Will Using A Loan-Out Corporation Interfere With Your Copyright Termination Rights?

As you probably know, when Congress amended the Copyright Act in 1976, they added a provision that would allow authors and musicians the right to terminate their copyright transfers after 35 years.  The purpose of this was ostensibly to  protect  the poor, struggling artist who made a bad deal, and give him the opportunity to recapture and resell the rights later.  We have lately seen a plethora of cases involving the first of these copyright terminations, involving such bands as the Village People and Boston. 

You also probably are aware that many artists create a “loan-out corporation” which is a self-owned corporation which “hires” the artist.  Although this is really a legal fiction, the artist can use the loan-out corporation to reduce their taxes and to gain other benefits by letting payments flow through the loan-out.  In preparing the loan-out corporation, there is usually a document in which the artist agrees that all of his work shall be considered a “work made for hire” of the loan out corporation.

A question that has arisen (but has not been decided) is whether works created for a “loan-out corporation” can be terminated.  Although it would seem to be obvious that it was congress’ intent to allow artist to terminate whether or not they worked through a loan-out, the language of the statute allowing for copyright termination, (17 U.S.C. 203(a)) specifically states the copyright termination only applies to works that are not a work made for hire.  Since the artist has declared that all of his work should be considered a work for hire for the loan-out corporation, you can see that this is a big potential problem. 

Two lawyers at Greenberg Glusker, Aaron Moss, and Ken Basin, have written a paper analyzing the problem and laying forth possible solutions.  The paper may be a little technical for you non-lawyers reading this blog, but those of you who use loan-out’s should certainly become aware of this problem as it could be very costly down the road. 

At a minimum, I would suggest that any readers who are members of the WGA should speak to them about lobbying Congress to fix the statute to make it clear that the use of loan-out corporations should not effect copyright termination rights.  Aaron and Ken include some suggestions on how the statute can be easily modified to rectify the situation. 

It just goes to show that sometimes statutes can have unintended consequences that end up completely eviscerating the purpose of the statute. 




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