DC Comics v. Pacific Pictures Corp.

District Court grants summary judgment in favor of DC Comics in copyright action, concluding that 1992 agreement between DC and heirs of original Superman illustrator superseded illustrator’s original grants, and thus barred heirs from exercising statutory copyright termination rights with respect to original grant.

In 1938, Jerome Siegel and Joseph Shuster, the co-creators of Superman, entered into an agreement assigning the exclusive right to the use of the Superman characters and story to plaintiff DC Comics. Following Shuster’s death in 1992, his sister and sole heir executed an agreement with DC, pursuant to which DC provided additional money to the heirs in exchange for a settlement and release of all claims regarding Shuster’s copyrights, and a re-grant of such rights to DC. In 2001, Shuster’s heirs entered into an agreement transferring all current and future rights in Shuster’s creations, including any copyright termination interest in Superman, to defendant Pacific Pictures Joint Venture.

In 2003, after Congress amended the copyright statute to grant additional statutory heirs termination rights under 17 U.S.C. § 304(d), Shuster’s estate served a notice of termination on DC purporting to terminate the prior grants of Shuster’s Superman copyrights. DC filed an action to secure its claimed interest in the Superman copyrights, and subsequently moved for partial summary judgment on its First and Third Claims. DC’s First Claim contested the validity of the termination notice, and its Third Claim challenged the web of agreements that Marc Toberoff and his entertainment companies and business partners engineered in alleged violation of DC’s rights under the Copyright Act.

The court first considered DC’s first claim seeking a declaration that the termination notice is invalid, in support of which DC argued that it was entitled to summary judgment on three grounds: (1) that the 1992 agreement barred the Shusters from pursuing termination; (2) that the Shusters lacked the majority interest necessary to terminate because they assigned 50 percent of their putative rights to Pacific Pictures; and (3) that no statutory basis existed for the Shusters to terminate, because Joe Shuster had no statutory heir under the Copyright Act when he died.

Noting that the relevant provision of the Copyright Act, 17 U.S.C. § 304(d), provides a termination right only with respect to grants of copyright made prior to January 1, 1978, the court found that the inquiry begins with whether the 1992 agreement superseded Shuster’s initial grants. The court determined that, under applicable New York law, the 1992 agreement – which settled and released all claims, rights, and remedies that the heirs had concerning the Shuster copyrights, and regranted such rights to DC – effectively revoked and superseded Shuster’s earlier grants. In addition, the court noted, the 1992 agreement renegotiated the terms of the prior agreements to the heir’s benefit; accordingly, the court concluded that in entering into the 1992 agreement, Shuster’s heir exhausted the single opportunity provided by statute to revisit the terms of Shuster’s pre-1978 grants of his copyrights.

The court also rejected defendants’ argument that an author or his estate may exercise termination rights “notwithstanding any agreement to the contrary.” 17 U.S.C. § 305. The court disagreed that the 1992 agreement constituted an impermissible “agreement to the contrary,” noting that this argument had been previously considered and rejected by the Second Circuit in Penguin Group (USA) Inc. v. Steinbeck, 537 F.3d 193, 202-03 (2d Cir. 2008) (emphasis added):

We do not read the phrase ‘agreement to the contrary’ so broadly that it would
include any agreement that has the effect of eliminating a termination right.
To do so would negate the effect of other provisions of the Copyright Act that
explicitly contemplate the loss of termination rights. . . . Moreover,
the 1994 Agreement did not divest the Steinbeck Descendants of any
termination right under section 304(d) when the parties entered into that
agreement. In 1994, only 17 U.S.C. § 304(c) provided a termination
right—section 304(d) would not become effective for another four years. It is
undisputed that the Steinbeck Descendants could not have exercised their
termination rights in 1994 because they lacked more than one-half of the
author’s termination interest. As of 1994, then, the agreement . . . did not
deprive the Steinbeck Descendants of any rights they could have realized at
that time. None of the parties could have contemplated that Congress would
create a second termination right four years later. Had Elaine Steinbeck not
entered into the 1994 Agreement, the section 304(c) termination right would
have expired, and Penguin would have been bound only by the 1938
Agreement for the duration of the copyright terms absent (as ultimately
happened) Congressional action. We cannot see how the 1994 Agreement
could be an ‘agreement to the contrary’ solely because it had the effect of
eliminating termination rights that did not yet exist.

Adopting the Second Circuit’s holding in Steinbeck, the court emphasized that when Joseph Shuster passed away and his heirs entered into the 1992 agreement, neither party to the 1992 agreement, nor anybody else, held a termination right, and the parties could not have contemplated that Congress would create a second termination right six years later. Accordingly, the court agreed with Steinbeck’s reasoning that the 1992 agreement was not an “agreement to the contrary” “solely because it had the effect of eliminating termination rights that did not yet exist.”

With respect to DC’s second argument, that the defendant heirs lacked the majority interest necessary to terminate because they assigned 50 percent of their putative rights to Pacific Pictures, the court disagreed with DC. Instructing that, under the Copyright Act, the right to serve a termination notice cannot be anticipatorily transferred to a third party, the court found that although the Shusters may have believed that their contracts transferred the Shuster heirs’ termination rights to Pacific Pictures, as a matter of law those agreements did not and could not have done so. Accordingly, the heirs retained the requisite majority share. The Shusters could not have transferred the copyrights to anyone prior to the effective date of the termination—October 26, 2013. The court found that the agreements did not transfer ownership of the subject copyrights, and that defendants retained the requisite majority share.

The court declined to address DC’s third argument, that Shuster lacked a statutory heir.

Turning to DC’s Third Cause of Action, the court concluded that defendants’ agreements purporting to assign their copyrights to Pacific Pictures prior to the effective termination date in 2013, and prohibiting defendants from making any deal with DC without Toberoff’s and the Siegels’ consent, violated section 304(c)(6)(D) of the Copyright Act, which provides:

A further grant, or agreement to make a further grant, of any right covered by a terminated grant is valid only if it is made after the effective date of the termination. As an exception, however, an agreement for such a further grant may be made between the author or [his heirs] and the original grantee or [its successor], after the notice of termination has been served . . . .

Section 304(c)(6)(D), stated the court, gives DC, the original grantee, a competitive advantage over third parties akin to a right of first refusal. Accordingly, the court concluded that between the date of service of the termination notice and the effective date of the termination, DC was the only party that could have entered into an agreement with the Shuster heirs regarding the Superman copyrights.