A Paul McCartney / Sony-ATV Brief

On January 18, 2017, Paul McCartney filed a lawsuit in the United States District Court, Southern District of New York, against Sony/ATV Music Publishing (SATV). The action, pursuant to section 304 (c) of the Copyright Act of 1976, centered on ownership rights in a large and valuable catalogue of songs which McCartney authored or co-authored with other members of the Beatles, and which are now under the ownership of SATV.  In this lawsuit, McCartney sought a declaration from the court that the termination notices he began serving on SATV in 2008 are valid and will re-vest his ownership of these songs in him on their effective termination dates.  In addition, he asked the court to declare that the termination notices do not give rise to any valid contract claim against him.

On June 30, 2017, it was announced that McCartney and SATV had entered into a confidential settlement agreement and jointly requested that the action be dismissed.  It’s unlikely that the terms of the settlement will be made public, and we will not have the benefit of a court decision to serve as precedent in future disputes in this area of law.  Nevertheless, an analysis of the McCartney-SATV dispute is still appropriate, given the likelihood of other bands/artists finding themselves in a position similar to McCartney’s, prior to the settlement.

These questions arise:

1. What rights was McCartney attempting to recapture?

2. How did SATV gain ownership of these rights?

3. Did McCartney follow the process specified in the statute for termination?

4. Why did McCartney ask the court to validate his termination notices?

The Rights in Question

McCartney was availing himself of the termination rights prescribed in the Copyright Act, in an attempt to recapture his share of publishing rights (© ownership) in songs he authored or co-authored, primarily with John Lennon, between September 1962 and June 1971, which was the heyday of the Beatles.  As was, and still is, common practice with songwriters in the early stage of their careers with songs that have not yet attained value, Lennon and McCartney assigned their co-ownership of these songs to publishers in exchange for a share of the royalties the publishers would collect for securing licensed uses of the songs.  The catalogue includes 267 songs, many of which have become classics, generating massive amounts of royalties through licensed uses in recordings (sold, downloaded, and streamed), film soundtracks, television programming, and all forms of live, broadcast, and streamed performances. While McCartney has received his writer’s share of these royalties throughout the commercial life of the songs, the publisher’s share (normally half) has gone elsewhere.  He sought to recapture these rights, to which, under copyright law, he felt entitled.

The Chain of Ownership

In 1962, the Beatles’ first single, Love Me Do, was released. Lennon and McCartney had assigned the song to the U.K. publisher Ardmore & Beechwood Ltd.  Beginning with the first Beatles album, Please Please Me, released in 1963, all Lennon/McCartney songs thereafter were assigned to Northern Songs (NS), a new company in which the duo held a minority ownership interest. In 1969, the majority owners of NS voted to sell the company to ATV Music, and Lennon and McCartney included their shares in the sale. ATV became the owner of the Beatles catalogue. In 1985, Michael Jackson, acting on a tip from Paul McCartney related to the value of a catalogue of copyrights, bought ATV for $47.5M, outbidding McCartney.The catalogue included 4000 songs, 250 of which were Beatles songs and, reportedly, McCartney never forgave Jackson for it. In 1995, Jackson sold half of ATV to Sony Music for $100M, creating what we now know as Sony ATV Music. By 2006, the SATV catalogue was valued at $1B.  In 2009, upon Jackson’s death, his half interest went to his estate, and in 2016 the estate sold the interest to Sony for $750M, leaving SATV as the sole owner of the Beatles catalogue.

Statutory Termination

Prior to the enactment of the Copyright Act of 1976 (Title 17 U.S. Code), copyright protection ran for a period of 28 years and was renewable for another 28.   The 1976 act, which became effective on January 1, 1978, extended the period of protection of pre-78 copyrights for another 19 years.  In addition, it provided that assignments of copyrights executed prior to this date, for copyrights subsisting in either their first or renewal term as of this date, could be terminated by the author (or author’s estate, if the author was deceased). Effectively, it gave composers of pre-78 copyrights the right to recapture their ownership of their songs 56 years from the date that copyright was originally secured, that being the date of first publication. The statute provided that termination could be effected during a 5-year period beginning at the end of the 56 years, by serving notice in writing upon the grantee or grantee’s successor in title, stating the effective date of termination.  It further provided that the notice had to be served not more than ten nor less than two years before that date.  If the process was followed, the composer would recapture the rights for the remaining 19 years of protection.  It should be noted that the Sonny Bono Copyright Extension Act of 1998 added another 20 years of protection for these pre-78 works, giving composers who successfully terminated their assignments a total of 39 years to control the rights in their compositions.

