Harry Fox Agency, Inc. v. Mills Music, Inc.

• Decision Date: 15 July 1982
• Docket Number: No. 80 Civil 6993.,80 Civil 6993.
• Citation: 543 F. Supp. 844
• Parties: The HARRY FOX AGENCY, INC., Plaintiff, v. MILLS MUSIC, INC., and Marie Snyder and Ted Snyder, Jr., d/b/a Ted Snyder Music Publishing Co., Defendants.
• Court: U.S. District Court — Southern District of New York

543 F. Supp. 844

The HARRY FOX AGENCY, INC., Plaintiff, v. MILLS MUSIC, INC., and Marie Snyder and Ted Snyder, Jr., d/b/a Ted Snyder Music Publishing Co., Defendants.

No. 80 Civil 6993.

United States District Court, S. D. New York.

July 15, 1982.

COPYRIGHT MATERIAL OMITTED

Paul, Weiss, Rifkind, Wharton & Garrison, New York City, for Nat. Music Publishers Ass'n as amicus curiae; Sidney S. Rosdeitcher, Peter L. Felcher, Daniel Victor, New York City, of counsel.

Silverman & Shulman, New York City, for plaintiff; Alan Shulman, New York City, of counsel.

Parcher & Herbert, P. C., New York City, for defendant Mills Music, Inc.; Peter A. Herbert, New York City, of counsel.

Linden & Deutsch, New York City, for defendants Marie Snyder and Ted Snyder, Jr.; Frederick F. Greenman, Jr., Alvin Deutsch, Robert C. Harris, New York City, of counsel.

OPINION

EDWARD WEINFELD, District Judge.

This is a case of novel impression involving the interpretation of the "derivative works exception" of the Copyright Act of 1976 (the "1976 Act") which became effective January 1, 1978. The parties to this litigation are in agreement that the material facts are undisputed; that the only issues are legal and the matter is ripe for disposition under their cross-motions for summary judgment made pursuant to Rule 56 of the Federal Rules of Civil Procedure.

Under section 24 of the Copyright Act of 1909 (the "1909 Act"),¹ an author or composer of a work was granted copyright protection for a total period of 56 years — an initial term of 28 years and a renewal term of 28 years with the right of assignment of each term.² The 1976 Act extended renewal copyrights subsisting at any time within the year prior to January 1, 1978 for an additional 19 years to a total of 75 years.³ The authors and composers are given the right to recapture the benefits of the additional 19 years by terminating grants previously made to others. However, this right of termination and recapture of the copyright by the author is subject to an exception for "derivative works," such as sound recordings of a copyrighted song. Under this exception, when such "derivative works" are created under authority of the grant before its termination, they "may continue to be utilized under the terms of the grant after its termination."⁴

Broadly stated, the dispute in this case is between a music publisher to whom an author had assigned his renewal copyright to a musical composition and the author who exercised his right of termination. The issue presented is the application of the derivative works exception (the "Exception") to determine the respective rights of the author and the music publisher to royalties generated from sound recordings of the composition that were prepared by record companies before the effective date of termination. The authors claim they or their statutory heirs are entitled to all mechanical royalties earned after termination, regardless of when the recordings were made. The music publishers claim that, notwithstanding termination, the Exception entitles them to continue to collect and share royalties as they had prior to the effective date of termination, with respect to all sound recordings prepared by record companies prior to termination under licenses issued to them by the music publishers.

The work which is the subject of the royalty income dispute is a musical composition, "Who's Sorry Now" (the "Song") written and composed in the early 1920s by Ted Snyder, Burt Kalmar and Harry Ruby as equal one-third authors (the "Authors"). A typical arrangement in the music industry is for an author to assign his copyright in a song to a music publisher. Under the assignment, the publisher issues licenses to record companies (or "record producers") authorizing them to make phonorecords from sound recordings, in return for royalty payments which the publisher shares with the songwriter or author, often on a 50/50 basis.⁵ This was the pattern followed in the instance of "Who's Sorry Now."

The original copyright in the Song was registered in the Copyright Office on March 7, 1923 in the name of Waterson, Berlin & Snyder Co., a publishing company. On February 9, 1932, the trustee in bankruptcy of the company assigned the copyright to defendant Mills Music, Inc. ("Mills"), then and now engaged in the business of publishing and otherwise commercially exploiting copyrighted musical compositions. On February 11, 1932, Mills recorded the assignment in the Copyright Office as the exclusive copyright owner and publisher of the Song for the balance of the original 28-year term of the copyright. In May and June 1940, Snyder, and later his two co-authors by their individual agreements, assigned to Mills all their renewal rights to the copyright of the Song, including the exclusive right to act as the publisher of the Song. On March 1, 1951, the copyright renewal was registered by Mills in the Copyright Office.

