First published in the Entertainment Law Review (U.K.), Vol.1, No. 4, 1990.
This article does not reflect any legal developments since first publication.

The Facts

In 1954, Paramount Pictures released the film Rear Window directed by Alfred Hitchcock and starring Jimmy Stewart and Grace Kelly. The film was at once a substantial commercial success and is now considered a classic.

Rear Window was based in part on a short story written by Cornell Woolrich (hereafter, "Woolrich") entitled It Had to Be Murder. Woolrich never registered the work for copyright protection, but did assign magazine publication rights to Popular Publications, Inc., retaining for himself all other rights in the work. Popular Publications published the story in 1942 in Dime Detective Magazine, obtaining a blanket copyright for the contents of the entire issue.

In 1945 Woolrich assigned the right to make motion picture versions of It Had to Be Murder and five other stories to B.G. De Sylva Productions for $9,250. At the same time, he agreed that he would renew the copyrights to the stories when the time arrived, and then promptly grant the renewal period rights to De Sylva as well ² . In 1953, De Sylva's successors-in-interest assigned motion picture rights to It Had to Be Murder to Patron, Inc., a production compa ny owned by Stewart and Hitchcock, for $10,000. The film was produced in conjunction with Paramount Pictures and released a year later (the owners of the film, Stewart, the estate of Hitchcock, and MCA Inc., successor-in-interest to Paramount, are hereafter collectively referred to as "Stewart".

Woolrich died in 1968, two years prior to the 28th year of copyright in the story., and before he was able to file for a renewal copyright. Woolrich died without a surviving spouse or children, and by will left all his property to a trust for the benefit of Columbia University, administered by his executor, Chase Manhattan Bank. In 1969, Chase filed for a renewal copyright in the story, and subsequently sold the renewal rights to literary agent Sheldon Abend (hereafter, "Abend") for $650, plus ten percent of any revenues derived from exploitation of the rights.

In 1971, Stewart caused the film to be broadcast in America on national television, at which time Abend gave notice to Stewart that the exploitation of the film during the copyright renewal period without his consent constituted copyright infringement. Abend brought a lawsuit, but the parties settled out of court with Abend receiving $25,000. Then, in 1983, Stewart caused a general re-release of the film for exhibition in theaters and on cable television, and for sale and rental of videocassettes. By 1988 the re-release generated revenues of more than $12 million. Abend again brought suit, and this time the case went to trial and ultimately to the Supreme Court of the United States. ³

Held

The Supreme Court held that Stewart did infringe upon the copyright held by Abend. The court did not address the issue of Abend's remedy, ⁴ but remanded the case to the Ninth Circuit for further proceedings consistent with its decision. The Court also rejected Stewart's contention that the use of the story constituted "fair use". ⁵

Analysis

The Stewart case involved the interaction of two copyright principles: derivative works and copyright renewal.

The film Rear Window was a "derivative work" because it was based, at least in part, on the underlying story by Cornell Woolrich. It is a rule of U.S. case law ⁶ , now codified in the 1976 Copyright Act, that where one secures a copyright in a derivative work, that copyright extends only to those portions of the derivative work that consist of original authorship by the copyright claimant, separate and apart from the pre-existing work. ⁷ In addition, if the underlying work is the subject of a valid and subsisting copyright, the copyright in the derivative work does not extend, enlarge or otherwise affect the copyright in the underlying work. ⁸ Finally, as with any other user of a copyrighted work, a produced or a derivative work, in order to use lawfully a copyrighted underlying work, must have the permission of the proprietor of that copyright. If that grant of rights should ever expire or otherwise terminate, the producer would be an infringer were he thereafter to continue to use the underlying work without the consent of the copyright proprietor.

Due in large part to the two-term system of copyright in the U.S., it became customary for producers of derivative works to seek to acquire rights from authors for the full term of copyright protection, including any renewals. ⁹ The grant of rights would be co-terminous with the period of copyright protection. While such provisions might seem to have adequately secured rights to producers for quite lengthy periods, in fact the extent and duration of their rights are in many cases uncertain, in part because of the rules of law reflected in two Supreme Court decisions.

