Key Takeaways: Two members of rap group 2 Live Crew, and the heirs of a third member, attempted to terminate a transfer of copyright ownership in several records the group made in the 1980s under statutory provisions. However, because one of the group members had previously entered bankruptcy, and the parties conceded that no one scheduled, administered, or mentioned the copyright termination interests during the bankruptcy, the right to terminate the provision still rested with the bankruptcy estate, rendering the copyright termination void. This case emphasizes the importance of considering other laws and arrangements when dealing with intellectual property.
In 1987, the members of 2 Live Crew entered into a copyright agreement with Luke Records, Inc., giving the record label control over the group’s master recordings for several albums. Luke Records would later go into bankruptcy, selling the sound recording copyrights to Lil’ Joe Records. Not long after, in 2000, Mark Ross, a member of 2 Live Crew, would also enter bankruptcy.
In 2020, two members, including Ross, and the heirs of a third member would exercise their statutory right to terminate the grant of copyright to Luke Records and its successor Lil’ Joe Records, attempting to claw back ownership of the master recording copyrights. In response, Lil’ Joe Records sued in district court, seeking declaratory judgement that the members and heirs could not terminate the copyright license because Ross’s right to terminate was held by his bankruptcy estate, and not him or later his heirs, because the copyright termination rights were not addressed in the bankruptcy proceedings. This would prevent the proposed termination, because copyright law requires a majority of the artists (in this case, three of the four members (or their heirs) of 2 Live Crew) to exercise the right before the termination deadline. The district court disagreed and granted summary judgment for 2 Live Crew, finding that because copyright termination provisions are inalienable, they were not part of Ross’s bankruptcy estate.
On appeal, the Eleventh Circuit reversed and remanded the case to the district court. The Eleventh Circuit agreed that, per the terms of the federal copyright statute, the right to terminate is inalienable and can only be passed on to heirs. However, although the termination provision cannot be transferred or sold, the federal bankruptcy statute is clear that all property and interests owned by the debtor become part of the bankruptcy estate, “notwithstanding any provision in . . . applicable nonbankruptcy law” that “restricts or conditions transfer of such interest[s] by the debtor.” 11 U.S.C. § 541(c)(1). In general, when there is a broad standard in law that is contradicted by a specific exception, the specific exception prevails over the general standard. The Eleventh Circuit noted that pursuant to bankruptcy law, 11 U.S.C. §§ 554(c),(d), “[p]roperty that is scheduled but not administered defaults back to the debtor when his Chapter 7 case closes,” but “property that is not scheduled, administered, or formally abandoned remains property of the estate ‘[u]nless the court orders otherwise.’” Accordingly, the court found that the specific exception in the bankruptcy statute regarding all assets entering the estate prevailed over the general non-transferability standard for copyright termination.
This was a fatal problem for the 2 Live Crew members and heirs. Because Ross’s bankruptcy proceedings never mentioned or dealt with the copyright termination rights, they remained part of Ross’s bankruptcy estate at the time the termination right was exercised. Therefore, Ross and later his heirs did not own and could not exercise the copyright termination right, resulting in less than a majority of 2 Live Crew members (two of four) properly exercising their right to termination. Thus, the attempted termination was void.
This decision emphasizes that intellectual property law does not exist in a vacuum. Although copyright decisions are usually informed by the federal Copyright Act and associated caselaw, other statutes and agreements can materially modify the rights of copyright owners. Thus, any dealings with intellectual property should always take into account other applicable statutes, agreements, and obligations in order to effectively manage IP portfolios.
The Eleventh Circuit’s full decision can be found here – https-ecf-ca11-uscourts-gov-n-beam-servlet-transportroom-servlet-showdoc-011114435077.pdf
Subscribe for News and Updates
