English law contract applies over US copyright transfer termination16 May 2017 by
Gloucester Place Music Ltd -v- Simon Le Bon & Ors 2 December 2016
In this High Court case, the Claimant sought declarations that the Defendants had breached a number of contracts governed by English law providing inter alia for the assignment of US copyrights, by serving notices under section 203 of the US Copyright Act 1976 (the Act), whose effect is to terminate such assignments.
Whilst this case turns very much on its facts and the way it was pleaded by the parties, it raises a number of interesting questions and it may lead to uncertainty in copyright transactions in the future.
Gloucester Place Music Ltd (GPM) is a music publishing company, now part of the Sony/ATV group. In the 1980s, GPM entered into a series of music publishing agreements with the members of the famous pop band Duran Duran and, subsequently, with each member’s UK service company (through which they were providing song writing and associated services).
The agreements provided for the worldwide assignment of copyright in the works written or composed by the band members in return for the payment of advances and royalties. During the term of the agreements, the band wrote the music and/or the lyrics to 37 songs, including some of their most famous hits.
In 2014, the band members and their respective service companies served on the Claimant various Notices pursuant to section 203(a)(4) of the Act. Subject to certain conditions, section 203 entitles authors to terminate ‘the exclusive or non-exclusive grant of a transfer or license of copyright’ in respect of any work ‘other than a work for hire’ executed on or after 1 January 1978. Under section 203(5), any such termination ‘may be effected notwithstanding any agreement to the contrary, including an agreement to make a will or to make any future grant’.
The effect of a section 203 termination is a reversion of rights to the author upon the effective date of termination. The policy behind it appears to be the recognition of the often unequal bargaining power of authors (particularly in circumstances where they cannot determine prospectively the value a work until it has been exploited) and its objective is to provide authors with a mechanism to participate in the commercial success of a work at a later stage while guaranteeing the transferee a long period of potentially unfettered exploitation.
The ‘Task’ for the Judge
As a preliminary remark, it is interesting to note that the claim was brought under an alternative procedure (Part 8 of the Civil Procedure Rules 1998) generally adopted for cases that are unlikely to involve a substantial dispute of fact.
The key facts of the case were not in dispute between the parties and it was common ground that the various agreements were effectively in identical terms and that little turned on their differences. The Judge based his analysis on one representative set of clauses but his findings apply to all the agreements in dispute.
The key provisions of the agreements included the following:
- an assignment to the Claimant of “all the copyrights […] in all musical compositions and/or lyrics and/or original arrangement of musical works [both present and future] […] throughout the world […] so that the entire copyright and all other rights in the said works shall be vested in the [Claimant] absolutely free from the adverse claims of any third party”; and
- a warranty from the Defendants to the Claimant that each other was “the sole owner […] of the copyright […] in the said works and that he has not previously granted transferred to [sic] assigned and will not grant transfer or assign any interest in the copyright or such other rights in the said works or any of them or any part thereof to any other person firm or corporation”.
Again, all agreements were expressly governed by English law and there was no mention of section 203 in any of them nor any mention of the fact that the grant of rights was subject to any encumbrances or in any way restricted to the extent permissible by any provisions of law in any countries within the territory of the agreements (i.e. worldwide).
GPM argued that, in the absence of an express reservation of the termination right under section 203, the exercise of that right was precluded. Conversely, the Defendants argued that the US copyrights assigned under the agreements were inherently subject to the right of termination and they were free to exercise it, in the absence of an express prohibition.
In a nutshell, the Judge was asked to focus exclusively on the interpretation of the agreements and whether the Defendants’ conduct constituted a breach of the same.
The Applicable Law and the Relevance of US Copyright Law
Firstly, the Judge dealt with applicable law issues.
Whether, and to what extent title to copyright is assignable in principle depends on the law creating that copyright. As we are talking about US copyrights, the ‘assignability’ of copyright is a matter of US law.
Whether, and to what extent title has in fact been assigned depends on the effect of the agreement(s) between the parties. The parties elected their agreements to be governed by English law and, pursuant to the Rome Convention on the law applicable to contractual obligations of 1980 (as implemented in the UK), the Judge found that English law would determine questions of validity, interpretation and performance.
Under Article 7(1) of the Rome Convention, mandatory rules of law of other country(ies) with which the ‘situation’ has a close connection (here, the US) may be given effect. However, the UK Act implementing the Rome Convention expressly excludes the application of Article 7(1) in the UK. Therefore, even if section 203 were a mandatory rule of US law, it would not be given effect in relation to a contract governed by English law and having a close connection with the US.
Applying English principles of contractual interpretation, the Judge needed to ascertain objectively the meaning which the agreements would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time the agreements were entered into.
Although US copyright law was not relevant in determining the parties’ obligations, it did form part of the ‘factual’ background to the dispute and, as such, was one of the factors to be borne in mind in interpreting the agreements. The Judge took the parties to have been aware of the effect of section 203, when entering into the agreements but, other than that, US copyright law was irrelevant to the dispute. To put it simply, awareness of the existence of a provision of law does not mean that the parties would intend to be bound by it, nor does it mean that they could not choose to sidestep it.
The Defendants tried to submit an ‘expert statement’ (literally one sentence in a witness statement) to the effect that section 203 would supersede any contractual right, even where the contract is governed by English law. However, this was not admitted for procedural reasons and it was in any event considered irrelevant.
English Public Policy
The Defendants also sought to rely on the suggestion that an English contract prohibiting an author to exercise its termination right under section 203 was unenforceable as a matter of English public policy.
The Judge did not allow the Defendants to raise the point for procedural reasons but, in any event, he stated that it was not correct as a matter of law. The Judge stated that “English courts will enforce a contract which is valid and enforceable under English law even if the contract would be unenforceable as contrary to public policy in another country with which the contract has a connection”. However, he further stated obiter that the “English courts will not enforce a contract the performance of which would be unlawful in its place of performance”, but this principle was not invoked by the Defendants.
The Judge stated that the parties’ arguments were “finely balanced” and, “not without hesitation”, he found in favour of the GPM.
He found that the language of the assignment was wide and general and that it would have conveyed to a reasonable person that the parties’ intention was that the “entire copyrights […] should vest, and remain vested, in the Claimant for the ‘full term’ of the copyrights”. This was reinforced by the warranty that the Defendants would not transfer any interest in the copyrights to any other person, where any other person included the Defendants themselves.
Therefore, this precluded the Defendants from exercising their termination rights under section 203. Serving the notices pursuant to section 203 (and failure to withdraw those not yet in effect) constituted a breach of the agreements between the parties.
From a strict contractual interpretation point of view, the Judge’s decision is perhaps not entirely surprising. However, it does effectively recognise the existence of a way to circumvent the section 203 termination right, where an agreement is governed by English law and it is not clear from the agreement and factual background that the author intended to preserve its rights under section 203.
It is important to note that this case was conducted in a particular way (alternative procedure with no disputes as to facts) and was perhaps pleaded in such a way that the Judge was not in a position to consider suggestions potentially favourable to the Defendants (e.g. expert evidence on US copyright and the question on the enforceability of a contract the performance of which would be unlawful in its place of performance).
Disputes with a different factual background and pleaded differently may lead to different outcomes. However, it is clear though that the case creates some uncertainty for both authors and publishers of copyright works. It is not known at this stage whether the case will be appealed and there is evidence to suggest that similar cases may be brought by other authors of copyright works in the US and, perhaps, in England again. It appears that Paul McCartney recently filed a federal lawsuit against Sony/ATV in New York to terminate transfers of the US copyrights in a number of songs.