Class Action by Recording Artists Makes New Law

November 3, 2020



Neil J. Rosini and Michael I. Rudell, in their column on Entertainment Law, discuss a class action by recording artists seeking termination of rights that looks at “execution” of grants and makes new law.

Originally published in the Entertainment Law column in the New York Law Journal on October 2, 2020.

The termination provisions of Section 203(a) of the Copyright Act are complicated enough when a work in question is finished before the contract in which a grant is made. In those instances, the date of execution of the grant, which is needed to calculate when a termination notice can be sent, is relatively easy to determine. But the analysis of termination timing becomes more complicated when the work is created after the contract is signed. This is not only because the date of creation can be difficult to pinpoint, but also because a recent ruling in the Southern District enhances that date’s significance.

Judge Lewis A. Kaplan in Waite v. UMG Recordings (S.D.N.Y., 19-cv-1091 [LAK]) held that in the context of “gap” grants, the date of creation determines the date of “execution” of the grant—which in turn dictates when notices of termination can be served as well as the timing of the five-year window during which terminations can be given effect. The implication is that for every grant of rights in sound recordings and other works that come into being after a grant, the date of the grant is not enough to calculate when termination is permitted to occur; the date the work is created is also key. (Another implication is that some recording artists and other authors who made pre-1982 grants and thought their time to send a termination notice had expired might still have a chance.)

The not-yet-certified class action in Waite is important for other reasons, too: recording artists are trying to establish that their master recordings are not works for hire for music labels, and that grants of rights in them are therefore subject to termination. This issue—with enormous financial implications for the recording industry—has been raised several times in recent years but lacks resolution. Although Waite has not yet provided an answer, it is making other law relating to termination of grants under the Copyright Act.

The ‘Waite’ Case

Plaintiffs John Waite, Joe Ely and others, “individually and on behalf of all others similarly situated,” seek a declaration that record companies Universal Music and Capitol Records can no longer ignore their termination notices on the basis that recordings they made are works for hire. In its decision filed on Aug. 10 the court did not address that ultimate issue, which awaits further proceedings, but it did answer two other important questions:

  • If a contract grants rights in a future recording that hasn’t been made yet—as recording contracts and other types of agreements often do—when is that grant of rights by the author “executed”? The court’s answer is that “execution” does not happen when the contract is signed but rather when the recording subsequently is made. (According to the decision, this is the first time a court has answered that longstanding question.)
  • If a recording artist makes a grant of rights in a recording through a loan-out company, is termination of rights under the Copyright Act inapplicable for that reason alone? The court’s answer in a prior March, 2020 decision was affirmative and remained so even though the plaintiffs amended their complaint and expanded their allegations.

Why the date of “execution” of a grant matters in the context of termination rights will be further explicated here as well as the significance of the loan-out issue, but first some background on the core of the case.

The Work-for-Hire Issue

A contract between a recording artist and a record label commonly provides that the label will own each master recording made by the artist under that contract as a work for hire. Those agreements usually also provide in the alternative that the artist assigns the copyright in each recording to the record label. Whether the record company’s rights of ownership in master recordings flow under the work for hire provision or (failing that) the assignment provision is a major issue in the Waite case.

The answer has no practical effect during the first several decades after an artist-label contract is signed. During that period, the record company owns and controls the recording just as the contract provides. But starting in or about the 35th year, the recording artist could have a five-year window in which to effect a termination of the label’s rights to the sound recording in the U.S.—but only if the record label’s rights came by assignment from the author. Works for hire are not eligible for termination. Why? Because Section 203(a) of the Copyright Act so provides. Its termination provisions apply generally to post-1977 grants “of a transfer or license of copyright or any right under a copyright, executed by the author,” but it expressly excludes grants of rights in works made for hire.

That the artist-label contract says the recording is a work for hire is not determinative. Rather, work for hire status of recordings depends on factors that the plaintiffs in this lawsuit say favor initial ownership by the artists instead of the labels. Whether the recording is for hire or not depends on how those factors apply at the time the recording comes into being, and copyright law does not allow a contract to try to change that status.

