Steinbeck v. McIntosh & Otis, Inc., 04-CV-5497 (RO).

• Decision Date: 08 June 2006
• Docket Number: No. 04-CV-5497 (RO).,No. 04-CV-6795 (RO).,04-CV-5497 (RO).,04-CV-6795 (RO).
• Citation: 433 F.Supp.2d 395
• Parties: Nancy Steinbeck, an individual, Intervenor-Plaintiff, v. McINTOSH & OTIS, INC., a New York corporation; the Steinbeck Heritage Foundation, a non-profit New York corporation; Eugene H. Winick, an individual; Samuel Pinkus, an individual; Jean Anderson Boone, an individual; Francis Anderson Atkinson, an individual; Waverly Scott Kaffaga, an individual and Executor of the Estate of Elaine Anderson Steinbeck; David Scott Farber, an individual; Anderson Farber Runkle, an individual; Jebel Kaffaga, an individual; Bahar Kaffaga, an individual; and Steven Frushtick, an individual; and Does 1-10, Defendants and Counterclaim Plaintiffs. Penguin Group (USA) Inc. Plaintiff, v. Thomas Steinbeck and Blake Smyle, Defendants.
• Court: U.S. District Court — Southern District of New York

433 F.Supp.2d 395

Thomas STEINBECK, an individual; and Blake Smyle, an individual, Plaintiffs and Counterclaim Defendants, Nancy Steinbeck, an individual, Intervenor-Plaintiff, v. McINTOSH & OTIS, INC., a New York corporation; the Steinbeck Heritage Foundation, a non-profit New York corporation; Eugene H. Winick, an individual; Samuel Pinkus, an individual; Jean Anderson Boone, an individual; Francis Anderson Atkinson, an individual; Waverly Scott Kaffaga, an individual and Executor of the Estate of Elaine Anderson Steinbeck; David Scott Farber, an individual; Anderson Farber Runkle, an individual; Jebel Kaffaga, an individual; Bahar Kaffaga, an individual; and Steven Frushtick, an individual; and Does 1-10, Defendants and Counterclaim Plaintiffs.

Penguin Group (USA) Inc. Plaintiff, v. Thomas Steinbeck and Blake Smyle, Defendants.

No. 04-CV-5497 (RO).

No. 04-CV-6795 (RO).

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

June 8, 2006.

Mark S. Lee — Manatt, Phelps & Phillips LLP, New York City, for Plaintiffs/Defendants Thomas Steinbeck and Blake Smyle.

Sanford J. Hausler — Cox Padmore Skolnik & Shakarchy LLP, New York City, for Intervenor-Plaintiff Nancy Steinbeck.

Susan J. Kohlmann, Nancy V. Thornton — Pillsbury Winthrop Shaw Pittman LLP, New York City, for Defendants and Counterclaim Plaintiffs McIntosh & Otis, et al.

Richard Dannay, Thomas Kjellberg-Cowan, Liebowitz & Latman, P.C., New York City, for Plaintiff Penguin Group.

OPINION & ORDER

OWEN, District Judge.

Prior to the copyright law amendments taking effect in 1978, there were but two periods of copyright protection — the original, period of 28 years, and a 28-year renewal, for a possible total of 56 years. In 1978, the copyright term was increased by 19 years, to a total of 75 years, and in 1998, 20 more years was added to that, for today a total of 95 years.

Given the said length of copyright protection, early in which young creators often less than advantageously contract for long terms with publishers, etc., and it also being the way of the world that a number of such young composers, artists and authors, from time to time, such as John Steinbeck writing his first book in 1929, cannot predict the high stature they would attain,¹ and the popular prominence of their works in musical and literary consciousness — not to mention the eventual high financial rewards to them and their families their work can command, our copyright laws have come to recognize this, and accordingly, in the statute, provide opportunities for such a creator and/or his or her family to terminate — and recapture — rights previously granted others, allowing creators or their heirs appropriate reward for the artistic gifts to our culture.

There are two such "recapture" opportunities during a copyright's lifetime.² The first, Section 304(c) of the Copyright Act, grants creators of pre-1978 works or their statutory heirs,³ an inchoate but inalienable⁴ a property right⁵ to "terminate" earlier grants of copyrights made before January 1, 1978 and to do so beginning 56 years after the copyright was first secured (i.e., upon expiration of both the original 28-year copyright term and the pre-1978 28-year renewal term). 17 U.S.C. § 304(c). Such termination right is optional — not mandatory or automatic — and can be exercised at any time during a five-year period beginning at the end of the said 56 year period, or on January 1, 1978 (the date of enactment of the statute extending the copyright protection term), whichever is later. 17 U.S.C. § 304(c)(3).⁶ See Music Sales Corp. v. Morris, 73 F.Supp.2d 364, 372 (S.D.N.Y.1999). Should the creator die, the statute transfers the termination to specific successor(s),⁷ who, upon recapture thereupon possesses and may regrant those rights. 17 U.S.C. § 304(c)(1), (c)(6). Termination rights vest on the date a notice of termination is served. 17 U.S.C. § 304(c)(6)(B), (C).⁸ Once a prior grant of copyright is terminated, statutory heirs are free to grant these rights to whomever they desire, as such new grants fulfill the purpose of the termination right, which is to provide successors in interest with an opportunity to obtain the fair value of the work by negotiating new terms for previously granted rights once the work's true value has appeared. 3-11 Melville B. Nimmer & David Nimmer, NIMMER ON COPYRIGHT § 11.01[A].

