Copyright Grantees Served Sour Grapes in Steinbeck Dispute

In 1976 and again in 1998, Congress extended subsisting copyrights, by 19 and 20 years respectively. See Pub. L. 94-553, 90 Stat. 2541 (1976) (extending renewal term for pre-1978 works to 47 years, for 75 years total protection); Pub. L. 105-298, 112 Stat. 2827 (1998) (extending renewal term for pre-1978 works an additional 20 years, for 95 years total protection). Seeking to allow authors and their kin to share in the benefits of the newly extended terms, Congress afforded them a mechanism known as statutory termination. See 17 U.S.C. '304(c) and (d). The mechanism allows abrogation of contracts executed prior to Jan. 1, 1978, otherwise valid under state law, by which an author (or certain other specified persons) had transferred away copyright interests. To bolster and protect this termination right, Congress mandated that it may be effected 'notwithstanding any agreement to the contrary.' 17 U.S.C. '304(c)(5); see also 17 U.S.C. '304(d)(1).

This summer, the Southern District of New York gave broad effect to that language. In Steinbeck v. McIntosh & Otis, Inc., 433 F. Supp. 2d 395 (S.D.N.Y. 2006), the court held that a post-1978 contract canceling a pre-1978 grant and then re-granting the exact same copyright interests previously conveyed does not extinguish the statutory termination right. Any other construction, the court found, would render the post-1978 agreement an impermissible 'agreement to the contrary.' While it is consonant with decisions of the Second Circuit, the district court's holding is in tension with, and likely contrary to, recent decisions arising out of the Ninth Circuit. Whether this apparent conflict among the circuits will soften or sharpen awaits further judicial development and, perhaps, resolution by the U.S. Supreme Court.

At issue in Steinbeck were the works of Nobel- and Pulitzer Prize-winning author John Steinbeck. These included both his 'early works,' whose renewal term became due in the course of his lifetime and for which he filed renewal registrations, and his 'later works,' which entered their renewal terms only after his death in 1968. The former include The Red Pony ('1937), Of Mice and Men ('1937), The Long Valley ('1938), and The Grapes of Wrath ('1939), while the latter include Cannery Row ('1945) and The Wayward Bus ('1947).

When John Steinbeck died in 1968, he bequeathed all of his copyright interests in his early works to his widow (and third wife) Elaine. He was also survived by two sons from his second marriage, John Steinbeck IV and Thomas Steinbeck. Elaine had children from a former marriage.

The statutory scheme Congress created to effect termination rights provides for a sometimes complex division of the termination right after an author passes away. Under 17 U.S.C. '304, Elaine owned one-half of the termination interest in John Stein-beck's works, while each of his sons owned one-quarter. In 1991, John Steinbeck IV died, leaving his entire termination interest to his sole surviving child, his daughter Blake Smyle. In 2003, Elaine died, leaving all copyrights to her own relatives ' all unrelated to the Steinbecks. Pursuant to '304(c), however, her termination interest did not pass to her heirs, but rather the termination interest became wholly owned by Thomas Steinbeck and Blake Smyle, one-half to each.

In May and June 2004, Thomas Steinbeck and Blake Smyle served five 'Notices of Termination' on various third parties. Specifically, the Notices purported to terminate: 1) a 1938 grant of book publishing rights made to the predecessor of Penguin Group (USA) Inc.; 2) grants of motion picture rights in The Red Pony made to Paramount Pictures, Inc. in 1946, 1947, and 1949; 3) grants of motion picture rights to The Long Valley also made to Paramount in 1946, 1947, and 1949; 4) a 1956 grant of theatrical rights to Cannery Row made to Rogers & Hammerstein and MGM; and, finally, 5) a 1949 grant of motion picture rights to The Wayward Bus made to Twentieth Century Fox Film Corporation.

