Crosstown Music of California has lost their claim in the English courts to ownership of a portfolio of copyrights consisting of songs written by Mark Taylor and Paul Barry in the 1990s. The case demonstrates the power of a partial assignment of copyright to secure performance of a primary obligation (in this case the obligation of a publisher to pay royalties to a songwriter). Although Australian copyright law is the same as the English law considered by the court in this case, if the dispute had occurred in Australia after commencement of the Personal Properties Securities Act (PPSA) the outcome would be quite different.
Crosstown purchased the copyrights from the publisher Rive Droite Music in 2006, paying about US$10m. Rive Droite had acquired ownership from the songwriters under 6 agreements entered into between 1994 and 1998. The songwriting agreements assigned copyright for an initial 2 year period, followed by a 25 year retention period after which ownership reverted to the songwriters “without further formality”. Each of the agreements also contained the following clause (which was consistent with precedent songwriting agreements in use at the time):
“In the event that the Publisher [Rive Droite] shall be in material breach of the terms of this agreement and shall fail to take all reasonable action to remedy such breach within [x] days of written notification in reasonable detail of such breach from the Writer all rights assigned to the Publisher hereunder shall forthwith revert to the Writer.”
Despite the assignment of copyright by Rive Droite to Crosstown, the songwriting agreements remained in place between the songwriters and Rive Droite; they were not novated to Crosstown. In April 2007 (after the assignment to Crosstown), the songwriters served ‘cure notices’ on Rive Droite identifying various breaches (principally underpayment or non-payment of royalties) and requiring Rive Droite to take reasonable actions to remedy the breaches, failing which the writers would contend that there was an automatic reversion of the copyrights to them. Rive Droite did not pay. Crosstown commenced proceedings against Rive Droite and the writers. Their claim against Rive Droite was for specific performance of the assignment by accounting properly to the writers, an indemnity and damages for breach of warranty. Against the writers, Crosstown sought a declaration that they were the owners of the copyrights and that the rights had not reverted to the writers. The writers crossclaimed for a declaration that the cure notices were valid and for relief for infringement of copyright and unjust enrichment in respect of the activities of Crosstown after the cure notices took effect.
Crosstown lost, both at first instance (March 2009) and on appeal (November 2010). The court found that the clause reproduced above operated as an automatic reverter, so that the re-vesting of ownership takes place forthwith on the fulfilment of the conditions, and without the need for execution of a re-assignment or other transfer to the writers. In reaching this conclusion, the court decided that an assignment of copyright, which is subject to automatic reverter in the event of an unremedied notified material breach of contract prior to the expiration of the period of copyright, is a form of partial assignment permitted by English copyright law. In the result, Rive Droite could not confer better title on Crosstown than it had itself, and Rive Droite’s title was always subject to the automatic reverter.
Crosstown is now left, as an unsecured creditor, with claims against Rive Droite (now in administration) for breach of warranty and under an indemnity and also with potential liability to the writers for Crosstown’s commercialisation of the copyrights after the automatic reverter took effect. The lesson of the case is that it is critical to investigate the chain of title when acquiring copyrights with a material value, rather than simply relying on warranties from the vendor.
Australia’s copyright legislation regarding partial assignments is materially identical to the English legislation, so there is every reason to suspect that the same result would follow if the case had concerned Australian copyrights. But that position will change when the PPSA commences.
The PPSA introduces fundamental reforms to the law regarding security interests in personal property (which includes intellectual property). Applied to the facts of this case, the automatic reverter clause would be characterised as a “security interest” attached to the copyrights. If the writers failed to “perfect” that security interest by filing a financing statement on the new PPS register, Crosstown (as a purchaser for value of the copyrights) would have taken the copyrights free of the writers’ security interest (namely, the automatic reverter). In other words, Crosstown would have succeeded in their claim against the writers.
IP lawyers will need to get to grips with the PPSA and assist clients who have security interests in IP to consider whether (and how) to register those interests on the new PPS register.