Fred Fisher Music Co. v. M. Witmark & Sons ¹⁰ held that an author could make a binding present agreement to grant renewal rights in the future, prior to the author claming the renewal rights and the renewal rights vesting in him. Then, Miller Music Corp. v. Charles N. Daniels, Inc. ¹¹ held that where a grantee purchased renewal rights prior to actual vesting in the author, but the author died prior to claiming a renewal, the grantee had acquired only an expectancy interest and could not defeat the rights of the author's statutory heirs to claim the renewal rights. ¹² As a result of these two decisions, a grantee who purchases rights for both the initial and renewal periods of copyright will secure rights to the initial period, but will secure rights to the renewal period only if the author survives to claim the renewal copyright. If the author dies prior to claiming a renewal, the grantee will lose its rights to the renewal period in favor of the author's statutory successors.

Notwithstanding the foregoing, which represents the majority view of the interaction of derivative works and copyright renewal, ¹³ an influential case was decided in 1977, Rohauer v. Killiam Shows Inc., ¹⁴ which represented a minority view said to reflect a "New Property Right" theory of derivative works. ¹⁵ This theory holds that once a derivative work is created, it may be used freely for the duration of its own copyright withou t regard to the termination of the consent to use copyrighted underlying works. In Rohauer, the author of the book Sons of the Sheik assigned motion picture rights to a producer for both the initial and renewal periods of copyright. The result was the successful 1926 silent film starring Rudolph Valentino. The author died prior to claiming the renewal copyright. The author's daughter claimed the renewal as statutory successor. The daughter then assigned the renewal period film and television rights to Rohauer. Rohauer sued for copyright infringement for Killiam's continuing to perform the film publicly during the renewal period of the copyright in the book without consent. Although the District Court held for Rohauer, the Court of Appeals for the Second Circuit held for the defendant.

In the Stewart case, the Supreme Court rejected Rohauer and reaffirmed the rule of Miller, holding that Stewart (via their predecessors-in-interest) had obtained merely an expectancy interest in the renewal copyright of It Had to Be Murder. Since Woolrich dies prior to claiming the renewal copyright, Stewart failed by operation of law to secure rights to the renewal period. In the absence of a surviving spouse or children, Woolrich's executor became entitled to a "new estate" and could exercise exclusive rights in the copyright during the renewal per iod. The right of Stewart to exercise rights in the story under the original grant of rights ended in 1969, the year the renewal period copyright vested in Woolrich's estate. By re-releasing the film based upon the story without the consent of Abend, Stewart infringed upon the renewal period copyright.

In response to its assertions that its decision might result in copyright proprietors demanding the producers pay a premium for renewal period rights, perhaps with the result of forcing the withdrawal of many works from the marketplace, the Supreme Court replied that "[t]hat is how the separate renewal term was intended to operate" and that such arguments "are better addressed by Congress than the courts". ¹⁷

In conclusion, by holding for Abend, the Supreme Court reaffirmed the majority of cases that reject the New Property Right theory of derivative works. Stewart also confirms that when utilizing copyrighted underlying work, a producer must have and continue to have the consent of the proprietors of that copyright. ¹⁸

Stewart is one of two major cases in which the Supreme Court considered the matter of derivative works under the 1976 Act The 1985 decision in Mills Music, Inc. involved the question of the proper distribution of royalties derived from several hundred sound recordings (the derivative works) of the musical composition Who's Sorry Now (the underlying work) following termination of the copyright in the composition pursuant to 304(c) of the 1976 Act. ¹⁹ The Court held, first, that in accordance with the derivative works exception, the recordings could continue to be exploited under the terms of the original grants during the termination period. The Court also held that royalties derived from these recordings should continue to be paid to the former proprietor rather than the new one (subject, however, to continued payments to the songwriters).

The Stewart decision is a clear statement that while a derivative works exception may exist with respect to copyright termination, it does not exist with respect to copyright renewal. Also, while Mills had been widely viewed as a blow to the interests of authors, diminishing the beneficial effects of termination, Stewart must be viewed as enhancing author's interests, re-affirming the "new estate" theory of renewal. In mattes of copyright it would seem that the Supreme Court is biased in favor of neither authors nor of business interests.

Effects

The Stewart decision has elicited a wide variety of reactions from observers. It has caused great concern that many underlying works upon which movies, play s and recorded works are based may no longer be safely used by the owners of such movies, plays and recorded works. Some legal observers view the decision as restoring desirable uniformity and logic to decisions under the 1909 Act after the "aberration" of Rohauer. Other observers predicted widespread chaos in the entertainment industries. ²¹ As is often the case, there is merit in both views.