District Court Denies Effect to 'Agreements to the Contrary'

The district court analyzed each notice of termination separately. It found the termination of the grant of rights in The Wayward Bus to Twentieth Century Fox invalid. Because John Steinbeck died while The Wayward Bus was in its first 28-year term, the renewal term reverted by operation of law back to Elaine, rather than staying with Fox. See Stewart v. Abend, 495 U.S. 207, 219-20 (1990) ('[i]f the author dies before [the renewal right vests], the next of kin obtain the renewal copyright free of any claim founded upon an assignment made by the author in his lifetime. These results follow not because the author's assignment is invalid but because he had only an expectancy to assign [in the renewal copyright]; and his death, prior to the renewal period, terminates his interest in the renewal [term] … '). Elaine took that renewal term free of the previous assignment made by John Steinbeck. See 17 U.S.C. '304(a)(1)(C). Accordingly, Twentieth Century Fox was left with no rights that could be terminated, making the notice a nullity.

The termination notice regarding the grant of rights in Cannery Row to Rogers & Hammerstein and MGM suffered a similar fate. Since the work, copyrighted only 23 years before John Steinbeck's passing, subsisted in its first term at his death, the renewal term reverted to Elaine and the grantees under the original contract had no remaining interest in 2004 to be terminated.

The court reached the opposite conclusion regarding the grant of publication rights to Penguin. John Steinbeck's agreement with Penguin's predecessor gave Penguin 'sole, exclusive and open-ended publication rights' to all of his works published in 1938 or earlier, including Of Mice and Men, and to four later-published works, including The Grapes of Wrath. John Steinbeck renewed the copyrights in each of the subject works during his lifetime and bequeathed them on his death in 1968 to Elaine. In 1994, Elaine entered into a 'new agreement for continued publication,' which granted Penguin the exact same rights it had enjoyed under the 1938 agreement ' 'no more nor less' ' although Elaine received a larger royalty share. 433 F. Supp. 2d at 401.

Penguin contended that the termination notice was invalid because Elaine's 1994 agreement, by its express terms, 'cancele[d] and supersede[d]' the 1938 agreement, thereby effectively transforming John Steinbeck's pre-1978 grant into a new, post-1978 grant not subject to statutory termination. The district court rejected this argument on two bases. First, the 1994 agreement explicitly recognized and carried forward possible future statutory termination rights, specifying what would happen '[i]f Elaine Steinbeck exercises her right to terminate grants made to Publisher in this agreement (in accordance with section 304(c) of Title 17 of the U.S. Code) … ' Id. It would be contradictory, the court found, if 'the 1994 Agreement extinguished the very termination right that it expressly acknowledges both exists and flows from the 1930s copyrights … ' Id. Second, to the extent that the 1994 agreement would strip Thomas and Blake 'of their inalienable termination rights in the pre-1978 grants,' the court concluded it 'is void as an 'agreement to the contrary” under 17 U.S.C. '304(c)(5) and (d)(1). Id. at 402. The court expanded on that conclusion, observing that '[a]ny interpretation of the 1994 Agreement having the effect of disinheriting the statutory heirs to the termination interest ' Thom and Blake ' in favor of Elaine's heirs must be set aside as contrary to the very purpose of the termination statute, which protects children and grandchildren, and not just widows.' Id. at 402 n.23.

Finally, the district court found the two termination notices directed to Paramount valid, for reasons similar to those applied in the analysis of the Penguin grant. The studio argued that the notices were invalid because a 1983 settlement agreement between Elaine, Thomas, and John IV 'purported to give Elaine the exclusive right to exercise Thom and John IV's termination rights over the Steinbeck works.' Id. at 404 n.28. Although the district court ultimately found that Paramount had abandoned the argument, it concluded that the 1983 settlement agreement could not have precluded Thomas and Blake from exercising their termination rights in any event: 'Any portion of the settlement agreement which limits or extinguishes Thom's or Blake's statutory termination right is invalidated as a statutorily-prohibited 'agreement to the contrary.” Id. at 404 n.30.

Decision Heightens Tension Among the Circuits

The Steinbeck matter is currently on appeal. If the Second Circuit affirms, the decision will accord with its sole previous decision construing the 'notwithstanding any agreement to the contrary' provision. In Marvel Characters, Inc. v. Simon, 310 F.3d 280 (2d Cir. 2002), the court found that a post-hoc agreement to characterize a copyrighted work as a work-for-hire would, if given effect, preclude a statutory termination right (a work-for-hire is statutorily excluded from statutory termination; see 17 U.S.C. '304(c) and (d)). 310 F.3d at 290-91. On that basis, the court found the agreement a prohibited 'agreement to the contrary,' even though only its effect, and not its purpose, was to deny the statutory termination right. Id. at 291 (noting that '[a]ny other construction … would thwart the clear legislative purpose and intent of the statute').

