a conventional employment relationship, or supports its judicial extension to freelancers like Kirby” and “[t]he conventional master-servant relationship clearly distinguishes independent contractors like Kirby.” Petitioner’s Petition for Writ, p. 15. That position appears to be somewhat internally inconsistent – were works for hire under the 1909 Act restricted to traditional employees or could courts utilize the doctrine of master-servant?

Section 2 of the Restatement of Law (Second) of Agency (1958) (which did exist during the time Kirby created his works) defined a master as “a principal who employs an agent to perform service in his affairs and who controls or has the right to control the physical conduct of the other in the performance of the service.” This principle became reflected in the common law through the “control” test, of which the “instance and expense” test appears to be a rough proxy. Easter Seal Soc. For Crippled Children & Adults, Inc. v. Playboy Enterprises, et al., 815 F. 2d 323, 327 (5th Cir. 2004). Although CCNV rejected the “instance and expense” test as conflicting with the structure of the 1976 Act, the factors for determining a servant were endorsed by the Court for determining an “employee.” Would Kirby’s heirs have prevailed under those factors?

While the Second Circuit’s opinion filtered its analysis through the “instance and expense” test, it addressed several of the factors used to analyze whether an individual is an employee or independent contractor. The Second Circuit found:

Although Jack Kirby was a freelancer, his working relationship with Marvel between the years of 1958 and 1963 was close and continuous. . . . Understood as products of this overarching relationship, Kirby’s works during this period were hardly self-directed projects in which he hoped Marvel, as one of several potential publishers, might have an interest; rather, he created the relevant works pursuant to Marvel’s assignment or with Marvel specifically in mind. . . . Marvel also played at least some creative role with respect to the works. Kirby undoubtedly enjoyed more creative discretion than most artists did under the “Marvel Method,” a fact [Stan] Lee readily admits. But the only evidence on the issue indicates that he did not work on “spec” (speculation) – that is, he worked within the scope of Marvel’s assignments and titles. There is no disputing, moreover, that Marvel had the power to reject Kirby’s pages and require him to redo them, or to later them, a power it exercised from time to time. And there is evidence that Kirby collaborated with Lee with respect to many of the works.

Marvel Characters, Inc. v. Kirby, 726 F.3d 119, 141 (2d Cir. 2013). Clearly, the Second Circuit addressed the extent of control and supervision Marvel had over Kirby’s works and the length of time Kirby and Marvel worked together. The court even seems to quietly suggest Stan Lee’s contributions to Kirby’s end product may be more along the lines of a joint author. However, other factors, such as who supplies the tools and method of payment, clearly militate against finding an employee relationship. In short, reexamining the relationship through the principles of agency law does not necessarily clarify the issue. (Ed. Note: Although the Second Circuit’s decision assumes Kirby is an independent contractor, as Kirby’s heirs contest, I am reticent to concede that would be the case after applying the principles of agency law. This has more to do with my professional experience in an industry where we often need to argue that freelancers are employees.)

To me, this case will ultimately come down to Congress’ intent when drafting the 1909 Act. There is evidence that Congress did distinguish works prepared by employees and those created by independent artists when drafting the 1909 Act. The drafters noted that “the right belonging to the artist who is employed for the purpose of making a work of art so many hours a day … should be very different from the right that is held by the independent artist.” See Stenographic Report of the Proceedings of the Librarian’s Conf. on Copyright, 2d Sess. 188 (Nov 1-4, 1905) (statement by Lithographer’s Association).

And the legislative history surrounding the creation of the 1976 Act does appear to reinforce that distinction. During the 1950s, Congress commissioned a study to aide its revision of the 1909 Act, which found that “it may be concluded that section 26 [sic] [of the 1909 Act] refers only to works made by salaried employees in the regular course of their employment.” Petitioner’s Brief, p. 16-17, quoting B. Varmer, Copyright Law Revision Study No. 13, “Words Made for Hire and on Commission, Studies Prepared for the Copyright Office, Reprinted by the Senate Subcommittee on Patents, Trademarks and Copyrights of the Committee of the Judiciary, 86th Cong., 2d Sess. 127, 130 (1960). Varmer’s report led to the question of whether the 1976 Act should alter that presumption and treat commissioned works as works made for hire. Brief of Amici Curae Bruce Lehman at p. 10. That question became a hotly contested topic in bill debates and revisions between the drafters and interested parties.

As the Supreme Court noted:

In 1965, the competing interests reached a historic compromise, which was . . . ultimately enacted in the same form and nearly same terms 11 years later, as Section 101 of the 1976 Act. The compromise retained as subsection (1) the language referring to “a work prepared by an employee within the scope of his employment.” However, in exchange for concessions from publishers on provisions relating to the termination of transfer rights, the authors consented to a second subsection which classified four [later nine] categories of commissioned works as works for hire if the parties expressly so agreed in writing[.]

CCNV, 490 U.S. at 746. That compromise appears to support the notion that the 1909 Act did not include commissioned works as works made for hire.

Again, however, I recognize the legislative history may not be so clear. As the Second Circuit noted in Hogarth:

[T]he renewal term – [wa]s a distinct feature of the 1909 Act, not carried into the 1976 Act for works created on or after January 1, 1978[.] As enacted, the 1909 Act authorized an original term of 28 years and a renewal term of an additional 28 years, if application for the renewal term was made “within one year prior to the expiration of the original term.” An important aspect of the renewal term is that, although it is assignable by the author, the assignment of the “expectancy” in acquiring the renewal term, is voided by the author’s death prior to the date when the renewal term vests[.] In that event, the renewal right belongs to the author’s surviving spouse or children, if living, or, if they are not living, to the author’s executor. However, in the case of a work made for hire, the proprietor of the copyright in the original term, i.e., the employer or its assignee, is entitled to the renewal term.