In Waite, the plaintiffs duly served termination notices that the defendants allegedly ignored on the basis the recordings in question were works for hire. The plaintiffs take issue and allege that the defendants’ continuing distribution of these recordings are infringements of copyright.

Why ‘Execution’ and Loan-Outs Matter

Another idiosyncrasy of copyright law is that the five-year termination window for most types of works opens 35 years after the date of execution of the grant by the author. A distinction between signature and “execution” is important for several reasons. One of them is that Section 203(a) of the Copyright Act applies only to grants that are “executed” in 1978 or later. In the Waite case, at least one artist-label contract was signed before the end of 1977 but associated sound recordings weren’t created until after 1977. The court held that such “gap” grants nevertheless could be terminable under Section 203(a) because a grant can’t be “executed” until the work comes into being—even though the contract was signed before 1977. Whether or not grants in this category were properly terminated in the Waite case will turn on whether the works were made for hire—an answer yet to come.

Certain recordings by plaintiffs in the Waite case, however, were held to be immune to termination of any grants of rights in them because the recordings were made by artists working through their loan-out companies, which entered into the label agreements. Because grants in those agreements were not made directly by the artists, they were not “executed by the author” (which the court determined to be the artists) and therefore not eligible for termination under Section 203(a). The plaintiffs advanced arguments to the contrary based in part on artists’ inducement letters and declarations that supported the grants made by their loan-out companies. But the court held that only the loan-out companies made actual grants, which weren’t subject to termination.


Here are five takeaways from the court’s decision:

(1) A recording artist, the author of a book (whose termination rights, incidentally, are timed by a different clock), or the writer of a screenplay that he or she originates, might derive tax advantages from being employed by a loan-out company they own, which grants rights to third parties in their works; but doing so will rule out termination of those grants when the window otherwise would open several decades later. While this distinction won’t matter for the majority of works that don’t earn substantial income for decades on end, it will matter a great deal for works with staying power.

(2) Termination notices relating to works created after the date of the grant being terminated should identify the date of creation as the date the grant was executed, not merely the date of the agreement containing the grant or the date the agreement was signed. (Omitting that date might sometimes be “harmless error”—such as in Waite where the grantee could still reasonably identify the grants and works. But accurate identification of the date of creation will avoid this issue entirely.)

(3) As the Waite case goes forward, the potential for recording artists to terminate rights in sound recordings notwithstanding work-for-hire language in their artist-label agreements remains alive. But assuming the case isn’t settled, the ultimate result is not near; the plaintiffs are just now filing a second amended complaint, discovery is not finished, and the plaintiffs have not yet moved for class certification. Moreover, as the court notes in its decision, jury trials have been suspended indefinitely due to the COVID-19 pandemic. (Another not-yet-certified class action brought by David Johansen, John Lyon p/k/a Southside Johnny, and Paul Collins, also in the Southern District of New York, seeks similar relief and is also at an early stage. [David Johansen et al v. Sony Music Entertainment, SDNY, 1:19-cv-1094 (ER)]. Sony Music answered the complaint in June.)

(4) But the five-year windows to effect termination beginning 35 years after execution of grants made in post-1977 agreements are immovable, and the time it takes to decide the Waite case will not extend them. Notices of termination must be served between two and 10 years prior to an effective date specified in the notice that falls within the five-year window beginning on the 35th anniversary of execution of the grant. The required two-year lead time means that notices served after the 38th anniversary are too late. Doing the math, the window for giving notice has closed concerning grants executed before today’s month and day in 1982. Grants executed in the balance of 1982, needless to say, are close behind. And it’s certainly not too early to think about giving notice of termination concerning grants executed in 1983 and, for that matter, between 1984 and 1995. (Termination notices respecting grants made in 1996 and after must wait for 2021 and later.)

(5) Last but not least, authors who made grants before this day and date in 1982, failed to serve a termination notice, and thought their time to send termination notices had come and gone, would be wrong if the works subject to those grants were created after the date of the grant. Those authors, or their statutory successors if the authors are now dead, have more time than they thought.

Neil J. Rosini and Michael I. Rudell are partners in Franklin, Weinrib, Rudell & Vassallo. Both practice entertainment law and have written and lectured extensively on the subject.