As a rule of law, Stewart does restore uniformity and logic to the copyright law. Nevertheless, Rohauer stood as good law in the Second Circuit for 13 years, and while no reported cases cited is as authority for its position on derivative works, many in the entertainment industry conducted themselves after the decision for 13 years in conformity with its ruling and with the expectation that it would remain good law. Stewart may lead to some unpleasant or even harsh results in some instances, and Congress may see fit to step in with legislation to protect producers from exorbitant fees charged by rights owners or the public from injunctions against the exploitation of works. It may be safe to assume that some industry members are already preparing lobbying campaigns.

Different types of derivative works will be affected in different ways by Stewart, depending upon the category into which the underlying work falls: ²²

Post-1978 works

The decision will have no effect on works created or first published or registered for copyright protection after January 1, 1978. This is because such works are subject to the 1976 Act, and are not subject to renewal, but instead will endure for the "Life Plus 50" term of copyright.

Pre-1978 works

These works are divisible into three groups:

1. Works in the public domain do not present a problem because anyone is free to use such works in any way.

2. Works that were in their initial copyright period when rights were transferred or licensed (with the exception of works made for hire) do present Rear Window risks and should be further investigated. If the work was renewed by a living author, the Stewart case does not apply because the renewal rights will have vested in the author and then been transferred by operation of the grant to the grantee in accordance with the holding of Fred Fisher. But if the author died prior to renewal, and the copyright was renewed by one or more of the statutory heirs, there could well be a Rear Window problem.

3. Most works that were in their renewal period of copyright when the works were transferred or licensed (again, with the exception of works made for hire) are not faced with a Rear Window problem. This is because any termination of such transfers or licenses will be governed by the termination provisions of the 1976 Act, including the "derivative works exception". A producer will be entitled to exploit the underlying work, as a component of the derivative work, even after termination of the grant. Notwithstanding the foregoing, some very old work may present a Rear Window problem. ²⁵

Works made for hire

Many derivative works are composed of a number of copyrightable elements which were expressly created on a for-hire basis: that is, the producer is deemed to be the author for purposes of copyright law. ²⁶ In the case of works made for hire, no Rear Window problem will be presented because the renewal proprietor of such copyrights will be the producer itself.

Furthermore, many employers-for-hire are corporations rather than individuals. A corporation is incapable of having statutory successors as defined in the Copyright Act. If a corporation has ceased to exist, there will be no one who is entitled to renew the copyright, and it will fall into the public domain. No Rear Window problem will be presented. (But, when dissolving, the corporation may assign its copyright, and the assignee would be entitled to renew the copyright.)

Producers

Pr oducers of films, television programs, dramatic and musical shows, and other large-scale derivative works composed of a number of underlying works are at risk. They are certainly at risk with respect to the literary works underlying their productions. This is precisely what was involved in Stewart. They should investigate the status of the copyrighted works underlying their productions, keeping in mind that the works are not rendered secure merely by virtue of age. ²⁷

Producers will similarly be at risk with respect to the musical compositions contained in their productions. In some cases, such producers may be able to delete risky compositions and replace them with more secure works. In this regard, compositions present less of a problem than literary works. Stewart, for example, could hardly delete It Had to Be Murder from Rear Window. But on the other hand, a film is most likely based on a single story, while it may contain dozens of musical works. Identifying the works and the riskiness of each is a formidable task facing the producers even if, ultimately, troublesome works can be deleted.

Sound recordings of compositions that are incorporated into derivative productions may pose less of a risk than the compositions themselves, first, because sound recordings were not protected by copyright at all until 1972. In additi on, nearly all sound recordings are made on a for hire basis, with the record company deemed the author for purposes of copyright. For the reasons set forth above, the "authors" present relatively little risk of a Rear Window problem.

Songwriters and music publishers vs. record companies

Record companies may be at risk from both songwriters and music publishers. Record companies are granted the right to make and distribute recordings of copyrighted musical compositions by means of so-called mechanical licenses. These licenses may be issued directly by the proprietor of the copyright in the musical composition, or the company may avail itself of the "compulsory license" provisions of the Copyright Act. ²⁸

If a record company obtained a mechanical license that provided for payment at the "statutory rate", then there is no Rear Window problem for the producer. If, after renewing the copyright in the composition, the author's statutory successors do not renew the initial mechanical license, the producer may simply apply for a new compulsory license at the original "statutory rate". There is no detrimental economic effect to the producer.

