When Copyright Law Limits Your Testamentary Freedom: Statutory Heirs Hate This One Trick . . .
|Footnotes for this article are available at the end of this page.|
Under the laws of the United States, we enjoy what is known as “testamentary freedom.” Although there are exceptions to the general rule — such as minimum amounts that automatically pass to, or can be claimed by, a surviving spouse — we are generally empowered in life to decide who will benefit from our property upon death. We can leave our valuables, including copyright, to any individual or institution we choose. The same cannot be said of copyright termination.
What Is Copyright Termination?
The termination right under the Copyright Act is often described as providing authors and their heirs an opportunity to take a “second bite at the apple.” The intent of the provisions, set forth in 17 USC §§ 203, 304(c), and 304(d), is to allow authors to regain previously granted rights in order to negotiate more favorable licensing terms. That means authors don’t have to be stuck with a bad deal they signed when they were unproven and inexperienced. For example, when Atlantic Records signed a young Ray Charles in 1952, the label was able to secure the rights to his whole catalog for $2,500 — a modest sum even when taking inflation into account. After catapulting into international superstardom, the music catalog of Ray Charles is now estimated to be valued up to $25 million.1 In a case like this, it is clearly advantageous for an artist like Charles to terminate a grant made as an upstart in order to more equitably share in the economic success of his full body of work.
Copyright Law vs. Testamentary Freedom
But not all deals are bad deals or even adversarial. In the interest of protecting personal liability, reducing taxes, or supporting philanthropical interests, authors frequently transfer their rights to corporations, loan-out companies, foundations, or other entities — many of which the authors own in full. These are beneficial transfers that the author would not wish to terminate and may not want their heirs to terminate, either. This is where copyright law and testamentary freedom conflict.
Termination takes time, and unfortunately not all artists will live long enough to exercise their termination right. The timing of it all is a little tricky to figure out. The Copyright Act is like an escape room, and finding your narrow window out involves calculations and investigation taking into consideration when the grant was made, who executed it, date of copyright registration, and other factors. Broadly speaking, rights granted after January 1, 1978, can be terminated after 35 years. Grants made before that date can be terminated 56 years from the copyright registration or publication of the work, whichever is earlier. Either way, no matter how or when you terminate, one thing is clear: under the Copyright Act, an author’s statutory heirs (heirs defined by statute — namely spouse, child, or grandchild) inherit the termination right — whether the author wanted them to or not.
That’s right. You can meticulously draft an estate plan and even disinherit your family, but that will not circumvent their inalienable right to terminate a copyright grant made inter vivos (meaning, during one’s lifetime).
Here, Ray Charles again provides a perfect example. When Charles died in 2004, his will named the Ray Charles Foundation as his sole beneficiary. During his lifetime, Charles created the foundation as a charitable organization dedicated to supporting disabled and disadvantaged youth through grants. The foundation is precluded from accepting private donations, and thus relies on royalties it gets from Charles’ publishing copyrights owned by Warner/Chappell in order to fund its mission.
As an extra precaution to insulate the foundation’s funding, in 2002, Charles asked each of his 12 children to sign a written agreement stating:
“My father, Ray Charles Robinson, has told me that he will set up an irrevocable trust for my benefit, to be funded with $500,000. This gift is my entire inheritance from him, and I understand that I will not inherit anything further under my father’s estate plan and that I am waiving any right to make a claim against his estate.”2
But as soon as the window for termination opened, seven of those children waved that waiver goodbye by serving Warner/Chappell Music notice of termination for 51 of Charles’ songs. The termination would claw back control of the works and effectively cut off funding from the foundation.
What could Charles have done differently? Well, works made for hire are not subject to termination and neither are grants made by will. In fact, the foundation filed suit against the statutory heirs claiming that the compositions were works made for hire owned by Warner/Chappell and thus impervious to termination. It remains to be seen if that will hold up. Shoehorning musical compositions and sound recordings into the statutory definition of work for hire is challenging at best.
How Can You Protect Your Copyrights in Your Estate Plan?
Under current federal law, you can bequeath your copyrights to anyone or any entity, but the right to terminate copyright grants made inter vivos belongs solely to your statutory heirs. So, if you are an author crafting an estate plan, consider this little workaround:
1. Ownership reverts to the estate upon death. You might need to take rights away in order to give them back. When drafting a copyright assignment or license, consider adding in a termination trigger that provides for the reversion of your copyright interests upon death.
2. Bequeath your copyright. Now that the estate controls your rights, you can bequeath a death by your last will and testament, the copyright (and its subsequent right of termination) to whatever beneficiary you choose. Now that the grant is made by will, even your statutory heirs will not be able to terminate the transfer made by will.
If the licensee agrees to this arrangement, it would play out like this: Author assigns copyright to Foundation (as an example). Author dies before termination window. Death triggers termination of grant and reversion to Author, and Author’s Estate gains ownership of copyright. Author’s last will and testament bequeaths copyright to Foundation, and Author’s executor carries out the terms of the Will, transferring the copyright to the Foundation following Author’s death. This final death-time transfer is shielded from termination interference. If this feels burdensome and overly complex — that’s because it is. Until copyright law is revised to better protect an author’s testamentary interests, these are the games we have to play. Every estate is different, so be sure to discuss any plans with an attorney.
When crafting an estate plan, authors must consider not only the rights they own, but the rights they have assigned to others. When those rights terminate, you may want to have a say in who gets to take that second bite of the apple.
- Michelle G. Davis