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A 1994 agreement signed by the widow of John Steinbeck trumps a claim made by two of the late author’s heirs under copyright law, a federal appeals court ruled yesterday. Reversing a lower court, the U.S. Court of Appeals for the Second Circuit said a 1938 agreement in which John Steinbeck gave the sole and exclusive rights to publish “Of Mice and Men” and several other works was terminated and superceded by a 1994 agreement between Elaine Steinbeck and Penguin Books. The validity of that agreement, the appeals panel said in Penguin Group (USA) Inc. v. Steinbeck, 06-3226-cv, renders invalid a “notice of termination” filed by Thomas Steinbeck, the author’s surviving son, and Blake Smyle, the sole surviving child of John Steinbeck’s other son, the deceased John Steinbeck IV. The decision will be published Tuesday. Thomas Steinbeck and Ms. Smyle sought to terminate the copyright licenses granted in the 1938 agreement under 17 U.S.C. §§304(c) and (d), provisions of the Copyright Act intended to give authors and their heirs a chance to renegotiate with publishers. Writing for the circuit, Judge Robert Sack said the provisions gave authors and family members the right to terminate prior grants or licenses because Congress recognized “that young authors frequently enter into long-term contracts with publishers when their bargaining power is weak and their prospects for success uncertain, and discover increased leverage only when they later achieve commercial success.” John Steinbeck signed agreements with The Viking Press in 1938 and 1939 covering many of his best-known works, including “The Grapes of Wrath,” “Of Mice and Men” and “Tortilla Flat.” The duties of The Viking Press were later assigned by Viking to Penguin Group (USA) Inc. When the author died in 1968, he bequeathed his interest in the copyrights to his widow while his two sons each received $50,000 in trust funds. In 1994, Elaine Steinbeck and Penguin signed a new agreement adding several other early Steinbeck works and some of his posthumous works. It also improved the economic terms, providing a larger annual guaranteed advance and royalties of between 10 percent and 15 percent of retail sales. When she died, Elaine Steinbeck left her copyright interests to heirs including her children and grandchildren from a previous marriage but she excluded the author’s two sons and their heirs. In 2004, Steinbeck’s surviving son, Thomas, and Ms. Smyle served notice to Penguin that they were terminating its publication rights, which originated with the agreements made in the 1930s. Before amendments to the Copyright Act in 1976, authors could protect their copyright for an initial 28-year term followed by a 28-year renewal term. For works still in their renewal term as of Jan. 1, 1978, such as the original 1938 copyright obtained by John Steinbeck, the 1976 amendments extended the renewal term to 75 years from the date the copyright was initially secured. The amendments also gave authors and their heirs the right to terminate the grant of a transfer or a license under §304(c). “This termination right provides authors or their statutory heirs with an opportunity to recapture some of the additional value produced by the lengthened copyright term,” Judge Sack said. Once Thomas Steinbeck and Ms. Smyle (the Steinbeck descendants) sent the termination notice to Penguin, the publishing company filed suit in the Southern District seeking a judgment that the notice was invalid. Thomas Steinbeck and Ms. Smyle filed their own action, prompting the heirs of Elaine Steinbeck to counterclaim seeking the same judgment sought by Penguin. Lower Court Ruling Judge Richard Owen ruled for Thomas Steinbeck and Ms. Smyle. Judge Owen said any interpretation of the 1994 agreement “having the effect of disinheriting the statutory heirs to the termination interest [the Steinbeck Descendants] in favor of Elaine’s heirs must be set aside as contrary to the very purpose of the termination statute.” But Judge Sack said the 1994 agreement, in which Elaine Steinbeck negotiated a better bargain with Penguin books, “terminated and superceded the 1938 agreement,” which left “in effect no pre-1978 grants to which the termination rights provided by §304(d) could be applied.” Judge Sack said the language of the 1994 agreement clearly stated that the parties intended to terminate the 1938 agreement. Judge Owen had viewed the 1994 agreement as a wash for Penguin, saying at “no point did Penguin lose or gain any rights other than those originally granted to it under the 1938 agreement.” Not so, said Judge Sack, because the 1994 pact guaranteed larger advance payments and royalties, modified the geographic limits of the publication rights and required Penguin to keep a greater number of Steinbeck works in print. The Steinbeck descendants had argued that the 1994 agreement should be held invalid under §304(c)(5), which states that termination “may be effected notwithstanding any agreement to the contrary.” But Judge Sack said the 1994 agreement does not qualify as an “agreement to the contrary.” “We do not read the phrase ‘agreement to the contrary’ so broadly that it would include any agreement that has the effect of eliminating a termination right,” he said. “To do so would negate the effect of other provisions of the Copyright Act that explicitly contemplate the loss of termination rights.” And this holds true even though Congress, which had first provided the termination right in §304(c) in the 1976 amendments, added another termination right in §304(d) that became effective in the Copyright Extension Act of 1998, also known as the Sonny Bono Extension Act. In 1994, the Steinbeck descendants could not have exercised termination rights under §304(c) because, at that point, they lacked more than one-half of the author’s termination interest. “As of 1994, then, the agreement entered into by Elaine Steinbeck did not deprive the Steinbeck Descendants of any rights they could have realized at the time,” Judge Sack said. “None of the parties could have contemplated that Congress would create a second termination right four years later.” Author’s Wishes ‘Validated’ Susan J. Kohlmann of Jenner & Block represented the estate and heirs of Elaine Steinbeck. “There aren’t a lot of decisions interpreting termination rights under the copyright law,” Ms. Kohlmann said. “By the court’s decision, the wishes of John Steinbeck related to the ownership of his literary works has been validated.” Richard Dannay of Cowan, Liebowitz & Latman represented Penguin. Elaine Steinbeck, he said, was “using the leverage of statutory termination” to “gain a better agreement” with Penguin in 1994. “Which is precisely the rationale for statutory termination,” Mr. Dannay said. “She did everything that Congress expected a person in her position to do.” Mark Lee of Manatt, Phelps & Phillips in Los Angeles represented the Steinbeck descendents. He said the case will now be returned to Judge Owen for further proceedings on claims the descendents have against the estate of Elaine Steinbeck, including their monetary damages claim that she conspired to deprive them of their statutory termination rights when she negotiated the 1994 Penguin deal.

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