The second such termination right was created in 1998 as part of the Sonny Bono Copyright Term Extension Act (CTEA), which extended the copyright term by an additional twenty years, see 17 U.S.C. §§ 304(a), (b), and also gives creators or their survivors who did not exercise their termination rights the first time (i.e., 56 years after the copyright was first secured, see supra) a second opportunity to terminate during the five-year period beginning 75 years after the copyright came into existence. 17 U.S.C. § 304(d).⁹

To protect this right and prevent creators or statutory heirs from contracting away, for whatever reason, this absolute right to "recapture" for the years of extended protection any pre-1978 copyright grant, the statute declares void any contract the effect of which is in contravention of or which negates either of these termination rights. 17 U.S.C. § 304(c)(5).¹⁰ See, e.g., Morris, 73 F.Supp.2d at 372; Larry Spier, Inc. v. Bourne Co., 953 F.2d 774, 778 (2d Cir.1992).

Pursuant to these provisions in the Copyright Act, in May and June 2004, the then-statutory heirs of John Steinbeck — son Thom and granddaughter Blake — served five "Notices of Termination" on various third parties which purported to terminate pre-1978 grants of copyrights John Steinbeck made to those third parties in accordance with 17 U.S.C. § 304(c) and (d). The parties have filed cross motions for summary judgment as to the validity of these notices, and the above-captioned actions are joined for this purpose only.¹¹

Turning to the facts here, when John Steinbeck died in 1968, his third wife, widow Elaine, inherited his copyrights in his early works¹² under the residuary clause in Steinbeck's will. However, with respect to these works, as well as those that entered their renewal period after Steinbeck's death,¹³ his two sons from his second marriage — Thomas Steinbeck and John Steinbeck IV — though inheriting no interest in the copyrights under their father's will, nevertheless became possessed of a 50% share of the copyright termination interest in each work pursuant to Section 304(c)(2)(B), quoted supra, which states that a deceased author's entire termination interest is to be divided, 50% to his widow and 50% to his children [and grandchildren]. 17 U.S.C. § 304(c)(2)(B). Since, however, to exercise a termination right requires a simple majority of the possessors, this meant here that, Elaine and the children being in disagreement, no termination right could be exercised, as neither side had 51%.¹⁴ John IV died in 1991, leaving only one child, Blake Smyle, who now asserts her statutory right in his stead, as Steinbeck's granddaughter.¹⁵ Elaine died in April 2003, leaving all copyrights to her heirs from a previous marriage — all unrelated to Steinbeck.

But upon Elaine's death in April 2003, Thom and Blake, being in agreement, for the first time together possessed the majority (indeed, the totality) of termination interests needed to exercise their termination right. See 17 U.S.C. § 304(c)(1). In May and June 2004, they served five "Notices of Termination" on various third parties which purported to terminate pre-1978 grants of copyrights John Steinbeck made to those third parties in accordance with 17 U.S.C. § 304(c) and (d). Specifically, the Notices terminated: (1) a 1938 grant of book publishing rights made to the predecessor of Penguin Group (USA) Inc. (hereinafter the "Penguin Notice");¹⁶ (2) grants of motion picture rights in Steinbeck's The Red Pony made to Paramount Pictures, Inc. in 1946, 1947 and 1949; (3) grants of motion picture rights to Steinbeck's The Long Valley given to Paramount Pictures, Inc. in 1946, 1947 and 1949; (4) a 1956 grant of theatrical rights to Steinbeck's Cannery Row given to Rogers & Hammerstein and MGM; and (5) a 1949 grant of motion picture rights in Steinbeck's The Wayward Bus made to Twentieth Century Fox Film Corporation. Each notice is now addressed in turn.

The Penguin Termination Notice

In a 1938 agreement, author John Steinbeck granted to Penguin's predecessor, The Viking Press, Inc., sole, exclusive, and open-ended publication rights in the collection of stories The Long Valley, including all thirteen short stories contained therein. By its terms, the 1938 Agreement "supersede[d] all previous agreements made between The Viking Press, Inc. and John Steinbeck," and also applied to "all the previously published books of John Steinbeck," namely: Cup of Gold; The Pastures of Heaven; To A God Unknown; Tortilla Flat; In Dubious Battle; Of Mice and Men; Of Mice and Men (Play); The Red Pony, and the three stories included therein.¹⁷ Four additional works by Steinbeck were added to the 1938 Agreement by way of its option clause, including The Grapes of Wrath, the latest of the works at issue here, in 1939. This agreement provided for ongoing royalties based on net sales, and was periodically amended. Author Steinbeck renewed the copyrights in each of the ten works in question during his lifetime, and when he died in 1968, he bequeathed the copyrights in these early works to his widow Elaine. In 1994, Elaine entered into a "new agreement for continued publication" with Penguin as "Publisher" for these early works, which granted Penguin no more nor less rights than Penguin already had and was exercising under the original 1938 Agreement, although at increased cost to Penguin.¹⁸

On or about June 13, 2004, Thom and Blake served on Penguin a Notice of Termination, purporting to terminate Steinbeck's grants under the 1938 Agreement pursuant to Section 304(d). Penguin and the defendants in the Steinbeck acti...