In its October 8 decision in Baldwin v. EMI Feist Catalog, Inc., the Second Circuit reversed the District Court’s granting of summary judgment to defendant music publisher, holding that a 2007 termination notice effectively severed a portion of EMI’s US copyright interest in the Christmas classic, Santa Claus is Coming to Town (the “Song”). The Song was written by J. Fred Coots and Haven Gillespie. Plaintiffs are Coots’s statutory heirs.

In order to understand the Court’s 40-page opinion, one must briefly delve into the differences between the Copyright Act of 1909 and the current copyright law, the Copyright Act of 1976, which became effective as of January 1, 1978. Works created since 1978 enjoy a copyright term of life of the author(s) plus 70 years. Under the 1909 Act, the US copyright consisted of two distinct terms, an initial term of 28 years, followed by a renewal term of an additional 28 years. One reason for the bifurcated term of copyright under the 1909 Act was to give authors such as songwriters a second chance to negotiate for the value of their creations as fledgling artists often lack the information or bargaining power to do a good deal. However, writers often, but not always, assigned both the initial and renewal terms of US copyright to the grantee, here a music publisher. This assignment of both terms was valid so long as the assigning author lived into the renewal term so that the grant of those rights would vest.

When the 1976 Act was passed, it included some provisions that affected copyrights under the 1909 Act. First, it extended the renewal term so that a pre-1978 copyright would last for a total of 75 years. Second, the 1976 Act introduced similar, but not identical, termination provisions for both old and new copyright assignments, allowing authors or their statutory heirs (who are often different from, and for copyright purposes superior to, those designated under a will or state intestacy statutes), another chance to reclaim their share of the US copyright. Although termination notices can be served prior to the effective date, no termination of a US copyright interest can be effective until 35 years after the original assignment was made.

Section 203 governs terminations of copyright assignments occurring after January 1, 1978 and Section 304(c) covers those that occurred pre-1978. Since book and music publishers had better lobbyists than struggling writers, the termination provisions are deliberately difficult to execute. Both Section 203 and 304(c) require that the termination notice must: a) be served within a specific window of time, b) contain all of the required information including the date of the grant to be terminated, c) be served on the proper party, d) be executed by the author or the requisite percentage of statutory heirs; and e) be recorded in the Copyright Office. The details are contained in the statutory provisions and the Copyright Office regulations for terminations.

Both Sections 203 and 304(c) contain an additional clause: terminating parties cannot re-assign their post-termination US copyright interest until after the effective date of the termination – except they may do a new deal covering the post-termination period prior to the effective date with the party whose rights are being terminated. This gives the incumbent rights holder a leg up in negotiations and it is often the case that termination notices are used by authors and heirs merely as leverage to get a better deal with their current publisher.

With this somewhat simplified legal background, let’s review the salient facts in our Santa Claus suit. Coots and Gillespie wrote the Song and assigned the copyright to Feist, EMI’s predecessor-in-interest, in 1934. Copyright for the song was registered later that year. However, Coots didn’t assign his renewal rights in the 1934 agreement but did so separately in a 1951 agreement. A renewal registration was timely filed in 1961 as was required under the 1909 Act to prevent the copyright in the Song from going into the public domain. As of 1961, the copyright in the song was due to expire at the end of 56 years, in 1990.

In September 1981, Coots served a notice under §304(c) terminating the 1951 agreement, effective as of October 1990. By that time, the 1976 Act had passed and the copyright in the Song was now due to expire in 2009. Coots’s attorney sent the termination notice to the Copyright Office for recordation, as required by the statute. Under the doing a deal with the current publisher exception, Coots’s lawyer then engaged in negotiations with the music publisher to secure a new (and presumably better) deal. This usually consists of one or more of the following: the writer receiving a larger percentage of royalties, the writer being paid an acquisition fee for the post-termination term and the writer receiving a hefty recoupable advance on post-termination royalties.