The holding in Steinbeck, however, is at odds with the position recently adopted by the Ninth Circuit. In Milne ex rel. Coyne v. Stephen Slesinger, Inc., 430 F.3d 1036 (9th Cir. 2005), cert. denied 126 S. Ct. 2969 (2006), the court held that a post-1978 agreement rescinding and re-granting rights originally conveyed in 1930 obviated the statutory termination right. 430 F.3d at 1042-43 (as a result of the post-1979 agreement, 'there was no pre-1978 grant of rights to SSI in existence'). (Full disclosure: The first listed author of this piece represented Clare Milne, the granddaughter of Winnie-the-Pooh author A.A. Milne, in this matter.) One district court has already applied the rule announced in Milne. In Classic Media, Inc. v. Mewborn, No. 05-00452 (C.D. Cal. Feb. 9, 2006), the Central District of California denied effect to a notice purporting to terminate a pre-1978 grant of certain rights relating to Lassie. The court found the notice invalid because it concluded that the Lassie author's heir had contracted away her termination right for $3000 in a 1978 agreement. Id. at 3-4 (citing Milne for the proposition that '[w]hile this termination interest is inalienable pursuant to the language of the statute, such an interest may be waived or relinquished').

While this is a nascent area of case law, arguably the two most important copyright circuits have already staked out contradictory positions. As additional valuable works reach the period in which termination rights may be exercised, it remains to be seen whether the circuits will resolve or deepen this budding conflict, and thus whether the topic will warrant Supreme Court intervention.

Jason Linder, Eric Carsten, and Annette Meyerson practice intellectual property and entertainment law at Irell & Manella LLP. Linder and Carsten focus primarily on intellectual property litigation and counseling, while Meyerson focuses primarily on entertainment transactions. They may be contacted at [email protected].

In 1976 and again in 1998, Congress extended subsisting copyrights, by 19 and 20 years respectively. See Pub. L. 94-553, 90 Stat. 2541 (1976) (extending renewal term for pre-1978 works to 47 years, for 75 years total protection); Pub. L. 105-298, 112 Stat. 2827 (1998) (extending renewal term for pre-1978 works an additional 20 years, for 95 years total protection). Seeking to allow authors and their kin to share in the benefits of the newly extended terms, Congress afforded them a mechanism known as statutory termination. See 17 U.S.C. '304(c) and (d). The mechanism allows abrogation of contracts executed prior to Jan. 1, 1978, otherwise valid under state law, by which an author (or certain other specified persons) had transferred away copyright interests. To bolster and protect this termination right, Congress mandated that it may be effected 'notwithstanding any agreement to the contrary.' 17 U.S.C. '304(c)(5); see also 17 U.S.C. '304(d)(1).

This summer, the Southern District of New York gave broad effect to that language. In Steinbeck v. McIntosh & Otis, Inc. , 433 F. Supp. 2d 395 (S.D.N.Y. 2006), the court held that a post-1978 contract canceling a pre-1978 grant and then re-granting the exact same copyright interests previously conveyed does not extinguish the statutory termination right. Any other construction, the court found, would render the post-1978 agreement an impermissible 'agreement to the contrary.' While it is consonant with decisions of the Second Circuit, the district court's holding is in tension with, and likely contrary to, recent decisions arising out of the Ninth Circuit. Whether this apparent conflict among the circuits will soften or sharpen awaits further judicial development and, perhaps, resolution by the U.S. Supreme Court.

At issue in Steinbeck were the works of Nobel- and Pulitzer Prize-winning author John Steinbeck. These included both his 'early works,' whose renewal term became due in the course of his lifetime and for which he filed renewal registrations, and his 'later works,' which entered their renewal terms only after his death in 1968. The former include The Red Pony ('1937), Of Mice and Men ('1937), The Long Valley ('1938), and The Grapes of Wrath ('1939), while the latter include Cannery Row ('1945) and The Wayward Bus ('1947).

