Can you sell the rights prior to their termination under US copyright law?

Ben E. King was a renowned musician, best known as the singer and co-writer of “Stand By Me”. He also co-wrote “There Goes My Baby.” Both “Stand By Me” and “There Goes My Baby”, are the subject of valid copyrights.

On July 31, 2014, King executed a letter, memorializing an agreement with AREC regarding the prospective sale of the rights to the King Songs. Shortly after executing the Sale Agreement, on August 1, 2014, and September 3, 2014, King served termination of transfer notices for the songs “There Goes my Baby” and “Stand By Me”. The Notices also listed parties whose transfer rights would be terminated, including Sony/ATV Tunes, LLC. According to the operative Notices, the effective date for the termination of transfer was August 31, 2016, for “There Goes My Baby” and will be April 18, 2017, for “Stand By Me”.

On December 15, 2014, King and AREC executed a second letter, in which King retained AREC’s “professional services” to begin an audit of Sony/ATV “regarding royalties previous paid” for the King Songs. On January 9, 2015, pursuant to the Audit Agreement, AREC retained Prager Metis to start an audit of Sony/ATV. In April 2015, per the terms of the Sale Agreement, AREC negotiated the sale of “certain rights” in the King Songs to Music Sales Group.

King died on or about April 30, 2015. Six months later, the King Family retained legal counsel to terminate the Sale Agreement and the Audit Agreement. The King Family’s counsel also notified “third parties with whom AREC was negotiating” that the Agreements were “not enforceable” and instructed Prager Metis to “cease communications with AREC.”

Around November 2015, the King Family’s lawyers “demanded that the audit be discontinued” and told AREC that the Agreements were terminated. AREC alleges that the King Family violated AREC’s grant of rights in the King Songs and ultimately aimed to “create a bidding war for the King Songs and then capitalize on AREC’s work . . . for their own financial benefit and gain.”

On February 12, 2016, AREC filed the instant lawsuit. AREC sought a declaratory judgment that “the Agreements continue in full force and effect”. AREC further sought an injunction to prevent Defendants from “dishonoring the contractual obligations” under the Agreements, making claims to AREC’s interests in the songs, or otherwise denying AREC’s rights and privileges under the Agreements.

Defendants argued that the claims should be dismissed as a matter of law because: (1) the Sale Agreement is invalid and thus unenforceable; and (2) the Audit Agreement was automatically terminated when King died or else was validly terminated by Defendants. Defendants suggested that the Sale Agreement purports to transfer future copyright interests before the effective date of the corresponding Termination Notices.

Under the Sale Agreement AREC would receive ten percent of the sale price of recovered copyrights King chose to sell, or ten percent of the ownership of the copyrights King chose to keep, as well as the right to administer King’s interests together with ten percent of any revenue King received as a publisher of the songs. But at the time King executed the Sale Agreement, on July 31, 2014, the Termination Notices for the King Songs had not yet become effective; indeed they had not even been served. The termination for “There Goes My Baby” became effective on August 31, 2016, and the termination for “Stand By Me” will be effective on April 18, 2017.

Because the promise of future rights contained in the Sale Agreement predated the effective dates of the Termination Notices (and predated even the service of the Notices), the contract contravenes the terms of the Copyright Act and is thus “invalid on its face”. The Copyright Act’s sole exception – which allows authors to grant or agree to make a further grant to the “original grantee or such grantee’s successor in title, after the notice of termination has been served” – does not apply, as the Termination Notices had not been served at the time of the Sale Agreement and AREC was not the original grantee or its successor.

King could not convey or agree to convey a right or interest in the King Songs’ copyrights to any third party at the time he signed the Sale Agreement, so AREC’s claims for a declaration stating the contract is valid or an injunction requiring Defendants to keep to its terms must fail as a matter of law. Because the Court did not conclude as a matter of law that the Audit Agreement is a personal services contract or establishes an agency relationship, Defendants’ arguments that the Audit Agreement terminated automatically at King’s death or else was validly terminated by Defendants were not sustained. AREC’s claims as to the Audit Agreement therefore survived.