Terminating John Steinbeck’s Copyright Grants

The Supreme Court just turned down an appeal by John Steinbeck’s heirs to terminate John Steinbeck’s 1938 copyright grant to Viking Press (now held by Penguin).

In sum, a statute gave John Steinbeck’s heirs the right to terminate a copyright grants made by John Steinbeck before 1978.  Steinbeck’s heirs wanted to terminate a 1938 agreement, but Steinbeck’s widow, Elaine, had entered into a new agreement in 1994 that superseded the 1938 agreement.  The question was whether the Steinbeck’s heirs could still base a termination action on the superseded 1938 agreement.

The District Court for the Southern District of New York had held Steinbeck’s descendants could terminate the 1938 agreement.  The Court of Appeals disagreed, and the Supreme Court declined to hear the heirs’ appeal.

The Background

In 1938, John Steinbeck entered into an agreement with the Viking Press that established Viking as the sole publisher of Steinbeck’s works in the United States and Canada.  The agreement included a provision to pay Steinbeck royalties based on net sales and also included a provision that made the agreement “binding upon [John Steinbeck's] heirs, executors, administrators or assigns.”  Steinbeck extended the agreement a year later to include more of his works such as The Grapes of Wrath.  Viking later assigned its rights to Penguin.

Steinbeck died in 1968, and he bequeathed his interest in his copyrights to his widow Elaine.  In 1994, Elaine entered into a new agreement that included more of Steinbeck’s works and “changed the economic terms” in her favor.

Elaine died in 2003.  She bequeathed her interest in Steinbeck’s books to her heirs.  This did not include John Steinbeck’s children from a different marriage: John IV and Thomas (John IV died and his rights were claimed by his sole surviving son, Blake Smyle).

Even though Thomas Steinbeck and Blake Smyle did not received an interest in the copyright, they were entitled to termination rights under the 1976 Copyright Act.  While Elaine was alive, they have %50 of those rights, but when Elaine died they controlled %100 under 17 U.S.C. § 304(c)(2)(B).  Once in control, they served a Notice of Termination on Penguin terminating the “grants” made by the original 1938 agreement.

Termination Rights

For an explanation of termination rights, click here.

The District Court Decision

The District Court did not agree with Penguin, holding that Thomas Steinbeck and Blake Smyle could terminate the 1938 agreement.  Steinbeck v. McIntosh & Otis, Inc., 433 F.Supp.2d 395 (S.D.N.Y. 2006).  The court’s reasoning was:

(1) 1938 Grant Within Statute: The 1938 Agreement was author Steinbeck’s exclusive grant of publication rights to penguin’s predecessor of certain of his early works, so they unquestionably were within the terms of the subsequently-enacted termination statute.

(2) Termination Rights Reserved: Elaine’s 1994 grant reserved the right to termination under Section 304(c),

(3) No Rights Lost or Gained: Penguin did not lose or gain any rights other than those originally granted to it, and

(4) Agreement to Contrary: contractually stripping Thomas Steinbeck and Blake Smyle of their rights violate Section 304(c)(5)’s prohibition on contracting away termination rights.

The Second Circuit Decision

The District Court’s decision was overturned by the Court of Appeals.  The decision, by Judge Robert Sack, held that the 1994 agreement terminated the 1938 agreement, and thus Section 304 did not apply.   Penguin Group Inc. v. Steinbeck, 537 F.3d 193 (2d Cir.).   The Second Circuit’s reasoning was:

(1)   Agreement Intended to be Terminated: The language of the 1994 Agreement makes clear that the parties intended that the 1938 Agreement be terminated, and under New York Law, “parties to an agreement can mutually agree to terminate it by expressly assenting to its rescission while simultaneously entering into a new agreement dealing with the same subject matter.” Jones v. Trice, 202 A.D.2d 394, 395, 608 N.Y.S.2d 688, 688 (2d Dep’t 1994).

(2)   Rights Changed: Penguin’s rights did change under the 1994 Agreement (Elaine received more economically favorable terms).

(3)   Termination Rights Reserved: It did not matter that the 1994 agreement explicitly carried forward the termination rights because “[t]he availability of termination rights under the Copyright Act is not dependent on the intent of the parties but on, among other things, the date that a grant of rights was executed and the relationship to the author of those seeking to exercise the termination right.”

(4)   No Right of Notice: Superseding agreements do not have to provide notice of opportunity to those whose termination rights are being extinguished.

(5)   Agreements to Contrary: Section 304′s prohibition of “agreements to the contrary” (or, agreements that extinguish termination rights) does not include any agreement that has the effect of eliminating a termination right.

(5a) If it did, then a group of heirs agreeing not to exercise the right would constitute an “agreement to the contrary.”

(5b) Since the Steinbeck heirs did not have the extended termination rights in 1994, the 1994 agreement did not strip the Steinbeck heirs of any rights at that time.

(6) Termination Rights Were Used: Essentially, Elaine Steinbeck was able to use the termination right because the threat of termination enabled her to renegotiate the 1938 contract.

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It seems that this decision is a blow not only to the Thomas Steinbeck and Blake Smyle, but to some holders of termination rights in the Second Circuit.  This is at least one way to circumvent termination rights that worked, though I am curious as to how important it was to the court that the termination rights did not exist at the time the 1994 agreement was made.

The statement of Steinbeck’s heirs is here.  The statement includes some interesting remarks, including:

“The pettifogging machinations of my late step-mother’s lawyers do not mean that the Second Circuit was correct, it only means that the Supreme Court chose not to hear us at this time.”

“If artists and their families cannot protect their rights, then everyone will ultimately suffer.”

As TechDirt points out, if it wasn’t for the generous extensions of copyright extension put in place since John Steinbeck’s death, his works would have long ago fallen into the public domain.

For other analysis: THR (on termination rights in the movie industry), Copyrights and Campaigns (pointing to a Ninth Circuit decision involving Lassie that came out a different way).