By John Seay, Atlanta Entertainment Lawyer: The Seay Firm LLC (@TheSeayFirmLLC)
This is the first part of a two-part series discussing Section 203 Termination of Transfers. The first part summarizes Section 203, and the second part discusses proper Section 203 notice. Although both parts of the article focus on transfers of music copyrights, note that Section 203 applies to any transfers of copyright, regardless of the underlying subject matter.
The year is 1979, and the future is bright. You play in a young, up-and-coming punk band from Queens called The Terminations. Heads are turning your direction, including the head of an A&R man for Major Label Records. He loves your sound. Says you could be the next Ramones. He seems pretty cool—he even plays the electric guitar! So when he places a 30-page contract under your nose, you eagerly sign it. Sure, it requires you to transfer your rights in the sound recordings and compositions to Major Label, and sure the royalty splits are a little less than what you’ve been led to understand are standard, but it doesn’t matter—you’re destined for greatness. Plus, it’s not very punk rock to read contracts, is it?
If 1979 is a good year, 1980 is an even better year. That’s the year Major Label releases the Terminations’ debut, self-titled album. The first single from the album, “Transfer This,” is a Top Ten Hit. The song is featured in a movie, in the background of a television commercial, and is covered by a some other artists. There’s no money coming in yet, but you expect a Big Fat Check any day now. Right? Not so fast—a closer look at your contract reveals how abysmal your royalty splits actually are. And thanks to some creative accounting on the part of Major Label, you’re still in the red. Looks like you won’t be seeing any money for awhile, and when you do, it’ll be a pittance. “Welcome to the game, kid,” says the A&R man.
Desperate for money, you quickly record a second album, which almost as quickly flops. Turns out New Wave is all the kids want to listen to these days. Major Label drops you in favor of a band whose members look like they were in the movie Tron. The Terminations break up. You go to college, study finance, get married, get a job at a bank, and start a family. Every once in awhile, that hit single of yours shows up on a television show, or in a movie. They play it at skating rinks sometimes. If only there was a way to go back in time and not sign away all of those rights, or at least negotiate better royalty splits. The residuals coming in from that song could help pay for your kids to go to college. If only.
Introducing Section 203
Well, you can’t go back in time (although you did briefly drive a DeLorean back in the early 80s), but you might be able to reclaim some or all of those rights you signed away when you inked that record deal back in 1979. In the 1970s, Congress majorly revised copyright law for the first time since 1909, and at that time, they created a provision to protect young, uninformed artists like The Terminations in the event that they entered into long-term, one-sided contracts with sophisticated—some would say predatory—parties.
Ladies and gentlemen, meet Section 203, the Little Section that will cause Big Waves in the music industry. In a nutshell, Section 203 allows the creator of a copyrighted work, who has transferred all or some of the rights to that work on or after January 1, 1978, to terminate that transfer and regain those rights after a certain period of time, generally at least 35 years after the date of the transfer or the publication of the work.
Think Section 203 might be able to help? Let’s do the math. You (The Terminations) transferred all of your rights in all of the songs on your first album to Major Label in 1979, and your debut record was released in 1980. That means that the earliest you can reclaim the rights to those songs under Section 203 is 2015. That’s a second bite at the apple, a second chance to exploit the rights in those songs on your own terms, and reap more of the benefit. You could administer the rights in the songs yourself, or you could sign a new, better deal with another company, using as a bargaining chip the catalog’s track record of success. Looks like there’s a chance your teenage daughter can attend college after all!
Section 203 and Works for Hire
Not surprisingly, the existence of Section 203 is a major thorn in the side of record labels and music publishers. According to some of those rightsholders, Section 203 shouldn’t apply to the great majority of transfers, because Section 203 specifically excludes works made for hire. Take a closer look at that record deal. Looks like Major Label asked you to admit that the songs on your albums were “works for hire,” i.e., compilations created not by independent performers but by musicians who, in the eyes of record companies, are record company employees. Uh-oh. Game over? Not so fast.
Let’s look at the situation rationally: did you ever feel like an employee of the record company while you were signed to the label? After all, you paid for the making of your record yourself, from money you saved while working at the sandwich shop. And what little royalties you were getting were subject to recoupment. And come to think of it, did you have an office that you worked in? Did the label pay into Social Security for you? Did they withdraw taxes from any of your royalty statements? You definitely didn’t get access to any health insurance benefits. You don’t know much about the law, but it seems to you like, if anything, you were more of an independent contractor than an employee.
I think you’re right, and so do a lot of other people. But whether or not your arguments are persuasive in a court of law remains to be seen. The issue will certainly get litigated and eventually maybe even appealed to the Supreme Court, which of late doesn’t seem to want to pay much deference to Congressional intent. However, let’s put this debate aside for the moment, because until some judicial authority settles the question, you’ll need to protect your rights by acting as if you were an independent contractor. And besides, there are other limitations on Section 203’s applicability that may derail your attempts to use it.
For Whom Does Section 203 Not Toll?
You already know that Section 203 only applies to works transferred on or after January 1, 1978, and that it does not apply to works made for hire. But there are other restrictions as well. For one, Section 203 only applies to domestic transfers. So if you entered into an agreement in Germany, you won’t be able to terminate under Section 203. Additionally, if you transferred your rights to your songs in your will, then your heirs won’t be able to terminate the transfer under Section 203.
Section 203 also does not apply to derivative works made by the grantee during the period in which the grantee had the right to create derivative works. So if the record label, acting under the authority of the initial grant, hired someone to make a version of your hit single for use in a video game, then the record label can continue to exploit that version of the song, even after any subsequent termination of transfer prevents them from exploiting the underlying original song.
For Whom Does Section 203 Toll?
As for who can invoke Section 203, clearly the author can, but so can the author’s heirs and assigns, subject to some very specific rules described in Section 203(a)(2)(A)-(D). Note too that your right to terminate a transfer can never be contracted away–it is an inalienable right. Now, Section 203 does provide the entities who held the rights in your songs with another opportunity to re-license those same songs from you after you terminate the original transfer. However, you are under absolutely no obligation to re-license, and can walk away if you want to after rejecting any such offers.
Now that you know generally whether Section 203 applies to you, you’ll probably want to know how to avail yourself of its benefits. Unfortunately, you can’t just call up the record company and tell them you’re taking back your songs. There are some very, very specific timing and notice guidelines you must follow. You’ll want to consult an attorney or make sure you have everything right, or else you may forever lose your right to terminate. Tune in to this blog on Friday for the exciting conclusion of this article, which will include an overview of the timing and notice guidelines as well as some other helpful tips.
 Consult Section 304, though, which may provide some relief for pre-1978 transfers.
 By derivative works I mean other works that are adapted from your work.
 And in the case of joint works, you need a “majority action,” i.e., a majority of the authors of a work have to sign off on the termination.
 Admittedly, this creates a somewhat macabre inalienability, and functionally displaces state probate law by creating future estates, but in the end it works in artists’ favors. Note also that—as mentioned above—your heirs cannot terminate a transfer of copyright made in a will.