Ray Charles Case to Set Important Copyright Termination Precedent

The 9th Circuit is set to decide an important case involving the children of Ray Charles and the charitable foundation to which Mr. Charles willed his right to receive royalties from his music publishing agreement with Warner-Chappell Music.   With more artists and their heirs terminating prior assignments of copyrights, this case will either help affirm the protection afforded to authors and their heirs under the U.S. Copyright Act or weaken the Act’s protection of authors and their statutory heirs from premature transfers of their termination rights.

Section 304(c) of the U.S. Copyright Act provides the statutory heirs of deceased authors, in this case Mr. Charles’ children, the sole right to terminate the assignment of copyrights from an author to a third party. The termination right may not be transferred by will or by any other “agreement to the contrary.” Mr. Charles died before he was permitted under the statute to send the vast majority of termination notices to Warner-Chappell, the owner of his publishing rights.  Since under the statute, Mr. Charles could not donate the copyright termination right by will to his foundation, in order to ensure that his foundation would continue to receive the music publishing income stream after his death, Mr. Charles entered into agreements with each of his children providing that in exchange for $500,000 they would not take any actions to challenge the estate.  Nevertheless, the majority of Mr. Charles’ children decided to exercise their termination rights pursuant to Section 304(c) of the Copyright Act, arguing that the agreement they entered into with Mr. Charles is an “agreement to the contrary” that the statute preempts.  The Ray Charles Foundation, meanwhile, argues that the children have the right to terminate the copyrights, provided that they return the $500,000 they each received from Mr. Charles.  The Ray Charles Foundation also challenged the validity of the termination notices, including on the grounds that the musical compositions were created as “works made for hire,” which are not subject to termination under Section 304(c).

The District Court previously ruled that the children did not violate their agreement with the estate by filing the termination notices, and that the foundation was not entitled to a return of the $500,000 that each of the children had received.

On February 12th, the 9th Circuit heard an appeal by the Ray Charles Foundation of a district court’s ruling that the foundation lacks standing to challenge the termination notices Mr. Charles’ children sent to Warner-Chappell.  In this case, the fact that Warner-Chappell appears not to have raised objections to the termination notices itself suggests that the foundation may be grasping at straws.  In the vast majority of cases,  publishers have declined to assert the defense to termination that the musical compositions they own were created as “works made for hire.”

The case, however, does pose a legitimate question regarding the rights of non-copyright owner parties who may be affected by the termination of copyrights to raise objections to the validity of copyright termination notices.  For example, imagine a scenario in which an artist has a closely held entity that owns the artist’s sound recordings. [NOTE:  unlike musical compositions, which are almost always subject to the termination right, there is a reasonable amount of uncertainty regarding whether or not the work for hire language in recording agreements prevents artists from exercising their termination rights with respect to sound recordings.]  Now imagine that the artist-owned entity entered into a long-term distribution or licensing agreement with a third party record label.  The artist’s entity could effectively terminate the third party label’s right to continue to distribute or license the recordings by accepting the termination by the artist of the closely held entity’s rights in the recordings.  Yet, there is a legitimate issue of first impression regarding whether the work for hire provisions of a recording agreement would prohibit such a termination under the Copyright Act (in this case, Section 203 of the Copyright Act).  The decision of the 9th Circuit in The Ray Charles Foundation v. Robinson et al. 13-55421 (9^th Cir. Filed March 12, 2013) will determine whether or not the third party record label will have the standing to challenge the validity of such terminations.