Mills Music, Inc v. Snyder

Decision Date08 January 1985
Docket NumberNo. 83-1153,83-1153
Citation83 L.Ed.2d 556,105 S.Ct. 638,469 U.S. 153
PartiesMILLS MUSIC, INC., Petitioner, v. Marie SNYDER and Ted Snyder, Jr., etc
CourtU.S. Supreme Court
Syllabus

This case involves a controversy between petitioner publisher and respondent heirs of the author of the 1923 copyrighted song "Who's Sorry Now" over the division of royalty income that the sound recordings of the song have generated. In 1940, the author assigned his entire interest in all renewals of the copyright to petitioner in exchange for an advance royalty and petitioner's commitment to pay a cash royalty on sheet music and 50 percent of all net royalties that petitioner received for mechanical reproductions. In 1951, petitioner registered a renewal copyright. Thereafter, petitioner directly or through an agent issued over 400 licenses to record companies authorizing the use of the song in phonograph records, and obligating the companies to pay royalties to petitioner, who in turn was obligated to pay 50 percent of those royalties to the author. Separate recordings were then prepared that generated the disputed royalty income. After the author's death, respondents succeeded to his interest in the arrangement with petitioner. Pursuant to § 304(c)(2) of the Copyright Act, as revised in 1976, respondents terminated the author's grant to petitioner of rights in the renewal copyright. Under § 304(c)(6), this termination caused all rights "covered by the terminated grant" to revert to respondents, except that under § 304(c)(6)(A) a "derivative work prepared under authority of the grant before its termination may continue to be utilized under the terms of the grant after its termination." The sound recordings in question come within the statutory definition of a "derivative work." When respondents demanded of petitioner's agent that the royalties on the recordings be remitted to them, the agent placed the disputed funds in escrow and brought an interpleader action in Federal District Court, which entered judgment for petitioner. The court held that the recordings had been "prepared under the authority of the grant" from the author to petitioner, that the statute made no distinction between grantees who themselves make or own derivative works and those who license others to do so, that therefore the terms of the agreement that had been in effect prior to the termination governed the record companies' obligation to pay royalties, and that under those agreements petitioner and respondents were each entitled to a 50 percent share in the net royalty. The Court of Appeals reversed, holding that the § 304(c)(6)(A) exception preserved only the grants from petitioner to the record companies; that the reversion of the copyright to respondents carried with it petitioner's right to collect the royalties payable under those grants; that § 304 was enacted for the benefit of authors and that the exception was designed to protect "utilizers" of derivative works; that because petitioner was neither an author nor a "utilizer," it was not a member of either class that § 304 was intended to benefit; and that the legislative history indicated that Congress had not contemplated a situation in which the authority to prepare derivative works was derived from two successive grants rather than a single grant directly from an author to a "utilizer."

Held: Petitioner is entitled pursuant to § 304(c)(6)(A) to a share of the royalty income in dispute under the terms of the author's grant to petitioner in 1940. A consistent reading of the word "grant" in the text of § 304(c)(6)(A) encompasses that grant. Nothing in the legislative history or the language of the statute indicates that Congress intended to draw a distinction between authorizations to prepare derivative works that are based on a single direct grant and those that are based on successive grants. Rather, the consequences of a termination that § 304 authorizes do not apply to derivative works that are protected by the § 304(c)(6)(A) exception. The boundaries of that exception are defined by reference to the scope of the privilege that had been authorized under the terminated grant and by reference to the time the derivative works were prepared. The record companies' derivative works involved in this case are unquestionably within those boundaries. Pp. 164-178.

720 F.2d 733, reversed.

Marvin E. Frankel, New York City, for petitioner.

Harold R. Tyler, Jr., New York City, for respondent.

Justice STEVENS delivered the opinion of the Court.