On May 16, 1958, Mills, in accordance with the requirements of section 1(e) of the 1909 Act,⁶ filed with the Copyright Office a Notice of Use on Mechanical Instruments with respect to the Song. Such a Notice is designed to notify all other persons that a musical composition is available for mechanical reproduction by payment to the copyright owner of the royalty specified in the statute and compliance with other statutory requirements.⁷ Sections 1(e) and 101(e) and their successor section 115 of the 1976 Act are known as the compulsory license provisions. However, that statutory procedure is rarely invoked. Usually, record producers apply to and obtain the right to use copyrighted material from music publishers (the copyright proprietors) under licenses which contain modifications of the statutory terms.⁸ These modifications are designed to encourage exploitation of musical compositions by, among other matters, lowering the statutory royalty rate, dispensing with statutory notice requirements, or reducing the frequency with which accountings and payments are made. This practice was followed in the instant case.

The Harry Fox Agency, Inc. ("Fox"), plaintiff herein, for many years has acted on behalf of Mills and issued licenses with respect to mechanical recordings of the Song to producers of phonorecords. During the years 1951 to and including 1980, encompassing the renewal period under the 1909 Act, Mills either directly or through Fox issued 419 licenses to record producers permitting use of the Song in connection with the manufacture and distribution of phonorecords. Fox has collected from the record producers the royalties derived from such licensed use of the Song which were then distributed equally on a 50/50 basis as provided for by the agreement between Mills and the Authors; accordingly, each Author received his proportionate one-third of the 50% share to which he was entitled.

On January 3, 1978, defendants Marie Snyder and Ted Snyder, Jr. (the "Snyders"), widow and son of the deceased composer, Ted Snyder, exercised their right under the 1976 Act as statutory heirs⁹ to terminate Ted Snyder's grant to Mills at the beginning of the 19-year extension of the renewal term. Pursuant to section 304 of the 1976 Act, the Snyders served a Notice of Termination upon Mills effective January 3, 1980. That Notice terminated Ted Snyder's grant to Mills of his one-third interest in the renewal copyright in the Song subject to applicability of the Exception.

Since the effective date of termination, Fox has received from the record producers royalties in a sum equal to $5,301.03. Fox paid two-thirds of this sum to Mills¹⁰ and has retained the balance of $1,767.01, that is, one-third of the total amount corresponding to the Snyders' share (the "Disputed Fund"), which sum has been deposited in Court upon the commencement of this action.¹¹ Mills and the Snyders each make conflicting claims with respect to the Disputed Fund and as to distributions of any future royalties.

Fox commenced this interpleader action to resolve the dispute pursuant to 28 U.S.C., section 1335, and it also seeks declaratory relief pursuant to 28 U.S.C., section 1338(a) in that the controversy arises under the federal copyright laws. Mills and the Snyders asserted counter and cross-claims and each moves for summary judgment. Their conflicting demands upon the Disputed Fund are the result of differing interpretations of provisions of the 1976 Act. Thus we turn to the pertinent provisions of the Act.

The right of termination by Ted Snyder, or as in this case, by his statutory heirs, of the renewal copyright held by Mills is not absolute. It is subject to a clearly expressed limitation. Thus section 304(c)(6) in pertinent part provides that

all of a particular author's rights ... covered by the terminated grant revert ... to that author or his statutory heirs. In all cases the reversion of rights is subject to the following limitations:

(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, but this privilege does not extend to the preparation after the termination of other derivative works based upon the copyrighted work covered by the terminated grant.

Analysis of the contentions of Mills and the Snyders requires a definition of terms used in this and other relevant provisions of the 1976 Act.

A work is a "derivative work" if it is substantially derived from an underlying work, and would otherwise constitute an infringement of the copyright in the underlying work but for the permission granted by the copyright proprietor thereof for its use.¹² It is not disputed that the sound recordings of the Song made by licensed record companies are "derivative works." The "sound recording" is a series of sounds constituting a performance of the Song which is first "fixed" on a master.¹³ The term "fixed" as defined in section 101 of the 1976 Act¹⁴ is synonymous with the word "prepared" as used in...