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Second Circuit Nullifies Steinbeck Descendants' Bid to Terminate Penguin's Publication Rights
Penguin Group (USA), Inc. v. Steinbeck
Nos. 06-3226-cv, 06-3696-cv, U.S. Court of Appeals for the Second Circuit, 08/13/2008
Companies Mentioned: McIntosh & Otis, Inc., Penguin Group (USA), Inc., The Steinbeck Heritage Foundation
Holding
Reversing a decision of the U.S. District Court for the Southern District of New York, the U.S. Court of Appeals for the Second Circuit ruled that a 1938 agreement in which famed author John Steinbeck gave the sole and exclusive rights to publish "Of Mice and Men" and several other works was terminated and superseded by a 1994 agreement between his widow, Elaine Steinbeck, and plaintiff-appellant Penguin Group (USA), Inc. ("Penguin"). According to the Second Circuit, the validity of the 1994 agreement rendered invalid a copyright termination notice issued by defendant-appellee Thomas Steinbeck, the author's surviving son, and Blake Smyle, the sole surviving child of John Steinbeck's other son, the deceased John Steinbeck IV (collectively "Steinbeck Descendants"). The District Court had earlier upheld the validity of the notice of termination given by defendants-appellees in 2004 that purported to terminate the 1938 grant of copyright licenses. On appeal, the Second Circuit reversed. Specifically, it reasoned that because the 1994 agreement terminated and superseded the 1938 agreement, it also eliminated the right to terminate the grants contained in the 1938 agreement under the 1976 Copyright Act, 17 U.S.C. Section 304(c). On the basis of the foregoing, the Second Circuit remanded the case back to the District Court for entry of judgment in favor of Penguin.
Detailed Summary
Penguin brought this appeal from an order of the District Court granting summary judgment to the Steinbeck Descendants based on the conclusion that a “notice of termination” given in 2004 that purported to terminate, pursuant to the Copyright Act, 17 U.S.C. § 304(c) and (d), the 1938 grant of copyright licenses by the author John Steinbeck, was valid. Opinion, pp. 2-3. The issue in Penguin’s appeal was whether the agreement entered into in 1994 between Steinbeck’s widow and the publisher terminated and superseded the 1938 agreement, and, if so, whether the termination notice was ineffective. Id.
By way of background, John Steinbeck entered into agreements in 1938 with The Viking Press in 1938 and 1939 covering many of his best-known works, including “The Grapes of Wrath,” “Of Mice and Men” and “Tortilla Flat.” These Viking Press agreements were later assigned to Penguin. When John Steinbeck died in 1968, he bequeathed his interest in the copyrights to his widow while his two sons each received $50,000 in trust funds. In 1994, Elaine Steinbeck and Penguin signed a new agreement adding several other early Steinbeck works and some of his posthumous works. It also improved the economic terms, providing a larger annual guaranteed advance and royalties of between 10 percent and 15 percent of retail sales.
When she died, Elaine Steinbeck left her copyright interests to heirs including her children and grandchildren from a previous marriage but excluded the author’s two sons and their heirs (the above-referenced “Steinbeck Descendants"). In 2004, the Steinbeck Descendants served notice to Penguin that they were terminating its publication rights, which originated with the agreement made in 1938. Penguin was thus prompted to file suit in the District Court to seek a declaration that the notice of termination was invalid. In response, the Steinbeck Descendants filed their own action for declaratory relief. Elaine Steinbeck’s other heirs in turn filed a counterclaim seeking to invalidate the Steinbeck Descendant’s notice of termination. The District Court sided with the Steinbeck Descendants and held the notice of termination valid.
On appeal, the Second Circuit interpreted the applicable statute under the Copyright Act, Section 304(c), which provides a termination right for the grant of a transfer or license of copyright made by parties other than the author, but only if the grant was made prior to January 1, 1978. Id., p. 12, citing 17 U.S.C. § 304(d). In deciding whether the 1994 agreement terminated and superseded the 1938 agreement, the Second Circuit answered in the affirmative, “leaving in effect no pre-1978 grants to which the termination rights provided by Section 304(d) could be applied.” Id.
The Steinbeck Descendants argued that the 1994 agreement should be held invalid under Section 304(c)(5), which states that termination “may be effected notwithstanding any agreement to the contrary.” Id., p. 17. However, the Second Circuit held that the 1994 agreement was not invalid as an “agreement to the contrary”—and the Steinbeck Descendants’ termination right under Section 304(d) was therefore no longer effective—even if the agreement had the effect of eliminating a termination right that Congress did not provide until 1998. Id. The Second Circuit explained that it could not interpret the phrase “agreement to the contrary” so broadly to include any agreement that has the effect of eliminating the termination right. The Second Circuit reasoned that doing so would negate the effect of other provisions of the Copyright Act that explicitly contemplate the loss of termination rights. Id. Therefore, the Second Circuit held that once the termination right is extinguished, it is extinguished with respect to all parties holding a termination interest, whether or not they agreed to its exercise. Id., referring to 17 U.S.C. § 304(d).
Further, it is undisputed that the Steinbeck Descendants could not have exercised their termination rights in 1994 because they lacked more than one-half of the author’s termination interest. Following, as of 1994, the agreement entered into by Elaine Steinbeck did not deprive the Steinbeck Descendants of any rights they could have realized. Id., p. 18. As a result, the Second Circuit concluded that the 1994 agreement was not an “agreement to the contrary” rendered ineffective by Section 304(c)(5). Id., p. 22. Because the 1994 agreement terminated and superseded the 1938 Agreement, it also eliminated the right to terminate the grants contained in the 1938 agreement under Sections 304(c) and (d). Id., p. 16.
On the basis of the foregoing, the Second Circuit remanded the case back to the District Court for entry of judgment in favor of Penguin.
View a PDF of the judicial opinion.Service
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