U.S. Copyright Transfer Termination Rights as a Choice-of-Law Problem

A transfer of copyright, such as an assignment of copyright or a license of copyright, is often executed with transnational scope. Business transactions in most types of copyrighted works are increasingly global, and it is not surprising that parties want to conduct transactions in copyright for multiple countries. Transfers of copyright, including those that arise from transnational transactions, can be subject to termination rights, and when an author chooses to exercise these rights, the existence of the rights in the various countries of transfer may come into dispute. Although the issue presents a clear choice-of-law question, U.S. appellate courts have left the question unanswered in two recent cases that could have presented opportunities to address it.

Termination Rights

Copyright transfer termination rights are a frequent source of consternation to lawyers unfamiliar with copyright law, law students, clients, and the general public. Most observers would expect that a copyright transfer, such as a copyright assignment or license, would last until the term of the transferred copyright expires, unless the transfer contract expressly shortens the duration of the transfer. But in the United States, this expectation is incorrect; according to the U.S. Copyright Act, 35 years after an author executes a copyright transfer (another period after a transfer executed before January 1, 1978), the transfer may be terminated by the author or, if the author is deceased, by a statutorily designated owner or owners of the termination rights.

Consternation about U.S. termination rights is even greater internationally because copyright transfer termination rights do not exist everywhere, or at least they do not exist with the same parameters. Although most national copyright laws have been harmonized to a significant degree—based on a series of widely-adopted international intellectual property treaties, including the Berne Convention and the TRIPS Agreement—national laws continue to vary in many respects, including the existence of the rights to terminate copyright transfers. For example, in contrast to the U.S. Copyright Act, the Canadian Copyright Act includes no termination rights, but provides for an automatic reversion of copyright to the author’s estate 25 years after the author’s death.

In many other countries, copyright laws provide for neither copyright transfer termination rights nor reversion of copyright. However, the laws of these countries might have other provisions that can affect the conditions of copyright transfers following the execution of the transfers, such as provisions on post-transfer adjustments to authors’ remuneration. For example, under the German Copyright Act, an author may require that a transferee consent to a modification of their existing contract so that the contract ensures an equitable remuneration to the author; equitable remuneration is required by the German Copyright Act, and the author may petition a court to make any necessary adjustment to the remuneration if the transferee refuses to consent to the modification of the contract. The European Union’s 2019 Digital Single Market Directive mandates that all EU member states ensure in their respective national laws that authors “are entitled to receive appropriate and proportionate remuneration,” but even this directive leaves to each EU member state the choice of how to implement the requirement.

Choice of Law

The national differences that affect durability of copyright transfers, or their conditions after the execution of the transfer, were destined to generate choice-of-law problems. Contracts might transfer copyrights for two or more countries, of which only some have termination rights or a reversion provision. And so the question arises which of the countries’ laws govern the termination rights or the reversion of copyright, and for which countries. Two recent appellate decisions in the United States concerned cross-border cases that presented questions of copyright transfer termination rights, but neither decision addressed the relevant choice-of-law problem.

One of the cases, Vetter v. Resnik, which Bill Dodge reviewed in this blog post, involved a transfer that was effectuated in the United States and transferred copyright for the United States and additional countries. At some point, the plaintiff, a holder of an interest in the copyright, filed a notice of termination under U.S. law, purporting to terminate the transfer of copyright not only for the United States but also for the other countries covered by the transfer. The defendant argued that the termination notice under U.S. law did not terminate any non-U.S. copyrights because a termination notice filed under U.S. law could only affect U.S. copyrights. After concluding that the issue involved interpreting the territorial scope of the Copyright Act’s provision on termination rights, the Fifth Circuit held that the termination notice under U.S. law terminated the transfer for all the countries and that the plaintiff was the owner of the copyright interest in every country covered by the transfer.

The other recent case, Ennio Morricone Music Inc. v. Bixio Music Group Ltd., presented a different problem. The contract at issue, which was concluded in Italy, assigned copyrights “in any country in the world,” including in the United States, and a question arose whether the assignment of the U.S. copyrights covered by the contract could be terminated. Italian law, which governed the contract, does not have the same copyright transfer termination rights that exist in U.S. law. Only after this decision, a 2021 amendment of the Italian Act on the Author Rights’ Protection, and consistent with the EU Digital Single Market Directive, an author may seek termination of a transfer of copyright to a work, but only if the transferee has not exploited the work within a certain timeframe.