But if the license states that the publisher will pay, for example, "2 cents" or "3/4 of the statutory rate", < sup>29 then there is a Rear Window problem because upon renewal of the copyright, the license providing for these favorable rates will terminate by operation of law, and the author's statutory successors can then demand the full statutory rate for use of the composition during the renewal period.

Authors and publishers

For both authors and songwriters, Stewart will have no effect on their relationship with their publishers. Since Miller ³⁰ these publishers have known that they might lose all rights to their works if the author failed to survive to renew the copyright.

Future productions

Producers concerned about selecting copyrighted works for future productions should be most careful with works first published or registered for copyright between 1962 through 1977. These are works that are still eligible for renewal, and unless the author is already dead, it cannot be known whether the author will survive to claim the renewal. Interestingly, by the end of 1990, works created in 1962 will either have been renewed or fallen into the public domain. So, for 1991, the years of special interest will be 1963 through 1977; and in 1992, 1964 through 1997; and so on. This progression will continue until 2005, when the last renewal copyright will be issued. Works created after 1997 are governed by the 1976 Act and are subject to copyright termination rather than renewal.

The fact that a work may be suspect does not mean it should not be used. A producer may take precautions against a Rear Window problem, such as by having an author's spouse and children assign to him their renewal interests in a work still in its initial copyright period. These interests are vested future interests if the author has died, and contingent future interests if the author is still living, although where the author is living it is impossible to predict with certainty who the statutory successors will be.

The following factors may mitigate the effects of Stewart on producers in certain circumstances:

Potential reward

Although in theory there may exist a right to renegotiate licenses for every underlying work whose author died prior to renewal of the copyright, in practice, negotiations will occur only with respect to those derivative works whose success would warrant it. Renewal rights owners will come to understand that it is simply not possible to coax more royalties out of a derivative work that is not generating any to begin with.

U.S. rights vs. foreign rights

Because U.S. copyright laws do not have effect outside the U.S. ³¹ , the Stewart decision will in most cases affect U.S. renewal rights only, permitting the derivative work owner to continue to use the underlying work in territories outside the U.S. during the renewal period without obtaining the consent of the renewal copyright proprietor. ³²

Statute of limitations

Even if a derivative work owner loses an infringement action, the statute of limitations for such actions is three years. ³³ An award of damages, while it may be substantial, will be limited to the three years prior to the bringing of the action.

Conclusion

In the wake of Stewart, the U.S. entertainment industry is entering a period of readjustment. Authors and their successors as well as copyright proprietors will be reviewing their holdings to uncover works eligible for renegotiation. Producers will be reviewing the components of their derivative works to uncover works at risk. Both camps will soon be engaged in negotiations, and in all likelihood litigation, to test the market values and legal boundaries of the "new" rights. Henceforth, producers will take more care in selecting works for their derivative works, and the cost of research will increase. Licenses and other grants with respect to works in their initial period of copyright will probably not command fees as great as they have in the past. The likely statutory heirs will probably be asked with increasin g frequency to assign to grantees their expectancy interests in copyright renewals. ³⁴

Doing business in the entertainment industry has become more costly, complex and uncertain. Paradoxically, copyright law has grown more straightforward and predictable. It seems doubtful that attorneys for producers will be able to comfort their clients on that score.

Footnotes:

After reading note, use "Back" to return to main text.

1. 100 S Ct 1750 (1990).

2. Under both the Copyright Act of 1909 (hereafter, the "1909 Act") and the Copyright Act of 1976 (hereafter, the "1976 Act"), a copyright in a work created between 1909 and December 31, 1977 endures for a period of 28 years, after which time the copyright expires and the work falls into the public domain. However, if the author files in time for a renewal copyright, the work will be protected for an additional period. Under the 1909 Act, the additional period was 28 years. Under the 1976 Act, the period was extended an additional 19 years, for a total renewal period of 47 years (and a total of 75 years of protection).

Under the 1909 Act , a claim for renewal copyright had to be filed during the 28th year of copyright protection. Under the 1976 Act, the renewal claim must be filed during the calendar year in which falls the 28th anniversary of the initial copyright registration.

Where the author does not survive to claim a renewal copyright, both Copyright Acts provide for a hierarchy of survivors who may renew the copyright. 17 U.S.C. 304(a).

