Mills Music, Inc. v. Snyder
83 L. Ed. 2d 556, 469 U.S. 153, 1985 U.S. LEXIS 32 (1985)
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Rule of Law:
Under the derivative works exception of the Copyright Act of 1976, when an author's heirs terminate a copyright grant, the original grantee is still entitled to receive its contractual share of royalties from derivative works that were prepared under the authority of that grant prior to termination.
Facts:
- In 1923, Ted Snyder co-authored the song 'Who’s Sorry Now'.
- The original copyright was held by a publishing company that later went bankrupt, and in 1932, a trustee assigned the copyright to Mills Music, Inc. (Mills).
- In 1940, Snyder entered into an agreement with Mills, assigning his interest in the copyright's renewal term to Mills.
- In exchange for the assignment, Mills agreed to pay Snyder 50% of all net royalties received for mechanical reproductions of the song.
- Mills obtained the renewal copyright in 1951 and subsequently issued over 400 licenses to various record companies to create sound recordings (derivative works) of the song.
- These record companies paid royalties to Mills, which in turn paid 50% of the net amount to Snyder and, after his death, to his heirs.
Procedural Posture:
- After Ted Snyder's heirs served a notice of termination on Mills Music, Inc., they demanded that the Harry Fox Agency, Inc. (the royalty collection agent) remit all royalties to them.
- The Harry Fox Agency placed the disputed funds in escrow and filed an interpleader action in the U.S. District Court for the Southern District of New York.
- On cross-motions for summary judgment, the District Court (a trial court) ruled in favor of Mills Music, Inc.
- The Snyders, as appellants, appealed to the U.S. Court of Appeals for the Second Circuit.
- The Court of Appeals (an intermediate appellate court) reversed the District Court's judgment, ruling in favor of the Snyders.
- The U.S. Supreme Court granted a petition for a writ of certiorari filed by Mills Music, Inc.
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Issue:
Does an author's termination of a copyright grant under § 304(c) of the 1976 Copyright Act also terminate the original grantee's contractual right to share in royalties from derivative works prepared under the authority of that grant before its termination?
Opinions:
Majority - Justice Stevens
No. The author's termination of the initial grant does not terminate the grantee's right to continue receiving its share of royalties from pre-existing derivative works. The phrase 'under the terms of the grant' in the derivative works exception (§ 304(c)(6)(A)) refers to the original grant from the author to the publisher, which established the entire framework for licensing and royalty sharing. The Court reasoned that the word 'grant' must be interpreted consistently throughout the statute to mean the original Snyder-to-Mills agreement. If the 'terms of the grant' were limited only to the licenses between Mills and the record companies, there would be no contractual or statutory basis for the author's heirs to receive any royalties, as those licenses only obligated payment to Mills. Therefore, the exception preserves the entire pre-termination contractual arrangement, including Mills' right to collect royalties and its corresponding obligation to share them with the Snyders.
Dissenting - Justice White
Yes. An author's termination of a copyright grant should also terminate the grantee's right to royalties from derivative works, with all such royalties reverting to the author's heirs. The primary purpose of the termination provisions was to benefit authors by allowing them to recapture rights from potentially unremunerative grants. The derivative works exception was intended narrowly to protect only the 'utilizers' (e.g., record companies) by allowing them to continue using the derivative works at the pre-existing royalty rate. It was not intended to protect middlemen like Mills. The identity of the royalty recipient is irrelevant to the utilizer, and preserving the publisher's royalty share frustrates the statute's fundamental goal of reallocating the benefits of the extended copyright term to the creator of the work.
Analysis:
This decision significantly clarifies the scope of the derivative works exception, establishing that it protects not just the entity that physically creates the derivative work but also the intermediary grantee, such as a music publisher, that authorized its creation. By preserving the entire pre-termination contractual royalty structure, the ruling provides financial stability and predictability for publishers and other licensors whose business models rely on acquiring rights and sublicensing them. However, it also limits the financial benefit that authors and their heirs can reclaim through termination, as they cannot capture the full royalty stream from derivative works created during the original grant's term.
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