Penguin Group (Usa) Inc. v. Steinbeck

• Decision Date: 13 August 2008
• Docket Number: Docket No. 06-3226-cv.,Docket No. 06-3696-cv.
• Citation: 537 F.3d 193
• Parties: PENGUIN GROUP (USA) INC., Plaintiff-Appellant, Waverly Scott Kaffaga, individually as Executor of the Estate of Elaine Anderson Steinbeck, David Scott Farber, Anderson Farber Runkle, Jebel Kaffaga, Bahar Kaffaga and Jean Anderson Boone, Defendants-Counterclaim-Plaintiffs-Appellants, v. Thomas STEINBECK and Blake Smyle, Plaintiffs-Counterclaim-Defendants-Appellees, Nancy Steinbeck, Intervenor-Plaintiff, McIntosh & Otis, Inc., The Steinbeck Heritage Foundation, Eugene H. Winick, Samuel Pinkus and Steven Frushtick, Defendants-Counterclaim-Plaintiffs, Francis Anderson Atkinson and Does 1-10, Defendants.
• Court: U.S. Court of Appeals — Second Circuit

537 F.3d 193

PENGUIN GROUP (USA) INC., Plaintiff-Appellant Waverly Scott Kaffaga, individually as Executor of the Estate of Elaine Anderson Steinbeck, David Scott Farber, Anderson Farber Runkle, Jebel Kaffaga, Bahar Kaffaga and Jean Anderson Boone, Defendants-Counterclaim-Plaintiffs-Appellants, v. Thomas STEINBECK and Blake Smyle, Plaintiffs-Counterclaim-Defendants-Appellees Nancy Steinbeck, Intervenor-Plaintiff McIntosh & Otis, Inc., The Steinbeck Heritage Foundation, Eugene H. Winick, Samuel Pinkus and Steven Frushtick, Defendants-Counterclaim-Plaintiffs Francis Anderson Atkinson and Does 1-10, Defendants.

Docket No. 06-3226-cv.

Docket No. 06-3696-cv.

United States Court of Appeals, Second Circuit.

Argued: January 23, 2008.

Decided: August 13, 2008.

Richard Dannay, Cowan, Liebowitz & Latman, P.C. (Thomas Kjellberg, of counsel), New York, NY, for Plaintiff-Appellant Penguin Group (USA) Inc.

Susan J. Kohlmann, Jenner & Block LLP (Carolina A. Fornos, of counsel), New York, NY, for Plaintiffs-Appellants Kaffaga et al.

Mark S. Lee, Manatt Phelps & Phillips, LLP (Benjamin G. Shatz and Alon G. Markowitz, of counsel), Los Angeles, CA, for Defendants-Appellees.

Before: SACK, KATZMANN, and RAGGI, Circuit Judges.

SACK, Circuit Judge:

This is an appeal from an order of the United States District Court for the Southern District of New York (Richard Owen, Judge) granting summary judgment to the appellees Thomas Steinbeck and Blake Smyle based on the court's conclusion that a "notice of termination" given in 2004 that purported to terminate, pursuant to the Copyright Act, 17 U.S.C. § 304(c) and (d), the 1938 grant of copyright licenses by the author John Steinbeck, was valid. We consider on appeal whether an agreement entered into in 1994 between Steinbeck's widow and the publisher terminated and superseded the 1938 agreement, and, if so, whether the termination notice is therefore ineffective. Because the termination right provided by section 304(d) pursuant to which the 2004 termination notice was issued applies only to pre-1978 grants of transfers or licenses of copyright, and because the 1994 agreement left intact no pre-1978 grant for the works in question, we conclude that the 2004 notice of termination is ineffective. The 1994 agreement remains in effect.

BACKGROUND

Grants of Licenses of Copyright

On September 12, 1938, the author John Steinbeck executed an agreement with The Viking Press (the "1938 Agreement") that established the terms for the latter's publication of some of Steinbeck's best-known works, including The Long Valley, Cup of Gold, The Pastures of Heaven, To A God Unknown, Tortilla Flat, In Dubious Battle, and Of Mice and Men, in all of which Steinbeck held the copyright. In 1939, the agreement was extended to apply to four later works, including The Grapes of Wrath, through the operation of an option clause in the agreement. The rights granted by the 1938 Agreement were later assigned by Viking to plaintiff-appellant Penguin Group (USA) Inc. ("Penguin"), and the duties thereunder assumed by Penguin. The 1938 Agreement provided to the publisher, who agreed to take out copyrights in the covered works in Steinbeck's name, the "sole and exclusive right" to publish the works in the United States and Canada, with Steinbeck receiving royalties based on net sales. The agreement would terminate if any of the covered works were not kept in print. The agreement was "binding upon [John Steinbeck's] heirs, executors, administrators or assigns."