With respect to works created on or after January 1, 1978, or works created prior to that date but not published or registered for copyright protection until after that date, the 1976 Act provides for a single term of copyright protection which endures for the life of the author (or the last surviving co-author) plus 50 years. With respect to works made on a for-hire basis (see Note 20, below, and accompanying text) and works created on an anonymous and pseudonymous basis, the 1976 Act provides for a term of 75 years from publication or 100 years from creation, whichever is sooner. 17 U.S.C. 302.

3. In the U.S., the federal court system is divided into large geographical "circuits", each composed of a number of "districts". The district courts serve as the initial trial courts. Appeals from the decisions of a district court are taken at a Court of Appeals for its circuit. Appeals from the Court of Appeals are taken at the U nited States Supreme Court, the highest court in the country.

While the different circuits are obliged to follow the rulings and precedents of the Supreme Court, they make a large number of decisions independently, based on the precedents within their own circuits. On a question where the Supreme court has not ruled, one circuit may find that its decision is diametrically opposed to the decision of another circuit with respect to the same question. The Supreme Court often takes cases to resolve such conflicts between the circuits. The Supreme Court took the Stewart case in order to resolve just such a conflict that had developed between two circuits.

Abend's first lawsuit, in 1974, was brought in the District Court for the Southern District of New York (since Stewart made an out of court settlement for $25,000, one might assume that Stewart's counsel believed that Abend would prevail in a trial in that court). In 1977, however, the Court of Appeals for the Second Circuit decided a case that went against Abend's legal position, Rohauer v. Killiam Shows Inc., 551 F.2d 484 (2d Cir.), cert. denied 431 U.S. 949 (1977). When Abend brought his second suit in 1983, he did not do so in the Second Circuit, but in a District Court in California, apparently hoping for a more favorable result than he might have expected in the Second Circuit. The Ninth Circuit Court of App eals did hold for Abend. Abend v. MCA Inc., 863 F.2d 1465 (9th Cir. 1983). In doing so the court there expressly rejected the reasoning of Rohauer. 863 F.2d 1465, 1473 to 1478. Stewart appealed to the United States Supreme Court, and in order to resolve the conflict that had arisen between the Second and Ninth Circuits, the Court agreed to hear the case.

4. The Ninth Circuit had refused to grant injunctive relief barring exploitation of the film, holding that Abend's remedy would be limited to monetary damages. These consisted of, first, lost revenues, due to the impairment of Abend's ability (rather than any legal prohibition) to authorize new derivative works because of the existence of the Stewart film. Abend v. MCA Inc., 863 F.2d 1465, 1479. Evidence had shown that Abend had attempted to cause the production of a play and television version of It Had to Be Murder, with the result that Stewart wrote to him and his intended producers, notifying them that they could not use either of the titles It Had to Be Murder or Rear Window. Stewart had also interfered with Abend's attempt to produce a television "sequel" to the film. 863 F.2d 1465, 1468. In addition, Abend was held entitled to damages representing that share of the profits of Rear Window attributable to the use of Woolrich's story.

T he court had denied injunctive relief on the basis that the film was the work of numerous creative contributors besides Woolrich, all of whom would suffer unduly if the film were withdrawn from release. 863 F.2d 1465, 1479. It remains to be seen precisely what remedy will be awarded on remand.

5. See 17 U.S.C. 107 (1976).

6. Durham Indus. Inc. v. Tomy Corp., 630 F.2d 905 (2d Cir. 1980); Eden Toys Inc. v. Florelee Undergarment Co., Inc., 526 F.Supp. 1187 (S.D.N.Y. 1981), rev'd on other grounds, 697 F.2d 27 (2d Cir. 1983); Russell v. Price, 612 F.2d 1123 (9th Cir. 1979) ("well-established doctrine that a derivative copyright protects only the new material contained in the derivative work, not the matter derived from the underlying work"). 612 F.2d at 1128.

7. See 17 U.S.C. 103 (b).

8. Ibid.

9. The two-term system of copyright had been a component of U.S. copyright law since the first Copyright Act was enacted in 1790. The rationale behind the system was to give authors a second chance at reaping the rewards of their labors. When the initial period of copyright expired, the author (or statutory heirs) could claim a renewal copyright. That renewal copyright was a "new estate", in effect, a new property right in the work, free and clear from all prior grants, licenses and other encumbrances upon the initial copyright. The proprietor of the renewal copyright was free to enter into new agreements for the exploitation of the work at rates that more fairly reflected the value of the work in the marketplace. G. Ricordi & Co. v. Paramount Pictures Inc., 198 F.2d 469 (2d Cir.), cert. denied, 342 U.S. 849 (1951).