Hogarth, 342 F. 3d at 157. (Internal citations omitted). According to the legislative history, the inclusion of the termination provision was a quid pro quo,

based on the premise that the reversionary provisions [reversion of renewal rights] of [the 1909 Act] should be eliminated, and that [the 1976 Act] should substitute for them a provision safeguarding authors against unremunerative transfers. A provision of this sort is 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.

H.R. Rep. No. 94-1476, at 124 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5740. While not mutually exclusive with the compromise justification, this could possibly cast some doubts as to what was the impetus behind Congress creating termination rights.

Lastly, I do find persuasive the Kirbys’ argument that the Second Circuit’s use of the “instance and expense” test impermissibly permits post-creation contingencies to impact the authorship inquiry. In their petition, they argue:

With a true work for hire, copyright ownership … [is] with the employer automatically upon the employee’s creation of the work, and the employer is the “author” at inception. . . . Accordingly, authorship cannot be based on contingent post-creation events like Marvel’s discretionary payment for that material it wished to publish – authorship is fixed at creation. . . . Marvel’s revisionist “work-for-hire” defense, adopted below, leads to absurd contradictions. It means that Marvel authored those Kirby works it chose after completion to buy, and Kirby authored those works Marvel ultimately rejected. This stands fundamental principles of authorship and “work for hire” on their head.

Petitioner’s Petition for Writ at p. 29. With respect to other provisions, such as the writing requirement for works-for-hire and transfers under the 1976 Copyright Act, circuits have split on whether the writing need be contemporaneous, but all agree the intent needed to have existed at the time of creation/transfer. See e.g., Barefoot Architect, Inc. v. Bunge, 632 F.3d 822, 827 (3rd Cir. 2011); Konigsberg Int’l v. Rice, 16 F. 3d 355 (9th Cir. 1994). Could there have been the intent to create a work for hire at the onset if it turned on whether the piece was ultimately accepted? To me, the only plausible counter-argument is that the potential for non-payment is a factor that should be strongly considered, but not solely dispositive as it would potentially render the Restatement factors void (assuming those factors should even be considered under the 1909 Act).

So how can we best reconcile the statutes, case law, and the facts? I think, as Kirby’s heirs and amici argue, if the 1909 Act is interpreted as conveying an implied assignment to the commissioning party, the legislative history and development of the doctrine would be brought into accord and the current potential for post-creation variation in authorship under the “instance and expense” test would be rendered moot. In fact, it appears that the Second Circuit strongly considered such a shift in Hogarth, supra.

There, the Second Circuit undertook an expansive review of its prior decisions and how the “instance and expanse” test developed to convert works by independent contractors and commissioned parties into works-for-hire under the 1909 Act. The Second Circuit recognized that its prior decisions “may have been intended to reflect a conclusion that the copyright . . . were transferred by the artist to the patron by an implied assignment[.]” Hogarth, 342 F. 3d at 158. In fact, the “use of an implied assignment rationale strongly indicates that the work was not regarded as a work for hire.” Id. at fn. 11.

Additionally, the circuit court recognized that it had repeatedly overstated its holdings in prior decisions while expanding the doctrine and that it may have been swayed by unusual facts. See id. at fn 13 (“This reversal of the usual roles might have influenced the outcome: the Court characterized the commission parties as ‘small merchants’ who ‘were naïve with respect to the complex provisions of the copyright law.’” See also Petitioner’s Petition for Write at pp. 21-22 (“As later acknowledged in Hogarth: ‘[Picture Music] characterized Battleboro as having ‘expressly applied the statutory work for hire doctrine to the case of an independent contractor’ when in fact ‘what Battleboro had done was [to] apply the ‘instance and expense’ test to determine that a party commissioned to create a work should be deemed to have assigned its copyright . . . to the commissioning party.”). Despite those misgivings, the Second Circuit continued to use the “instance and expense” test to conclude works by independent contractors were made for hire. Hogarth, 342 F. 3d at 163.

If the Supreme Court grants cert and finds that only traditional employees could create works-for-hire under the 1909 Copyright Act, the implications would be significant and far-reaching. Under this holding, Kirby’s heirs could license several current Marvel properties, valued in the billions of dollars, to other entities. Even if the Kirbys licensed those properties back to Marvel, its plans to commercialize those properties through films, comics, and elsewhere may be profoundly altered. You would be remiss to think these ramifications would only affect Marvel’s multi-billion dollar properties. Several amici have noted the potentially massive impact this case would also have on the music industry as well.

Honestly, I have no idea if the Court will even hear the case and, if so, how the Court will rule. Given prior opportunities to address the Second Circuit’s commissioned works decisions, the Supreme Court denied those petitions for certiorari. E.g., Estate of Hogarth v. Edgar Rice Burroughs, Inc., 124 S. Ct. 1660 (2004); Picture Music, Inc. v. Bourne, Inc., 409 U.S. 997 (1972). Based upon Justice Ginsburg’s order to Marvel to respond, however, it seems this Court may now be interested in reviewing this matter further.

Personally, I would be interested in hearing the Court’s thoughts on the issue as I find myself a bit conflicted. From a moral standpoint, it seems unfair that Kirby’s heirs cannot commercialize his continuing influence. The termination right seems apt for such a case where the true value of Kirby’s creations was not fully realized until later. On the other hand, I find it ironic that Kirby’s heirs protest the retroactive application of the “instance and expense” test to exercise a right that didn’t exist when the works were created. In any event, it’s something that any True Believer! should pay attention to.

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* Special thanks to Robert T. Law, Esq. (the T stands for “THE”) and Devlin Hartline of Law Theories.