During his lifetime, Steinbeck renewed the copyrights in the works covered by the 1938 Agreement so that they enjoyed protection under both of the consecutive 28-year copyright terms provided for by the version of the Copyright Act in effect at the time. When Steinbeck died in 1968, he bequeathed his interest in these copyrights to his widow, Elaine Steinbeck. His sons by a previous marriage, Thomas and John IV, each received a bequest of $50,000 in a trust arrangement.

On October 24, 1994, Elaine Steinbeck and Penguin entered into a "new agreement for continued publication" (the "1994 Agreement"). It addressed the publication by Penguin of all works that were covered by the 1938 Agreement. It added several other early Steinbeck works, some of his posthumous works, and some of Elaine Steinbeck's own works. It also changed the economic terms of the 1938 Agreement, mostly to Elaine Steinbeck's benefit, by requiring Penguin to provide a far larger annual guaranteed advance, and royalties of between ten and fifteen percent of retail (rather than wholesale) sales. The 1994 Agreement further stated that "when signed by Author and Publisher, [it] will cancel and supersede the previous agreements, as amended, for the [works] covered hereunder."¹

Elaine Steinbeck died in April 2003, bequeathing her copyright interests in the Steinbeck works at issue, as well as proceeds from the 1994 Agreement, to various testamentary heirs including her children and grandchildren from a previous marriage, but she specifically excluded Thomas Steinbeck, John Steinbeck IV, and their heirs. Her statutory termination rights expired upon her death.

On June 13, 2004, John Steinbeck's surviving son Thomas, and Blake Smyle, the sole surviving child of Steinbeck's other son, the deceased John IV, (collectively the "Steinbeck Descendants") served what purported to be a notice of termination (the "Notice of Termination") on Penguin terminating the "grants" made by the 1938 Agreement to Penguin's predecessor-in-interest (Viking).

Statutory Background

The Copyright Act gives to authors and certain enumerated family members the power to terminate prior grants of transfers or licenses of copyright. This power is based on Congressional recognition that young authors frequently enter into long-term contracts with publishers when their bargaining power is weak and their prospects for success uncertain, and discover increased leverage only when they later achieve commercial success. Indeed, in an effort to balance the interests of publishers and authors, Congress enacted provisions in the Copyright Act that "attempted to give the author a second chance to control and benefit from his work" and to "secure to the author's family the opportunity to exploit the work if the author died." Stewart v. Abend, 495 U.S. 207, 218, 110 S.Ct. 1750, 109 L.Ed.2d 184 (1990). Congress permitted a publisher the opportunity to reap the initial rewards of an early investment in young talent, but it allowed authors to revisit the terms of earlier grants of rights once the long-term success of their works became apparent. See id.

When John Steinbeck entered into the 1938 Agreement with Viking Press, the Copyright Act of 1909 was in effect. Under that version of the Act, authors were entitled to a copyright in their works for an initial twenty-eight year period beginning on the date of a work's publication. After this period expired, the author had the right to renew the copyright for a second twenty-eight year term. The purpose of providing this renewal term was to permit "the author, originally in a poor bargaining position, to renegotiate the terms of the grant once the value of the work ha[d] been tested." Stewart, 495 U.S. at 218-19, 110 S.Ct. 1750; accord Marvel Characters, Inc. v. Simon, 310 F.3d 280, 283 (2d Cir.2002) (quoting Stewart). Publishers could, and often did, thwart the purpose of this statutory scheme, however, by requiring authors to assign both their initial and renewal rights to the publisher at the same time and before the long-term value of an author's work could be ascertained. This practice received the legal imprimatur of the Supreme Court in Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643, 63 S.Ct. 773, 87 L.Ed. 1055 (1943), which held that renewal rights could be assigned by an author during a work's initial copyright term and before the vesting of the renewal right. Id. at 656-59, 63 S.Ct. 773; see also Marvel, 310 F.3d at 284.

The 1976 amendments to the Copyright Act, which took effect in 1978, abandoned this framework. In order to revitalize the ability of authors to revisit the terms of earlier grants of rights, the amended Act replaced the two consecutive twenty-eight year terms with a single copyright term of increased duration,² and it created for authors or their statutory heirs, with respect to transfers or licenses of copyright effected prior to 1978, an inalienable right to terminate the grant of a transfer or license. 17 U.S.C. § 304(c). The section provides, in pertinent part:

In the case of any copyright subsisting in either its first or renewal term on January 1, 1978, ... the exclusive or nonexclusive grant of a transfer or license of the renewal copyright or any right under it, executed before January 1, 1978, by [the author or the author's heirs as specified at section 304(a)(1)(C)], otherwise than by will, is subject to termination under the following conditions:

(1) ... In the case of a grant executed by one or more of the authors of the work, termination of the grant may be effected ... by the author who executed it or, if such author is dead, by the person or persons who, under clause (2) of this subsection, own and are entitled to exercise a total of more than one-half of that author's termination interest.

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

. . .

(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.[³]

(3) Termination of the grant may be effected at any time during a period of five years beginning at the end of fifty-six years from the date copyright was originally secured, or beginning on January 1, 1978, whichever is later.

. . .

(5) Termination of the grant may be...