When John Steinbeck died in 1968, he bequeathed all of his copyright interests in his early works to his widow (and third wife) Elaine. He was also survived by two sons from his second marriage, John Steinbeck IV and Thomas Steinbeck. Elaine had children from a former marriage.

The statutory scheme Congress created to effect termination rights provides for a sometimes complex division of the termination right after an author passes away. Under 17 U.S.C. '304, Elaine owned one-half of the termination interest in John Stein-beck's works, while each of his sons owned one-quarter. In 1991, John Steinbeck IV died, leaving his entire termination interest to his sole surviving child, his daughter Blake Smyle. In 2003, Elaine died, leaving all copyrights to her own relatives ' all unrelated to the Steinbecks. Pursuant to '304(c), however, her termination interest did not pass to her heirs, but rather the termination interest became wholly owned by Thomas Steinbeck and Blake Smyle, one-half to each.

In May and June 2004, Thomas Steinbeck and Blake Smyle served five 'Notices of Termination' on various third parties. Specifically, the Notices purported to terminate: 1) a 1938 grant of book publishing rights made to the predecessor of Penguin Group (USA) Inc.; 2) grants of motion picture rights in The Red Pony made to Paramount Pictures, Inc. in 1946, 1947, and 1949; 3) grants of motion picture rights to The Long Valley also made to Paramount in 1946, 1947, and 1949; 4) a 1956 grant of theatrical rights to Cannery Row made to Rogers & Hammerstein and MGM; and, finally, 5) a 1949 grant of motion picture rights to The Wayward Bus made to Twentieth Century Fox Film Corporation.

District Court Denies Effect to 'Agreements to the Contrary'

The district court analyzed each notice of termination separately. It found the termination of the grant of rights in The Wayward Bus to Twentieth Century Fox invalid. Because John Steinbeck died while The Wayward Bus was in its first 28-year term, the renewal term reverted by operation of law back to Elaine, rather than staying with Fox. See Stewart v. Abend , 495 U.S. 207, 219-20 (1990) ('[i]f the author dies before [the renewal right vests], the next of kin obtain the renewal copyright free of any claim founded upon an assignment made by the author in his lifetime. These results follow not because the author's assignment is invalid but because he had only an expectancy to assign [in the renewal copyright]; and his death, prior to the renewal period, terminates his interest in the renewal [term] … '). Elaine took that renewal term free of the previous assignment made by John Steinbeck. See 17 U.S.C. '304(a)(1)(C). Accordingly, Twentieth Century Fox was left with no rights that could be terminated, making the notice a nullity.

The termination notice regarding the grant of rights in Cannery Row to Rogers & Hammerstein and MGM suffered a similar fate. Since the work, copyrighted only 23 years before John Steinbeck's passing, subsisted in its first term at his death, the renewal term reverted to Elaine and the grantees under the original contract had no remaining interest in 2004 to be terminated.

The court reached the opposite conclusion regarding the grant of publication rights to Penguin. John Steinbeck's agreement with Penguin's predecessor gave Penguin 'sole, exclusive and open-ended publication rights' to all of his works published in 1938 or earlier, including Of Mice and Men, and to four later-published works, including The Grapes of Wrath. John Steinbeck renewed the copyrights in each of the subject works during his lifetime and bequeathed them on his death in 1968 to Elaine. In 1994, Elaine entered into a 'new agreement for continued publication,' which granted Penguin the exact same rights it had enjoyed under the 1938 agreement ' 'no more nor less' ' although Elaine received a larger royalty share. 433 F. Supp. 2d at 401.