The new deal concluded with Coot’s signing a 1981 agreement and the assignment clause included the usual boilerplate: “all rights” including “all renewals and extensions” of the copyright as well as “reversionary and termination interests” pursuant to section 304. The 1981 agreement further stated that the termination notice was filed in the Copyright Office and, in addition to payment of royalties, included a “non-recoupable bonus” (i.e., an acquisition payment) of $100,000 for the post-termination rights. After the 1981 deal was done, apparently Coots’s lawyer contacted the Copyright Office and the unrecorded termination notice was returned to him.

With the passage of the Sonny Bono Copyright Act of 1998, the term of pre-1978 copyrights was again extended (as were post-1978 copyrights from life plus 50 years) for another twenty years, bringing the duration of copyright protection for pre-1978 works to a total of 95 years. As a result, the Song now would not enter the public domain until 2029. Moreover, the 1976 Act added yet another termination provision for an author or his statutory heirs to obtain these final twenty years of copyright protection. However, this provision, section 304(d), stipulates that it is available only if there had not been a prior exercise of termination rights under section 304(c).

Although the Coots heirs served a section 304(d) termination notice with respect to the 1951 agreement in 2004 (under the theory that because the prior 304(c) notice had not been recorded it was a nullity), EMI and the Coots heirs ultimately agreed (at least at that time) that any termination rights should be directed against the 1981 agreement in accordance with §203, governing post-1978 grants.

So in early 2007, the Coots heirs served – and recorded—a notice of termination of the grant under the 1981 agreement pursuant to §203, with an effective date of December 15, 2016. EMI offered the heirs $2.75 million for their post-termination copyright interest but that offer was rejected as being too low. Because of additional complications dealing with “publication” rights, the Coots heirs subsequently served another termination notice in 2012, with an effective date of December 2021. The lawsuit over the Song about red-suited St. Nick ensued.

The District Court held that since the 1981 termination notice (under §304(c)) was never recorded, the termination of the 1951 agreement was ineffective and therefore EMI still controlled the copyright as a pre-1978 grant (here, 1951) cannot be terminated pursuant to either notice served pursuant to §203, which only covers post-1978 transfers.

The Second Circuit reversed, holding that the 1981 agreement superseded the 1951 agreement and that latter agreement was properly terminated by the 2007 notice pursuant to §203. While EMI argued that the 1981 agreement conveyed only post-termination rights, the Court held that the parties’ intent was such that the 1981 agreement, which was executed by Coots himself rather than his statutory heirs (thereby not running afoul of prior Second Circuit precedent in the Penguin Group v. Steinbeck case), replaced the 1951 contract, even in the absence of an integration clause, based upon the broadness of the grant.

What do we take away from all this? First, exercising termination rights is complicated. Second, you may have noticed that I’ve consistently referred to the “US copyright” in discussing the case. That’s because the statutory termination provisions, whether under §203 or §304, apply only to US copyrights. By contract, songwriters and other creators typically assign worldwide rights, although recent vintage agreements assign rights “throughout the universe.” So, EMI will still continue to own the rights corresponding to Coots’s share outside of the US, despite the effect of a valid termination notice.

What does that mean? By music industry convention, the US interest is typically valued at 50% of the economic value of the worldwide copyright and the rest of the world constitutes the remaining 50%. So let’s say someone wants to do a synch deal to use the Song in a feature film and the producers pay $40,000 for a worldwide, all rights buyout for several seconds of underscore in an upcoming Christmas caper. By custom, the party that owns the US rights would collect $20,000 and the party that controls the rest of the world would also get $20,000.

Mind you, these fees only cover the composition; the rights to the master recording of the composition would be separately licensed and would command a commensurate fee. And remember, this case only concerns Coots’s share of the Song. As to that of his co-writer, Gillespie, ASCAP’s online database indicates that the US rights are controlled by another publisher (but it’s possible EMI may still control world-ex US rights). So while Santa Claus may no longer be coming to towns in the US for EMI, it’s still possible St. Nick may sojourn through a few foreign cities on its behalf.