The U.S. courts in Ennio Morricone did address one choice-of-law question, but it was not whether Italian law governed the existence of any termination rights pertaining to the copyrights. Instead, the courts focused on selecting the law that was applicable to whether the works at issue were “works made for hire” for purposes of the U.S. provisions on termination of transfer, which do not afford the termination rights to such works. Both the district court and the Second Circuit applied Italian law to the issue. But whereas the district court interpreted Italian law as having “the [same] legal effect … as the American equivalent of work for hire,” and held that the works were to be considered “works made for hire” for purposes of U.S. termination rights, the Second Circuit interpreted the Italian law differently and reversed the district court after deciding that the works were not made for hire and that the assignment of U.S. copyrights in the case was subject to U.S. termination rights in the United States.

Neither case produced an answer to the question of the choice of the law governing copyright transfer termination rights. In both cases, the courts used U.S. law for the termination of transfers of copyrights for the United States. Additionally, in Vetter the court held that U.S. law governed the termination of transfers of all copyrights, even copyrights transferred for other countries, because the Vetter court concluded that Congress did not intend termination rights (at least those under section 304(c)(6) of the U.S. Copyright Act) to apply only to U.S. copyrights.

Characterization

If the question about the law applicable to the existence of copyright termination rights is posed correctly, the answer to the choice-of-law question depends on proper characterization.

If the issue of the existence of termination rights is characterized as arising in contract, then the law applicable to the contract would govern the existence of the rights, in the absence of a choice-of-law rule specific to that issue. Under this characterization, no U.S. copyright-law termination rights would exist in the United States for a U.S. copyright if the contract transferring the U.S. copyright was governed by Italian law. Conversely, a transfer contract governed by U.S. law would make termination rights under U.S. law available for all copyrights transferred by the contract, including copyrights for foreign countries. The latter outcome would be consistent with the approach in Vetter.

However, termination rights should not be characterized as arising in contract; their existence is an issue that concerns the scope of an author’s copyright, and their existence should therefore be governed by lex loci protectionis—the law of the protecting country. In the United States, termination rights were introduced to compensate for the opportunity that authors enjoyed under the superseded two-term regime of copyright protection previously afforded to authors, who were able to renegotiate their transfer of copyright when the first copyright term expired. The elimination of the two terms threatened a loss of the renegotiation opportunity, and Congress therefore adopted termination rights to provide authors a replacement opportunity to renegotiate their transfers of copyright. This origin of the termination rights underscores the link to the scope of copyright and the permissible scope of the author’s grant.

The application of lex loci protectionis to the existence of termination rights and the reversion of copyright is sensible. Each country has chosen some means of ensuring that author remuneration can be adjusted, whether the adjusted remuneration accrues to the benefit of the author during the author’s lifetime, or to the benefit of the author’s heirs or other successors following the author’s death. The particular means selected by a country is presumably part of a carefully calibrated national copyright law system that takes into account the other laws of the country, including its procedural laws. Expanding the rules of one country, such as the termination rights under U.S. law, to copyrights in other countries could disrupt the calibration in other countries by exporting foreign elements into their systems.

A clarification of the law that governs the existence of copyright transfer termination rights is therefore needed, both for U.S. copyrights transferred by a contract governed by non-U.S. law, as was the case in Ennio Morricone, and for non-U.S. copyrights transferred by a contract governed by U.S. law, as was the case in Vetter. This need stems as much from transactional work as it also does from litigation. Lawyers need to know how to draft transnational copyright transfers for the future. The tradition of choice of law suggests that the rule for the choice of applicable law in the two types of cases should be the same.

Conclusion

One way to ensure that U.S. law governs in either type of case, as happened in Vetter and Ennio Morricone, would be to afford the U.S. provisions on copyright transfer termination rights the status of internationally mandatory rules. As Jane Ginsburg and Richard Arnold pointed out, the Second Circuit had already stated that “United States renewal copyrights reflect a vital policy of United States copyright law.” Because termination rights stepped in to replace the renegotiating opportunity originally embedded in the renewal rights, termination rights presumably reflect the same vital policy to which the Second Circuit referred, which might warrant the treatment of the termination right provisions of the U.S. Copyright Act as internationally mandatory rules.