Penguin contended that the termination notice was invalid because Elaine's 1994 agreement, by its express terms, 'cancele[d] and supersede[d]' the 1938 agreement, thereby effectively transforming John Steinbeck's pre-1978 grant into a new, post-1978 grant not subject to statutory termination. The district court rejected this argument on two bases. First, the 1994 agreement explicitly recognized and carried forward possible future statutory termination rights, specifying what would happen '[i]f Elaine Steinbeck exercises her right to terminate grants made to Publisher in this agreement (in accordance with section 304(c) of Title 17 of the U.S. Code) … ' Id. It would be contradictory, the court found, if 'the 1994 Agreement extinguished the very termination right that it expressly acknowledges both exists and flows from the 1930s copyrights … ' Id. Second, to the extent that the 1994 agreement would strip Thomas and Blake 'of their inalienable termination rights in the pre-1978 grants,' the court concluded it 'is void as an 'agreement to the contrary” under 17 U.S.C. '304(c)(5) and (d)(1). Id. at 402. The court expanded on that conclusion, observing that '[a]ny interpretation of the 1994 Agreement having the effect of disinheriting the statutory heirs to the termination interest ' Thom and Blake ' in favor of Elaine's heirs must be set aside as contrary to the very purpose of the termination statute, which protects children and grandchildren, and not just widows.' Id. at 402 n.23.

Finally, the district court found the two termination notices directed to Paramount valid, for reasons similar to those applied in the analysis of the Penguin grant. The studio argued that the notices were invalid because a 1983 settlement agreement between Elaine, Thomas, and John IV 'purported to give Elaine the exclusive right to exercise Thom and John IV's termination rights over the Steinbeck works.' Id. at 404 n.28. Although the district court ultimately found that Paramount had abandoned the argument, it concluded that the 1983 settlement agreement could not have precluded Thomas and Blake from exercising their termination rights in any event: 'Any portion of the settlement agreement which limits or extinguishes Thom's or Blake's statutory termination right is invalidated as a statutorily-prohibited 'agreement to the contrary.” Id. at 404 n.30.

Decision Heightens Tension Among the Circuits

The Steinbeck matter is currently on appeal. If the Second Circuit affirms, the decision will accord with its sole previous decision construing the 'notwithstanding any agreement to the contrary' provision. In Marvel Characters, Inc. v. Simon, 310 F.3d 280 (2d Cir. 2002), the court found that a post-hoc agreement to characterize a copyrighted work as a work-for-hire would, if given effect, preclude a statutory termination right (a work-for-hire is statutorily excluded from statutory termination; see 17 U.S.C. '304(c) and (d)). 310 F.3d at 290-91. On that basis, the court found the agreement a prohibited 'agreement to the contrary,' even though only its effect, and not its purpose, was to deny the statutory termination right. Id. at 291 (noting that '[a]ny other construction … would thwart the clear legislative purpose and intent of the statute').

The holding in Steinbeck , however, is at odds with the position recently adopted by the Ninth Circuit. In Milne ex rel. Coyne v. Stephen Slesinger, Inc. , 430 F.3d 1036 (9th Cir. 2005), cert. denied 126 S. Ct. 2969 (2006), the court held that a post-1978 agreement rescinding and re-granting rights originally conveyed in 1930 obviated the statutory termination right. 430 F.3d at 1042-43 (as a result of the post-1979 agreement, 'there was no pre-1978 grant of rights to SSI in existence'). (Full disclosure: The first listed author of this piece represented Clare Milne, the granddaughter of Winnie-the-Pooh author A.A. Milne, in this matter.) One district court has already applied the rule announced in Milne. In Classic Media, Inc. v. Mewborn, No. 05-00452 (C.D. Cal. Feb. 9, 2006), the Central District of California denied effect to a notice purporting to terminate a pre-1978 grant of certain rights relating to Lassie. The court found the notice invalid because it concluded that the Lassie author's heir had contracted away her termination right for $3000 in a 1978 agreement. Id. at 3-4 (citing Milne for the proposition that '[w]hile this termination interest is inalienable pursuant to the language of the statute, such an interest may be waived or relinquished').

While this is a nascent area of case law, arguably the two most important copyright circuits have already staked out contradictory positions. As additional valuable works reach the period in which termination rights may be exercised, it remains to be seen whether the circuits will resolve or deepen this budding conflict, and thus whether the topic will warrant Supreme Court intervention.

Jason Linder, Eric Carsten, and Annette Meyerson practice intellectual property and entertainment law at Irell & Manella LLP. Linder and Carsten focus primarily on intellectual property litigation and counseling, while Meyerson focuses primarily on entertainment transactions. They may be contacted at [email protected].