On July 31, 2015, the Ninth Circuit reversed the Central District of California’s dismissal of an action brought by the Ray Charles Foundation, seeking, among other things, a judicial determination of the validity and effectiveness of termination notices served by some of Ray Charles’s children on Warner/Chappell Music.
The termination provisions of the Copyright Act allow authors to recapture copyright interests which have been transferred under certain circumstances. Sections 203 and 304(c) of the Copyright Act provide that certain grants can be terminated within a five-year window period beginning between 35 and 56 years after the date of transfer, depending upon, among other things, when copyright was secured and when the transfer was made. Notice of termination must be served at least two years prior to the effective date of termination during a separate eight-year window period. If an author dies before serving a termination notice, the termination provisions provide for a statutory termination right which can exercised by the author’s heirs having a majority termination interest. As the Ninth Circuit describes, the statutory purpose of the termination provisions was to safeguard authors against unremunerative transfers and improve the bargaining position of the authors by giving them a second chance to negotiate more advantageous grants in their works after the works had been sufficiently exploited to determine their value.
Ray Charles had entered into several contracts with music publisher Atlantic Records and its subsidiary, Progressive Music Publishing Co., wherein Charles transferred ownership of several of Charles’s songs in exchange for advances and future royalties. Charles then later founded The Ray Charles Foundation and named the Foundation as the sole beneficiary of his estate, entitling it to receive Charles’s future royalties. Charles passed away in 2004. At the time of his death, Charles had 12 adult children. Charles did not give his children the rights to his songs; instead, he set up irrevocable trusts of $500,000 for each of them in exchange for their agreeing to waive any claims against his estate. In 2010, seven of Charles’s children served termination notices on Warner/Chappell Music, Progressive’s successor in interest, purporting to terminate the copyright grants Charles made during his lifetime. The notices claimed effective dates of termination at various points in time from 2012 through 2019. The grants involved covered some of Charles’s greatest hits, including “I Got A Woman,” A Fool For You,” and “Leave My Woman Alone.”
In 2012, the Foundation brought an action in a California federal court seeking, among other things, a judicial determination of the validity and effectiveness of the termination notices. The heirs moved to dismiss the action, arguing that the Foundation lacked standing to bring its claim because it was really asserting the rights of Warner/Chappell.
The district court dismissed, finding that while the Foundation plausibly alleged constitutional standing to bring the action, it lacked prudential standing because the statutory termination provisions do not mention parties that acquire by bequest the right to receive royalty streams. Rather, the court noted, only authors, statutory heirs and their successors fall within the zone of interests Congress contemplated in enacting these provisions. Accordingly, the only way for the Foundation to maintain the action was if it had third-party standing to assert Warner/Chappell’s interests, which the court found that it did not.
On appeal, a three-judge panel of the Ninth Circuit reversed. As a preliminary matter, the Ninth Circuit addressed sua sponte the question of whether the suit was ripe, considering that termination of transfers for some of the works at issue was not yet effective. The Court held that the Foundation’s complaint was not premature, accepting as true that the effects of the termination notices were concrete because the future copyright ownership of the works was uncertain. In addition, the Court noted that it would be an inefficient use of judicial resources to compel the Foundation to file a different suit after each termination date had passed.
The Court found that the Foundation’s complaint satisfied Article III standing requirements because it established that the Foundation relies on royalties from exploitation of the songs and that, if effective, the termination would deprive the Foundation of that income stream.
The Court then noted that the question of third-party standing addressed by the district court was immaterial because the Foundation was not merely asserting the rights Warner/Chappell, but also that it was a real party in interest to the proceeding. The Court reasoned that, while Warner/Chappell owned the copyrights to the works, effective termination would deprive the Foundation of the right to receive prospective royalties. Thus, the Foundation plainly asserted its own legal rights and interests, not those of Warner/Chappell.
The Court then addressed whether Congress, in enacting the termination provisions of the Copyright Act, intended to allow a party receiving royalties under a contractual assignment or will to challenge the validity of termination notices.[1] That such a party’s interests are not explicitly identified in the termination provisions was not dispositive. Instead, the Court stated that the central question was whether the Foundation alleged injuries “to precisely the sorts of interests the Act protects.” The Foundation’s alleged injury was to its interest in continuing to receive royalties generated by the works. The Court held that this interest, which was the same interest that the heirs sought to redirect to themselves, was the one Congress contemplated, regulated and protected in enacting the termination provisions. Accordingly, the Foundation came within the zone of interests of §§ 203 and 304(c) of the Copyright Act.
While the Ninth Circuit’s decision will likely bring some clarity regarding whether holders of income streams from copyrighted works may challenge the validity of termination notices, it also adds another layer of potential complexity for copyright owners, authors and authors’ heirs in this complex area of termination rights.
[1] The Court took guidance from the Supreme Court’s recent decision in Lexmark Int’l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377 (2014), which recast the inquiry as one of statutory interpretation, rather than prudential standing, holding that the question is whether a plaintiff has a cause of action under the statute.
