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IP/Entertainment Case Law Updates

Artist Rights Enforcement Corp. v. The Estate of Benjamin E. King

In dispute over purported sale of Ben E. King’s rights in two songs co-written by him, including “Stand By Me,” district court finds transaction invalid under Copyright Act, because the sale agreement was entered into prior to the effective date of termination.

Ben E. King was a renowned musician who co-wrote the songs “Stand By Me” and “There Goes My Baby.” Both songs are the subject of valid copyrights.

On July 31, 2014, King executed a letter memorializing an agreement with Artist Rights Enforcement Corp. (AREC) regarding the prospective sale of a portion of his post-termination rights to the two songs. The sale agreement provided, in relevant part:

The work we have agreed you will perform for me will include (a) administering, as more specifically set forth below, my share(s) of the United States copyrights in the songs referenced above as may be recovered for me by my attorneys and/or (b) negotiation of the sale of my shares of the United States copyrights in any recovered songs referenced above as I may determine that I wish to sell.

The sale agreement further provided that AREC would receive 10 percent of the total amount that King receives from the sale of his recovered copyrights, but that, if King declined to sell the songs, AREC would receive 10 percent of King’s ownership share and 10 percent of all monies King receives as co-publisher of the recovered songs.

Shortly after executing the sale agreement, King served termination of transfer notices for the two songs, with effective termination dates of Aug. 31, 2016, for “There Goes My Baby” and April 18, 2017, for “Stand By Me.” The notices listed the parties whose transfer rights would be terminated, including Sony/ATV Tunes LLC.

In December 2014, King and AREC executed a second letter, in which King agreed to retain AREC’s “professional services” to begin an audit of Sony/ATV “royalties previous paid” for the two songs. Pursuant to the audit agreement, AREC retained an accounting firm to audit Sony/ATV in January 2015.

After King died in April 2015, the King family began disputing the enforceability of the sale agreement and audit agreement, which culminated in the present litigation. AREC filed suit seeking a declaratory judgment that the agreements remain in full force and effect and an injunction against King’s estate to keep it from avoiding its contractual obligations. Defendants, in turn, moved to dismiss the action under Federal Rule of Civil Procedure 12(b)(6), arguing that (1) the sale agreement was invalid and thus unenforceable, and (2) the audit agreement was automatically terminated when King died or else was validly terminated by defendants.

The district court first considered defendants’ argument that the sale agreement was invalid because, in contravention of the Copyright Act, it purported to transfer future copyright interests before the effective date of the corresponding termination notices. Under the Copyright Act, authors have an absolute and inalienable right to terminate the grant of any transfer or license made prior to 1978, allowing them to recapture the copyright for an extended term. The relevant provision also establishes the limitation that any “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.” 17 U.S.C. § 304(c)(6)(D) (emphasis added).

When King executed the sale agreement on July 31, 2014, the termination notices for the two songs had not yet become effective; indeed they had not even been served. Because the promise of future rights contained in the sale agreement predated the effective dates of the termination notices, the contract contravened the terms of the Copyright Act and was “invalid on its face.” Accordingly, the court concluded, AREC’s claims for a declaration stating the sale agreement is valid or an injunction requiring defendants to keep to its terms failed as a matter of law.

Regarding the validity of the audit agreement, the district court stated that both of defendants’ arguments — that the agreement automatically terminated on King’s death or, alternatively, that defendants validly terminated it — rely on a finding, as a matter of law, either that the audit agreement is a personal services contract or that it established an agency relationship between King and AREC. The court concluded, for purposes of the motion to dismiss, that it was unclear whether the audit agreement was a personal services contract or established an agency relationship. Accordingly, the court declined to dismiss AREC’s claims as to the audit agreement.

Summary prepared by Jonathan Neil Strauss and Crystal Law

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