The Impact of Implementing a 25-year Reversion/termination Right in Canada

• Publication year: 2021

The Impact of Implementing a 25-Year Reversion/Termination Right in Canada

Paul J. Heald

University of Illinois, Champaign-Urbana

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THE IMPACT OF IMPLEMENTING A 25-YEAR REVERSION/TERMINATION RIGHT IN CANADA

Paul J. Heald^*

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Table of Contents

I. SCOPE OF THE STUDY ..................................................................................... 65

II. Executive Summary....................................................................................66

III. Background and Methodology.........................................................68

IV. Private Benefits of Rights Reversion..............................................69

V. Public Benefits of Rights Reversoin.................................................71

A. Negative Effects of Term Extension on Book Availability..........................................................................................71
B. Effect of Term Extension on Book Prices...........................74
C. Rights Reversion Increases the Availability of Book Titles.....................................................................................76
D. A Note on Music.................................................................................82

VI. Private Costs of Rights Reversion....................................................83

VII. Public Costs of Rights Reversion.......................................................86

A. Investment Disincentives.............................................................86
B. Orphan Works.....................................................................................87
C. Derivative Works and the Problem of Hold-Up...............88
D. Who Can Exercise the Termination Right...........................90
E. Special Music Issues...........................................................................91

VIII. Recommendation and Caveat..............................................................91

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I. Scope of the Study

After hearing extensive witness testimony, the Standing Committee on Industry, Science and Technology (INDU) and the Standing Committee on Canadian Heritage (CHPC) recommended changes to the statute governing the reversion of copyrights to authors.¹ Section 14(1) of the Copyright Act currently provides that the copyright in a work reverts automatically to the author's estate 25 years after the author's death.² The operation of the present reversion right is unrelated to the date of initial publication of the work or the date of assignment for the work; therefore, the right often vests long after publication. For example, the rights to a book published when an author was 27, and who lived to be 82, would revert to the author's heirs 80 years after its initial creation.

Both committees concluded that authors or their estates should be granted a non-assignable, non-waivable right to regain control over a copyright at an earlier moment, 25 years after the author's initial assignment of rights in the work:

Recommendation 8 — That the Government of Canada introduce legislation amending the Copyright Act to provide creators a non-assignable right to terminate any transfer of an exclusive right no earlier than 25 years after the execution of the transfer, and that this termination right extinguish itself five years after it becomes available, take effect only five years after the creator notifies their intent to exercise the right, and that notice be subject to registration;

INDU Report 16, "Statutory Review of the Copyright Act," *6

Recommendation 14 — That the Government of Canada amend subsection 14(1) of the Copyright Act so that it reads 'from 25 years after assignment." [rather than the current 25 years from the death of the author]

CHPC Report 19, "Shifting Paradigms," *2

The present study was commissioned in December 2019 by Canadian Heritage to study the impact of introducing a non-assignable right to terminate any transfer of an exclusive right (also known as a termination right) or of amending rights reversion, as described in the recommendations of each report. This study reports an empirical and qualitative analysis of the potential

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advantages and disadvantages of the two recommendations made to Parliament in the context of the Copyright Act and the Canadian marketplace. The study focuses on literary copyright, and to a lesser extent music copyright, for two reasons. First, available data on rights reversion has been collected primarily on the market for books. Second, reversion is likely to be less important for other sorts of valuable works, like computer programs or video games, which are often works-made-for-hire (and therefore not subject to reversion) and which usually have a shorter economic life than books or music.

II. Executive Summary

This report tentatively recommends the adoption of a modified version of the proposal offered by INDU. Although the benefits of both proposals would likely be similar, the INDU proposal may offer lower transaction costs. The empirical data gathered in this report support the conclusion that a carefully crafted termination right would provide measurable benefits to both authors (or their estates) and to the Canadian public. As explained below, potential costs are minimal and clearly outweighed by economic benefits.

In light of the available data, the recommended termination right should:

i. provide creators a non-assignable, non-waivable right to terminate any transfer³ of an exclusive right no earlier than 25 years after the execution of the transfer;
ii. extinguish itself five years after it becomes available;
iii. take effect no earlier than twelve months after the creator is notified of the intent to exercise the right;
iv. require that notice be subject to registration;
v. require that termination can only be exercised by claimants holding 51% or more of the termination right;
vi. provide protection for a transferee⁴ who properly licensed the copyrighted work to create its own authorized original work of authorship.

The recommendation differs from the INDU proposal in three ways. First, the notice period required before termination takes effect is shortened from five years to one year. If a relationship between an author and publisher sours 25 years after rights in the title were assigned (for example, because the publisher

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suddenly takes a book out of print in year 25), an author should not have to wait five years, until year 30, before acquiring rights and republishing the title.

Second, as discussed at length in Section 7(c), current law offers no protection for licensees who create their own original works. For example, a filmmaker will often pay for an exclusive license from a novelist or short story writer prior to making a movie. Giving each qualifying contributor⁵ to a film the right to revoke permission upon reversion and gain substantial control over the film's distribution and revenue stream could distort incentives for those who create such works and could also pose a threat to their continued availability. U.S. law, which is quite similar to the original INDU proposal, protects the creators of derivative works by preserving the terms of the original assignment, even after termination.

The CHPC proposal, which is simpler and easier to implement, is questioned on the grounds that it might increase the orphan works problem and impose greater transaction costs on publishers. As discussed in Section 7(b), the automatic reversion of rights might require the needless renewal of many transfers, even when all parties are satisfied with the original deal struck by the author.⁶ In addition, when authors are deceased and rights revert to disparate heirs, the ownership of works can be difficult to discern and subject to conflicting interests of multiple parties. Publishers might respond to the transaction costs imposed by automatic reversion by routinely ceasing publication after 25 years, except for the most profitable works.⁷

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III. Background and Methodology

The roots of rules promoting copyright reversion to authors are generally paternalistic, "designed to provide protection for authors against bad deals."⁸ The legislative history of the U.S. termination statute makes this equitable motivation explicit: "A provision of this sort [17 U.S.C. § 203] 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."⁹ The present Canadian statute originates from the 1911 U.K. Imperial Copyright Act which was purportedly passed in response to the impoverished status of Charless Dickens' heirs.¹⁰

As a legal mechanism with an equitable justification, copyright reversion is viewed as providing private benefits to authors and their estates, but it is potentially in conflict with the public welfare goals of copyright law. For example, a poorly crafted reversionary right might diminish publishers' incentives to invest in new works. However, when reversion is likely to increase both private welfare to authors and public welfare (as appears to be the case in the United States), then adopting a reversion regime is advisable. Whenever a potential conflict between private and public interests is identified, then the rights reversion regime should be crafted to minimize social costs. This study examines the current proposals before Parliament in light of the need to balance the interests of authors and the public.

The primary methodology of this report is cost/benefit analysis, supported by data gathered on the effect of the copyright reversion regimes on book markets in Canada, the United Kingdom, and the United States. Whether markets for other copyrighted works respond in a similar fashion is unclear (although some thoughts on the music market are offered below). Rights

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reversion, for example, might be irrelevant in the market for computer programs which typically have no market value 25 years after...