Authors were deemed deserving of this "second chance" not because they were "congenitally irresponsible (and) . . . so sorely pressed for funds that they are willing to sell their works for a mere pittance". Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643, 656 (1943). Rather, it was deemed impossible to evaluate accurately the financial worth of stories, novels, songs and the like until after they have been purchased from their creators and exploited. Bartok v. Boosey & Hawkes Inc., 523 F.2d 941, 944 to 945 (2d Cir. 1975); M. Nimmer and D. Nimmer, Nimmer on Copyright, Vol. 1, 1989, section 9.02, at 9-23.

Following the Supreme Court decision in Fred Fisher Music Co. v. M. Witmark & Sons, 318 U.S. 643 (1943) (see Note 11 below and accompanying text), because of the relatively weak bargaining position of new authors, it became nearly standard practice for publishers and other grantees to insist upon and r eceive from authors, from the outset, rights to both the initial and renewal periods of copyright. The effect was to deny to many authors their "second chance" at a "new estate".

10. 318 U.S. 643 (1943).

11. 362 U.S. 373 (1960).

12. See Note 2 above. In an effort to avoid the effects of Miller, grantees of renewal rights began the practice of having an author's spouse and children, if any, assign their expectancy interests in the renewal period rights to the grantee at the same time the author made his or her grant. This device is effective provided that the author's actual surviving spouse and children are precisely the same as those who executed the grants.

13. Gilliam v. American Broadcasting Companies, Inc., 538 F.2d 14 (2d Cir. 1976); G. Ricordi & Co. v. Paramount Pictures Inc., 198 F.2d 469 (2d Cir.), cert. denied, 342 U.S. 849 (1951).

14. 551 F.2d 484 (2d Cir.), cert. denied 431 U.S. 949 (1977). Since Rohauer was decided in 1977, between the time Abend brought his first and second lawsuits, it might be surmised that it was on the strength of that case that Stewart, after having settled out of court with Abend in 1974, decided to risk re-releasing Rear Window in 1983 without Abend's consent .

15. Edmonds v. Stern, 248 Fed. 897 (2d Cir. 1918); Sunset Sec. Co. v. Coward McCann Inc., 297 P.2d 137 (Cal. App. 1956), vacated 306 P.2d 777 (1957). See Nimmer, section 3.07, at 3-24.

16. See note 3 above.

17. 100 S Ct 1750, ... (1990).

18. Provisions of the 1976 Act, the so-called "derivative works exceptions", operate in effect as broad statutory exceptions to this general rule. See Note 20 below.

19. 469 U.S. 153 (1985).

20. Because of the manner in which Fred Fisher impaired the intended effect of copyright renewal (see Note 10 above), Congress in the 1976 Act fashioned copyright termination. Termination provides for another kind of "new estate" by permitting authors (or prescribed successors) to terminate prior grants of rights and recapture the rights assigned after specified periods of time. For works registered for copyright prior to January 1, 1978, section 304(c) permits authors to terminate grants as of the 56th year of copyright leaving the authors, in most cases, with an additional 19 years of copyright protection (the "termination period"). For grants executed on or after January 1, 1978, section 203 applies, providing for termination as of the 40th year after the g rant or 35 years after publication, whichever occurs earlier. The termination period in these instances will endure until the expiration of the copyright, 50 years after the author's death (see Note 2 above). 17 U.S.C. 203, 304(c). Significantly, and in contrast to the rule applicable to renewal, the termination provisions restrict the ability of authors or their heirs to grant to third parties rights to the termination period prior to the actual vesting of those rights. 17 U.S.C. 203(b)(4), 304(c)(4)(d).

The termination provisions of the 1976 Act are entirely "new estates". The "derivative works exceptions" in both sections 203 and 304 provide, in essence, and in identical language, precisely what Rohauer held: "A derivative works prepared under authority of the grant before termination may continue to be utilized under the terms of the grant after termination, but this privilege does not extend to preparation after termination of other derivative works based upon the copyrighted work covered by the terminated grant". 17 U.S.C. 203(b)(i), 304(c)(6)(a).

