Wednesday, September 9, 2009

Derivative Works Exception

Here is a corner of copyright law: the Derivative Works Exception. 17 U.S.C. §203(b)1), the Derivative Works Exception, presents a defense to a claim of infringement. It provides that a derivative work prepared under the terms of a license “may continue to be utilized under the terms of the [license] after its termination.”

The Supreme Court explained in Mills Music, Inc. v. Snyder, 469 U.S. 153 (1985), that “an entitlement to continue to distribute derivative works under the Derivative Works Exception depends on the terms of the license.” Who's Sorry Now? That is the song which is the subject of the Mills Music case. It's author sold the renewal rights in the song to Mills Music and received an advance and 50% of future revenues on reproductions and a fee on sheet music. The author died, and his estate cancelled the transfer, causing almost all the rights in the copyright to revert to the estate. The exception? Under §304(c)(6)(A), a "derivative work prepared under the authority of the grant before its termination may continue to be utilized under the terms of the grant after its termination." There were many sound recording of "Who's Sorry Now," so the dispute was about who received the continuing royalties from the recordings. The result? Since the recordings had been "prepared under authority of the grant" from the author to petitioner, the terms of the agreement that had been in effect prior to the termination governed the record companies' obligation to pay royalties, and that under those agreements petitioner and respondents were each entitled to a 50 percent share in the net royalty.

What about architectural drawings? In a new case, Architettura licensed its site plans for an apartment complex in Fort Worth to the developer. Ultimately, another architect was chosen. Architettura wanted to be paid for its work, but the developer refused. Architettura claimed infringement. It was undisputed that Architettura owned the work and could revoke any licenses, which it did; but, the Court found that if another firm had used their work while developing the site plan, the new work was a derivative work. And the Plaintiff has a "Who's Sorry Now" problem. They argued that the Derivative Works Exception did not apply to a revocable license of limited duration, as here, but should only be applied to a statutory termination, as in Mills. The Court disagreed.

The lesson? Beware of derivative works if you license a copyright.

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