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Smith v. Sunshine Sound Enterprises, Inc.

Eleventh Circuit reverses dismissal of estate’s claims for copyright infringement, holding that songwriter who assigned his legal rights in exchange for royalties was beneficial owner of copyright and may rely on publisher’s registration of copyright to establish standing to sue.

In the late 1970s, Ronald Louis Smith, Sr., wrote the song “Spank” and later produced a recording of the song by another artist under a recording agreement with Sunshine Sound Enterprises, Inc., providing that Smith assigned his rights in the composition in exchange for royalties. Harrick Music, Inc., a publishing company affiliated with Sunshine Sound, registered a copyright for “Spank” identifying Smith as the composer and indicating the composition was not a work for hire. After Sunshine Sound and Harrick failed to pay him any royalties, Smith sent a cease-and-desist letter revoking Harrick’s authority to administer the “Spank” copyright and filed Notices of Termination with the Copyright Office to formally record his revocation. Meanwhile, Harrick and Sunshine Sound continued to commercially exploit the composition. Smith’s estate sued them and related entities, alleging infringement of Smith’s copyright in the composition for “Spank,” a claim for breach of contract and a claim seeking a declaration of the validity of the termination notices. On certain defendants’ motion to dismiss, the district court sua sponte dismissed the infringement claim with prejudice as to all defendants, concluding that the estate lacked statutory standing to sue because Smith did not register a copyright in the work and could not rely on the copyright filed by the publisher. The district court also observed that the estate’s allegations against certain defendants were inadequate to state a claim, and held that amending the complaint would be “futile” given the lack of statutory standing. Later, the district court dismissed the declaratory relief claim for lack of ripeness, and concluded that without that claim, it had no basis to exercise supplemental jurisdiction over the breach of contract claim. On appeal, the Eleventh Circuit reversed, finding that the district court’s conclusion that the estate lacked standing was erroneous.

Subject to Section 411 of the Copyright Act, either the “legal or beneficial owner” of a copyright may file an infringement claim. The Copyright Act’s legislative history explains that “beneficial owner” includes “an author who parted with legal title to the copyright in exchange for percentage royalties.” Courts in other circuits have held that an author who assigns his legal rights to a work in exchange for royalties has a beneficial interest sufficient for statutory standing, in contrast to an author who lacks standing because he creates a “work for hire.” Because Smith only assigned his rights to the composition of “Spank” in exchange for royalties, the appellate court concluded that he had a beneficial interest that satisfied the standing requirement.

Section 411 further requires that even the beneficial owner of a copyright must comply with the formality of copyright registration. Because Harrick, not Smith, had registered the copyright in “Spank,” the district court concluded Smith lacked standing, rejecting the estate’s contention that it could rely on Harrick’s registration. The Eleventh Circuit concluded that the district court’s construction of Section 411 was too narrow. Harrick’s registration specifically identified Smith as the composer and indicated the composition was not made for hire. Further, nothing in Section 411 indicated that a composer may not rely on the registration his assignee files. The court concluded that “[w]here a publisher has registered a claim to copyright in a work not made for hire, [.] the beneficial owner has statutory standing to sue for infringement.”

As a consequence of its conclusion, the Eleventh Circuit also reversed the district court’s denial of the estate’s motion to amend the complaint. The district court’s denial of the motion as futile was based on its finding that the estate lacked standing, which was an error of law that constituted an abuse of discretion. For the same reason, the district court also abused its discretion in declining to exercise supplemental jurisdiction over the estate’s claim for breach of contract because its conclusion that all federal claims had been dismissed was legally erroneous.

The Eleventh Circuit affirmed the dismissal of the declaratory relief claim for lack of ripeness. The Copyright Office had not yet accepted or rejected the estate’s termination notices, and the estate expressly alleged that the earliest the notices could be legally effective is August 2014.