This is a controversy between a publisher, Mills Music, Inc. (Mills), and the heirs of an author, Ted Snyder (Snyder), over the division of royalty income that the sound recordings of the copyrighted song "Who's Sorry Now" (the Song) have generated. The controversy is a direct outgrowth of the general revision of copyright law that Congress enacted in 1976.1 The 1976 Act gave Snyder's heirs a statutory right to reacquire the copyright 2 that Snyder had previously granted to Mills; however, it also provided that a "derivative work prepared under authority of the grant before its termination may continue to be utilized under the terms of the grant after its termination." 3 The sound recordings of the Song, which have generated the royalty income in dispute, are derivative works of that kind.4 Thus, the dispute raises the question whether an author's termination of a publisher's interest in a copyright also terminates the publisher's contractual right to share in the royalties on such derivative works.

The key that will unlock this statutory puzzle is an understanding of the phrase "under the terms of the grant" as it is used in § 304(c)(6)(A)—the so-called "derivative works exception" (the Exception) to the "termination of transfer and licenses" provisions found in § 304(c).5 Before focusing on the meaning of the key phrase, we shall describe the chain of title to the copyright, the circumstances surrounding Congress' adoption of the 1976 Act, and how the pertinent provisions of the 1976 Act affected the relationship among the interested parties in 1978 when Snyder's heirs terminated the grant to Mills. We begin with the early factual history.

I

Snyder was one of three persons who collaborated in creating "Who's Sorry Now." 6 Although Snyder actually held only a one-third interest in the Song, the parties agree that we should treat the case as if Snyder were the sole author. The original copyright on the Song was registered in 1923 in the name of Waterson, Berlin & Snyder Co., a publishing company that Snyder partly owned.7 That company went into bankruptcy in 1929, and in 1932 the trustee in bankruptcy assigned the copyright to Mills.8

Under the Copyright Act of 1909, 35 Stat. 1075, the copyright in a musical composition lasted for 28 years from the date of its first publication, and the author could renew the copyright for an additional term of 28 years.9 Although Mills had acquired ownership of the original copyright from the trustee in bankruptcy, it needed the cooperation of Snyder in order to acquire an interest in the 28-year renewal term. Accordingly, in 1940 Mills and Snyder entered into a written agreement defining their respective rights in the renewal of the copyright. In essence, Snyder assigned his entire interest in all renewals of the copyright to Mills in exchange for an advance royalty and Mills' commitment to pay a cash royalty on sheet music and 50 percent of all net royalties that Mills received for mechanical reproductions.10 Mills obtained and registered the renewal copyright in 1951. After filing the required statutory notice,11 Mills directly, or through the Harry Fox Agency, Inc., issued over 400 licenses to record companies authorizing the use of the Song in specific reproductions on phonograph records. Using a variety of different artists and different musical arrangements, these record companies prepared separate "derivative works," each of which was independently copyrightable.12 Because each of these derivative works was a mechanical reproduction of the Song that was prepared pursuant to a license that Mills had issued, the record companies were contractually obligated to pay royalties to Mills, and Mills, in turn, was contractually obligated to pay 50 percent of those royalties to Snyder.13 Fox acted as an agent for Mills, performing the service of collecting royalties from the licensed record companies and, after deducting its charges, remitting the net receipts to Mills, which in turn remitted 50 percent of that income to Snyder. After Snyder's death, his widow and his son succeeded to his interest in the arrangement with Mills.

II

The massive work necessary for the general revision of the copyright law began in 1955, perhaps stimulated in part by this country's help in the development of, and subsequent membership in, the Universal Copyright Convention.14 In that year, Congress approved several appropriations for the Copyright Office. The Copyright Office then began building the foundation for the general revision by authorizing a series of 34 studies on major issues of copyright law; these studies were published and included in the legislative history.15 After issuing a report in 1961, the Copyright Office conducted numerous meetings with representatives of the many parties that the copyright law affected.16 In 1963, the Copyright Office issued a preliminary draft revision bill, which contained the essence of the Exception before the Court today.17 Additional discussions with interested parties followed.18 Two additional draft revision bills supervened, both containing the Exception.19 Interested parties submitted commentary following the 1964 draft revision bill.20

Congress began its lengthy hearings after the Copyright Office submitted the 1965 draft revision bill.21 The hearings on the 1965 bill occupied over three weeks during a 3-month period and...

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