All Lennon & McCartney songs are within this category—pre-78 assignments of copyrights that were in their first term as of January 1, 1978—and therefore eligible for termination 56 years after copyright was secured.  Love Me Do was copyrighted on Oct. 5, 1962.  McCartney served his first termination notice on Beechwood Music for this song with an effective date of termination of October 5, 2018, exactly 56 years after copyright was secured, and the notice was recorded in the Copyright Office on October 15, 2008, which is within the prescribed time frame for serving notice—not more than ten nor less than two years prior to the effective date of termination—and the date of termination is within the 5-year period that begins 56 years after copyright was secured.   In short, he followed the process to the letter of the law.  He continued to serve termination notices on SATV for all McCartney and Lennon & McCartney songs composed through 1970, with the last notices recorded on October 28, 2016.  Throughout this 8-year period of serving notices for the entire Beatles catalogue, he received no indications of resistance from SATV.  SATV, however, was surely aware of the termination notices, as it faced the prospect of losing some highly valuable copyrights from its catalogue, beginning in less than two years.

The Conflict

On December 12, 2016, a British court issued an opinion in the case of Gloucester Place Music Ltd. vs. LeBon that surely caught the attention of McCartney, and of which SATV was well aware.  The members of the band Duran Duran had attempted to exercise their rights to terminate assignments of songs from the early 1980’s to Gloucester Place, which is a subsidiary of SATV.  They were claiming these rights under U.S. copyright law, specifically Section 203, which applies to assignments made after January 1, 1978.  Gloucester Place sued them for breach of contract under English law, making no reference to U.S. copyright law and claiming that the original agreement the band had signed with Gloucester precluded the band from exercising its termination rights.  The termination notices, in their view, constituted a breach of contract, and the British court agreed.  The band argued, correctly, that under U.S. copyright law, termination rights supersede contractual rights, thus a claim for damages for breach of contract would not be sustained in the U.S. Nevertheless the British court allowed the claim and invalidated the termination notices.  The case has been appealed.

On Dec. 21, McCartney began communicating with SATV, initially asking SATV CEO Martin Bandier to “clarify that Sony/ATV not only regards the termination notices to be effective under Section 304 (c) of the Copyright Act, but also that the termination notices give rise to no valid claim, in contract or otherwise”. On January 5, 2017, he was notified by SATV that they had retained counsel, Donald Zakarin, the attorney who represented Capitol Records in its successful suit against Grooveshark.  In the ensuing communication between Zakarin and McCartney’s legal team, Zakarin provided no assurance that SATV would not attempt to follow the Gloucester decision (should it be upheld by the appellate court), and adding that it is premature to discuss theoretical future events (i.e. challenging McCartney’s termination rights on contractual grounds) until the case concludes.

On January 18, McCartney filed his complaint for Declaratory Judgment, seeking in part a determination by a U.S. court, applying U.S. copyright law, that the statutory termination right supersedes any contractual right.  On March 13th, SATV informed the judge of its intent to file a motion to dismiss, saying that McCartney’s action is “unripe” for judicial determination, pending the outcome of Gloucester.  McCartney responded, saying that delaying the decision would prejudice him; as long as SATV refuses to disavow any right to sue him for breach of contract, he has a cloud over the title to his songs, such that he can’t license them as the terminations become effective.  Zakarin, taking the position that U.K. law applies in this case, stated that Plaintiff (McCartney) is a U.K. citizen, the assignments were negotiated and entered into in the U.K. with U.K. companies, with respect to songs presumably written in the U.K., in return for payment (of royalties) in the U.K.  McCartney held fast to his assertion that the U.S. federal judge should exercise jurisdiction and resolve the matter under U.S. copyright law.

Conclusion

Although the McCartney-SATV dispute has been resolved out of court, there is still much hanging on the decision of the British appellate court in Gloucester.  If the lower court’s decision is overturned, other British bands who signed publishing agreements in the U.K. will likely not be sued for breach of contract if they attempt to terminate the publisher’s rights.  However, if it is upheld, and publishers attempt to invalidate their termination notices via a breach of contract dispute, the bands would have to either take on the expense of the legal system or hope to achieve a settlement under equitable terms.  And if the matter were to end up in court, it could require a conflict of laws analysis to determine whose laws should be applied.

Finally, it’s important to note that if McCartney had ultimately prevailed in his quest to recapture his publishing rights, U.S. copyright law provides for the recapture of only U.S. rights.  SATV would retain the publishing rights for the remainder of the world.

By Don Gorder

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