2nd Circuit’s Steinbeck Opinion Affects Holders of Termination Interests

The 2nd U.S. Circuit Court of Appeals, in a dispute between the widow of John Steinbeck on the one hand, and a son of a deceased son of John Steinbeck on the other, has ruled for the widow in Penguin Group (USA) Inc. v. Steinbeck, holding that she was justified in agreeing with Viking Press in 1994 to terminate a 1938 publishing agreement signed by Steinbeck—rights which she had inherited from him—and in executing a new agreement with Viking in spite of the fact that the 1938 agreement would at that time have been jointly terminable by her, the son and grandson under §304(c) of the copyright statute for their joint benefit.

In doing so, Steinbeck's widow secured 100 percent of the interest in future proceeds from the Viking Press for herself rather than sharing them 50/50 with the son and grandson, which would have been the case if the agreement had been terminated and renegotiated under §304(c).

This decision is significant because it holds that if an individual has succeeded to 100 percent of a deceased author's interest in a license agreement, that individual can enter into a mutual termination arrangement with the licensee and re-execute a new contract solely for his or her benefit, whether or not he or she is one for whose benefit Congress created the termination right. Such a mutual termination would have to occur before a statutory termination notice is served, but once the mutual termination occurs it precludes a later statutory termination from being effective, and can be done specifically for that purpose.

In this case, termination was done by the widow (who at the same time was the owner of a 50 percent share of the statutory termination right), who was able to prevent the owners of the other 50 percent of that right (children from an earlier marriage) from serving a notice of termination, since a notice can only be sent by owners of a majority of the termination interest. This ruling will also permit a publisher or other licensee to try to convince its current licensor to work with it to mutually terminate and re-sign the license agreement and thereby avoid a future statutory termination.

The court specifically held that such agreements, while they might eliminate eventual termination rights, were not ineffective as “agreements to the contrary” under Section 304(c)(5) of the Copyright Act, contrasting the situation in Marvel Characters, Inc. v. Simon, 310 F.3d 280 (2d Cir. 2002), in which “the parties entered into a settlement agreement that contractually recharacterized an already created work as a ‘work made for hire'” and therefore exempt from the termination provisions of the act. “In this case, Elaine Steinbeck had the opportunity … to renegotiate the terms of [the agreement in question] to her benefit …. By taking advantage of this opportunity, she exhausted the single opportunity provided by the statute to Steinbeck's statutory heirs to revisit the terms of her late husband's original grants of licenses to his copyrights,” and such exercise of freedom to contract was “no violation of the Copyright Act.”

This appears to be a correct decision based on a literal reading of the copyright statute, although it does appear to go counter in some respects to Congress's intention to protect all of the individuals named in the statute as those entitled to share in the termination. It will be interesting to see whether Congress takes note of this decision and considers amending the statute to preclude one co-owner of the termination right, or any other inheritor of a contract from an author, from taking an action of this nature to eliminate, whether intentionally or unintentionally, the interest of potential termination right owners.