Copyright's Unconsidered Assumption: Statutory Successors to the Termination Interest (and the Unintended Consequences for Estate Planners)

• Publication year: 2021

94 Nebraska L. Rev. 441. Copyright's Unconsidered Assumption: Statutory Successors to the Termination Interest (and the Unintended Consequences for Estate Planners)

Copyright's Unconsidered Assumption: Statutory Successors to the Termination Interest (and the Unintended Consequences for Estate Planners)

Katie Joseph

TABLE OF CONTENTS

I. Introduction .......................................... 442

II. A Brief Overview of Termination ...................... 443

III. Legislative History of Successors in Reversion and Termination .......................................... 445

A. 1790-1831 ........................................ 445

B. The 1909 Copyright Act ........................... 447

1. Conferences ................................... 447

2. Congressional Proceedings ..................... 449

C. The 1976 Act ...................................... 453

1. Studies and Conferences on Revision ........... 454

2. Congressional Proceedings ..................... 457

IV. A More Sensible Succession ........................... 461

A. Termination as a Planning Challenge .............. 462

B. The Preference for Testamentary Freedom ......... 463

C. Two Statutory Solutions ........................... 465

1. Reorder Statutory Successors .................. 465

2. Exempt Certain Lifetime Transfers ............ 469

V. Planning & Termination .............................. 470

A. Is Termination a Concern? ........................ 470

B. Transfer by Will ................................... 472

C. Work Made for Hire ............................... 473

VI. Conclusion ............................................ 476

I. INTRODUCTION

Albert Brumley, author of the hit gospel song, I'll Fly Away, formed a corporation to hold his copyrights and subsequently sold his interest in the business to two of his six children.(fn1) Lifetime transfer of assets through a business entity is a well-recognized estate planning tech-nique.(fn2) With virtually any other type of property, the story would have ended there. Probably unbeknownst to Brumley and those who assisted with his planning, the four Brumley children who were not involved in the business retained a right to terminate the grant from Brumley to the corporation.(fn3) In 2006, these four delivered a termination notice to the corporation.(fn4) Litigation ensued, appeal was taken, and a jury eventually found for the four heirs and their descendants.(fn5) The parties stipulated to the division of post-termination income.(fn6)

The termination provision of the Copyright Act was intended give authors a chance to renegotiate unremunerative transfers.(fn7) Though Congress's intent may have been to benefit authors, at least two observers have recognized that the termination provision makes it "difficult, if not impossible, for authors to engage in effective estate planning."(fn8) The concept of recapture of copyright by authors has been hotly debated at least twice, but there has been no critical examination of Congress's choice to pass the termination interest through a statutory class of successors rather than deferring to the author's will. In the proceedings leading up to the 1909 and 1976 Acts, Congress dealt with a host of new technological developments, wrestled with the constitutional implications of an extended term, and listened to heated debates between authors and publishers. Once agreement was reached on renewal and termination, the debate moved on to other pressing matters and the statutory class of successors remained unex-amined. This Note briefly examines the termination interest, outlines the legislative history involving the statutory class of heirs, proposes a modest revision that would give authors(fn9) and publishers(fn10) greater certainty, and provides some suggestions for planners dealing with the existing termination provision.

II. A BRIEF OVERVIEW OF TERMINATION

The Copyright Act contains three termination provisions. The first, § 203 applies to grants made by the author after January 1, 1978.(fn11) The second, § 304(c), applies to pre-1978 grants of rights to a work that was still covered by copyright on January 1, 1978, and that were made by the author, her surviving spouse or children, her executors, or failing all of the above, her next-of-kin.(fn12) The third, § 304(d), applies to grants of copyrights in their renewal terms on October 27, 1998, by the same grantors in § 304(c), and is available only if a § 304(c) termination right has not already been exercised.(fn13) A grant of rights to a work made for hire is not subject to termination under any of the three provisions.(fn14)

Once the termination window opens, the holder (or holders) of the termination interest may end a grantee's rights in a work by serving notice within the statutorily prescribed period.(fn15) Generally, when the termination becomes effective, the rights that were the subject of the grant revert to those who owned a termination interest, whether or not they joined in the termination.(fn16) For pre-1978 grants executed by persons other than the author, the rights under the grant revert to the surviving person who executed the grant.(fn17)

The foregoing is complicated-and controversial-enough, but there is a further curiosity to the Act's termination provisions: Once an author dies, the termination interest does not pass through the author's estate but instead is divided among a class of statutory successors:

(2) Where an author is dead, his or her termination interest is owned, and may be exercised, as follows:

(A) The widow or widower owns the author's entire termination interest unless there are any surviving children or grandchildren of the author, in which case the widow or widower owns one-half of the author's interest.

(B) The author's surviving children, and the surviving children of any dead child of the author, own the author's entire termination interest unless there is a widow or widower, in which case the ownership of one-half of the author's interest is divided among them.

(C) The rights of the author's children and grandchildren are in all cases divided among them and exercised on a per stirpes basis according to the number of such author's children represented; the share of the children of a dead child in a termination interest can be exercised only by the action of a majority of them.

(D) In the event that the author's widow or widower, children, and grandchildren are not living, the author's executor, administrator, personal representative, or trustee shall own the author's entire termination interest.(fn18)

The real difficulty for planners arises from another portion of the statute, which provides, "Termination of the grant may be effected notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant."(fn19) In other words, authors cannot vary ownership of the termination interest by contract, and are thus stuck with Congress's choice.

The statutory successor scheme coupled with the non-alienation provision means that any lifetime grant by an author is subject to termination after thirty-five years. From an estate planning perspective, this undermines certainty in property transfers and raises questions about whether the rights under the grant should be included in the author's estate.(fn20) From a policy perspective, this result is questionable; authors are really in the best place to understand the needs of their survivors, not Congress. If the rationale behind recapture is really to give authors the ability to renegotiate grants of a right that is difficult to value, forced succession is paternalistic and out of place in the statute. Other bodies of federal law place limits on the transfer of property, but these limits are only "default" limits-the owner of the property can override them.(fn21) Why not copyright?

Though the general concept of recapture of copyright by authors received exacting scrutiny in the proceedings that led to the 1909 and 1976 Copyright Acts, there is little evidence Congress has ever paused to consider the wisdom of vesting inalienable rights in this class of successors. In fact, the legislative history suggests the opposite. Statutory successors first appeared in 1831; since then, the class of successors has been refined, but apparently has never been questioned.

III. LEGISLATIVE HISTORY OF SUCCESSORS IN REVERSION AND TERMINATION

Before 1978, authors did not have the ability to terminate transfers. Instead, authors recaptured copyrights in a renewal term. Because termination has its roots in renewal and reversion,(fn22) this Part examines the history of statutory successors to reverted rights and how the same concept was imported into the termination provision.

A. 1790-1831

Under the 1790 Copyright Act, an author who survived the first term of copyright was entitled to a renewal term, with rights during that term, once secured by the author, vesting in the author, his "executors, administrators, or assigns."(fn23) If the author did not survive the first term of copyright, copyright protection ceased at the end of that term and the work entered the public domain. As legislators would later recognize, this limitation denied the benefits of copyright to the author's family at a time when it might be the only means of support available to them.(fn24)

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