The derivative works exception make it possible for producers of derivative works to lawfully continue to exploit their works following the termination of a grant of rights to an underlying work coming within the ambit of the statute. Authority to use the underlying work is granted, not by the copyright proprietor, but by statute. The fees or royalties to be paid by the producer, if any, are those set forth "under the terms of the grant". Mills Music Inc. v. Snyder, 469 U.S. 153 (1985).

21. Nimmer, a foremost authority on copyright in the U.S., is critical of Rohauer and may be expected to welcome the Stewart decision. See Nimmer, section 3.07, at 3-24 onward. See also "Music Fallout Follows Rear Window Ruling", Variety, May 9, 1990, at 77, col. 3; "700 Films May Face Copyright Scrutiny", Billboard, May 5, 1990, at 1, col. 3; "Rear Window Ruling Affects Music", Billboard, May 26, 1990, at 11, col. 2; Sobel, "View from the Rear Window: A Practical Look at the Consequences of the Supreme Court's Decision in Stewart v. Abend", Entertainment Law Reporter, Vol. 12, No. 1, June 1990, at 3.

22. An excellent article analyzing the likely effects of Stewart is Sobel (see Note 21 above). The article is one of the first to be written on the subject by a professor of copyright or entertainment law. The analysis of the effect of Stewart on different categories of works is similarly laid out in Professor Sobel's article.

23. See Note 2 above.

24. See Note 20 above.

25. During the very lengthy legislative discussions surrounding the 1976 Copyright Act, Congress extended the duration of certain copyrights which would have fallen into the public domain during the discussion period. Consequently, some older works did not fall into the public domain and have endured longer than they might have otherwise, in some cases by a decade or more.

26. Typically, those elements created on a for-hire basis includes scripts or screenplays, scenery, costumes, choreography, cinematography, direction, musical scores or themes and acting. The elements least likely to be supplied on a for-hire basis are underlying stories or novels, and songs.

27. See Note 25 above.

28. 17 U.S.C. 115 (1976 Act); 17 U.S.C. 1(e) (1909 Act). These provisions in effect establish a maximum rate at which a copyright proprietor may license to others the non-exclusive right to make and distribute mechanical reproductions of its copyrighted musical compositions. The 1909 set a basic "statutory rate" of two cents for each record sold embodying the copyrighted composition (a different rate applied for unusually lengthy compositions). That rate lasted until 1978, the effective date of the 1976 Act, when the rate was raised to 2.75 cents. Since 1978 the rate has been raised incrementall y at more or less regular intervals, and currently stands at 5.7 cents.

While the compulsory licensing provisions do nor prohibit proprietors from charging in excess of the statutory rate, it provides to producers an alternative mechanism for obtaining valid mechanical licenses, at the statutory rate, from the Copyright Office rather than the proprietor. The practical effect is to place a ceiling on the rate proprietors can demand directly.

29. Where a recording artist is also a songwriter, record companies often include so-called "controlled composition" clauses in the recording agreement. Under the terms of a typical controlled composition clause, the songwriter agrees to issue or cause to be issued to the record company a mechanical license for songs written, co-written, published, or otherwise controlled by him or her, at three-quarters of the statutory rate.

30. See Note 11 above and accompanying text.

31. American Banana Co. v. United Fruit Co., 213 U.S. 347 (1909); Filmvideo Releasing Corp. v. Hastings, 668 F.2d 91 (2d Cir. 1981); Robert Stigwood Group Ltd. v. O'Reilly, 530 F.2d 1096 (2d Cir. 1976). See Nimmer, section 17.02, at 17-19.

32. On the issue of territoriality, reference will have to be made in each instance to the ex press terms of the initial grant of rights. Some grants may provide for worldwide reversion to the grantor upon expiration of the initial copyright period. One such agreement is the 1948 form of song publishing contract issued by the American Guild of Authors and Composers (AGAC)(now called the Songwriters Guild of America), in which paragraph 8 provides for worldwide reversion if a notice is served on time by the author on the publisher. Many thousands of songs were published by means of this agreement, which was in use for some 30 years. Upon renewal, owners of derivative works using such songs will need the consent of the renewal proprietor as to the world, not just the U.S. (But see the discussion of the rights of songwriters with respect to record producers in the main text.) But the AGAC agreement represents the exception to the rule, and most renewal proprietors will have regained control over U.S. rights only. Some old song contracts treat the U.S. and Canada as a single territory, so the renewal proprietor will have rights to Canada also. In all events, it will be necessary to review carefully the language of the original grant.

33. 17 U.S.C. 507.

34. See Note 12 above.

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