In action over competing live stage rights to Harper Lee's To Kill a Mockingbird, Second Circuit affirms district court's ruling that "derivative works exception" to Copyright Act's termination provision does not perpetuate exclusivity of derivative work created under terminated license, and vacates and remands attorneys' fee award for further consideration.
Harper Lee, author of the iconic American novel To Kill a
Mockingbird, granted to defendant The Dramatic Publishing
Company the exclusive right to stage stock and amateur productions
of the novel under a 1969 grant. Dramatic's then-president,
Christopher Sergel, authored a stage adaptation, which Dramatic
subsequently licensed to third parties for decades. In 2011, Lee
terminated the 1969 grant pursuant to 17 U.S.C. § 304(c),
which confers on authors and their statutorily designated heirs the
right to terminate "the exclusive or nonexclusive grant of a
transfer or license of the renewal copyright or any right under it,
executed before January 1, 1978[.]" In 2015, Lee authorized
Atticus Limited Liability Company to develop another stage
adaptation of the novel authored by screenwriter Aaron Sorkin,
which debuted on Broadway at the end of 2018.
In 2019, a dispute emerged regarding whether Dramatic's
continued licensing of the Sergel play violated Atticus' rights
under its 2015 agreement with Lee. That dispute culminated in
Dramatic commencing arbitration against Lee's estate, in which
Dramatic sought, among other relief, "[a] declaration that
Dramatic's exclusive rights to the [Sergel play]" included
"the exclusive right to license stock and repertoire theaters
to perform any stage version of the novel To Kill a
Mockingbird, whether or not the actors are paid, and that no
other person or entity has such rights in any other stage version
of the novel." After a 25-day hearing, the arbitrator entered
an award for Dramatic. The arbitrator concluded that "Dramatic
continues to hold after termination of the original grant all the
exclusive rights granted to it in the 1969 Agreement."
After prevailing in the arbitration, Dramatic filed a petition to
confirm the arbitration award in the U.S. District Court for the
Northern District of Illinois. The Lee estate then moved to vacate
the arbitration award, arguing that the arbitrator's decision
would force the Lee estate to violate the rights of third parties
who did not consent to the arbitration (including Atticus). The
district court in the Northern District of Illinois later entered
judgment for Dramatic.
While that case was ongoing, in 2022, Atticus filed suit against
Dramatic in the U.S. District Court for the Southern District of
New York, seeking a declaratory judgment that performances of the
Sorkin play do not infringe any copyright interest held by
Dramatic. In response, Dramatic contended that it maintained
exclusive rights as a result of the "derivative works
exception" to copyright termination under 17 U.S.C. §
304(c)(6)(A). Under that provision, "[a] derivative work
prepared under authority of the grant before its termination may
continue to be utilized under the terms of the grant after its
termination." In Dramatic's view, because the
"terms" of Lee's original 1969 grant were exclusive,
its rights remained exclusive thereafter. Dramatic also argued that
Atticus' acquisition of rights in the novel was invalid under
the timing requirements of the Copyright Act's termination
provision; that Atticus' claim accrued when Dramatic filed its
arbitration against Lee's estate in 2019 and was therefore
untimely; and that the award entered in that arbitration precluded
Atticus' claim for declaratory relief.
After the parties filed competing motions for summary judgment, the
district court rejected Dramatic's arguments, entered a
declaratory judgment in favor of Atticus and awarded Atticus more
than $200,000 in attorneys' fees. (Read our summary of the
district court's decision here.) Dramatic appealed the district
court's judgment on the merits, and both parties cross-appealed
the district court's fee award.
On the merits issues, the Second Circuit affirmed each of the
district court's conclusions. The court held that the
derivative works exception does not cause a grantee to retain
exclusive rights after termination. Dramatic's argument
"conflate[d] Dramatic's rights in the Sergel play with
Lee's rights in" the novel. Although the derivative works
exception preserved Dramatic's right to continue to
"utilize" the Sergel play under the terms of the 1969
grant, the "right to prevent further stage adaptations of [the
novel] ...is part of the copyright in [the novel] itself,"
which belonged solely to Lee. As the court observed, under
Dramatic's theory, because the derivative works exception does
not allow a grantee to prepare new derivative works after a
grant's termination, no one, including either Dramatic or Lee,
could create or authorize the creation of a new derivative work
based on the novel after the grant's termination. The court
described this result as an "absurdity" and a
"dead-hand interpretation" that "betrays the error
of Dramatic's position."
The court also rejected Dramatic's timing challenge to
Atticus' rights under the 2015 grant. Dramatic argued that
Lee's 2015 grant to Atticus preceded the 2016 effective date of
her termination and so violated the Copyright Act's provision
that a "further grant" of a "terminated grant is
valid only if it is made after the effective date of the
termination." The court deemed Dramatic's argument a
"red herring" because the "case turns not on the
rights that [Atticus] acquired from Lee, but instead on
the scope of Dramatic's rights under the terminated
1969 grant."
The Second Circuit held that Dramatic's statute of limitations
defense likewise failed. Under the one-accrual rule, claims of
copyright ownership, as distinct from infringement, accrue only
once—when a reasonably diligent plaintiff is put on inquiry
notice regarding another's claim of exclusive rights in the
work. The court reasoned that the one-accrual rule did not apply
here because "we have previously applied the one-time accrual
rule for claims alleging ownership of a copyright," but
"Atticus does not claim ownership over Dramatic's asserted
copyright interest." Instead, Atticus sought a declaration
that the Sorkin play does not infringe any copyright interest held
by Dramatic.
Finally, the court affirmed the district court's conclusion
that the prior arbitration between Dramatic and the Lee estate has
no preclusive effect on Atticus. Although preclusion ordinarily
does not apply to one who was not a party to a proceeding, a
nonparty may be subject to preclusion if it has "agree[d] to
be bound by" the proceeding. Dramatic argued that Atticus
agreed to be bound by the arbitration when it acknowledged, in its
2015 agreement with Lee, that "[t]he rights granted"
under that agreement "shall be subject to the rights granted
under the [1969 grant], as limited by [Lee's]
termination." The court, however, ruled that this
"provision cannot bear the weight Dramatic asks of it"
because it "simply reiterates ... that Dramatic can continue
to license the Sergel Play on a non-exclusive basis in the United
States."
Despite ruling for Atticus on the merits, the Second Circuit
vacated and remanded for further consideration the district
court's award of attorneys' fees in Atticus' favor. The
district court awarded Atticus its fees incurred litigating
Dramatic's statute of limitations defense and its preclusion
argument based on Atticus' alleged "control" of the
Lee estate's litigation strategy in the arbitration. The Second
Circuit agreed that the statute of limitations defense and control
argument were objectively unreasonable, but found that the district
court erred when it concluded that Dramatic had unreasonably
prolonged the litigation by raising a forfeited statute of
limitations defense and by pursuing discovery to establish its
control argument. Although the district court found that Dramatic
had waived its statute of limitations defense by failing to raise
it in opposition to Atticus' pre-answer motion for summary
judgment, the Second Circuit concluded that Dramatic timely raised
the defense by including it in its answer. On the discovery issue,
the appellate court also found it was not unreasonable for Dramatic
to seek discovery on its control argument because Dramatic
"could not have known the contents" of the documents
disproving control "until [Dramatic] received" those
documents.
Finally, the Second Circuit rejected Atticus' cross-appeal of
the district court's denial of the fees that Atticus had
incurred litigating Dramatic's argument regarding the
derivative works exception. The district court did not err in
concluding that it was reasonable for Dramatic to raise an argument
it had successfully litigated in a prior arbitration, the court
held on appeal.
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