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The Struggle for Captain America

by Michael L. Lovitz

Summer 2003, Vol. 66, No. 2

In late 1940, as America found itself on the brink of war, Joseph Simon created perhaps the best-known patriotic super hero, Captain America, and sold his creation to Timely Comics. The Captain America comic book was wildly successful, and Captain America’s adventures were published for more than a decade. But, like many super hero comic books of that era, the Captain America title was discontinued in the mid-1950s, and the character mostly forgotten until, a decade later, Captain America was raised from the dead and reintroduced as part of a new era in the comics industry, the “Silver Age” of comics. Despite the passing of ten years since his last appearance, Captain America was as young as ever, thanks to a plot device where the character was revealed as having been frozen in an iceberg since the final days of World War II, alive but in suspended animation.

During the forty years since his revival, Captain America has gone on to star in his own title once again, has been featured prominently in other comic book titles, guest starred with Spider-Man, the X-Men, the Incredible Hulk and scores of other Marvel heroes, and has even been the subject of novels and movies. And during that time, Joe Simon saw no portion of the profits generated by his most famous creation. But now, thanks to a recent ruling by the Second Circuit Court of Appeals, and owing to important changes in copyright law, Joe Simon’s rights in the Captain America character, once believed lost forever, may have been resuscitated like the character himself.

Chapter 1: Cap’s Not-So-Secret Origin Story
Simon created the “Captain America” character in 1940 and shopped it to various publishers. The character eventually found a home at Martin and Jean Goodman’s publishing house, Timely Comics, Marvel’s predecessor in interest, and the first issue of Captain America was published in December 1940. Simon worked on the first ten issues of Captain America before being fired in 1941. Shortly after their publication, Timely registered the copyright in the first ten issues, including in the Captain America character itself.

In 1966 Simon sued Marvel in state court, and then in 1967 in federal court, alleging that Captain America was his creation, that Marvel’s use infringed his rights, and that he was further entitled to the renewal on the copyright registration. These two cases were settled after two years of litigation, and in 1969 Simon signed a Settlement Agreement that included the statement: “Simon acknowledges and agrees that all his work on the Materials, and all his work which created or related to the Rights, was done as an employee for hire of the Goodmans.”

Interlude: The Right of Termination
The current controversy arose when Joe Simon filed written notices with the U.S. Copyright Office on December 7, 1999, of his intention to terminate his transfer of copyright rights in the character. As required by the Copyright Act, the notices were also served on Marvel Characters, Inc. (“Marvel”), the current publisher of the Captain America comic book series and holder of all rights in the character.

The basis for Simon’s claim lies in Section 304(c) of the Copyright Act. In 1976, Congress revised the Copyright Act to extend the duration of protection from twenty-eight years (renewable for an additional twenty-eight years) to the life of the author plus fifty years. For works that were published prior to January 1, 1978, or works owned by corporations as “works made for hire,” the term of protection was extended to seventy-five years from publication. The changes in the Copyright Act were effective starting January 1, 1978. Then in 1998, Congress extended the duration of protection by another twenty years for all new works and all works still in their renewal term as of October 27, 1998.

As a result of these changes, corporations that purchased rights in works of authorship found themselves with a windfall, as the “life” of the works was now extended by thirty-nine years. Thus, Section 304(c) was added in order to provide authors the opportunity to terminate transfers of rights for the extended portion of the renewal terms, and to negotiate additional compensation for the term extension. Section 203 of the Copyright Act similarly provides that authors of works who transfer their rights to another party can terminate the transfer during a five-year period beginning at thirty-five years after the date of execution of the grant of a transfer or license, provided the advance notice requirements in the statute are fulfilled.

The right of termination doesn’t apply to “works made for hire,” however, because by definition it is the hiring party, not the actual creator, who is considered legally to be the author of a “work made for hire.” Therefore, because the creator of “works made for hire” never owned the rights in such works, there is no transfer of rights to terminate.

Chapter 2: The District Court Proceeding
Marvel sought declaratory judgment in the U.S. District Court for the Southern District of New York that the notices filed by Simon were invalid because the Captain America character and stories authored by Simon were “works made for hire,” and thus not eligible for the right of termination. Simon counterclaimed that the notices were valid, that he was the author of the Captain America character and stories, and that the copyrights in them should revert to him as of December 7, 2001.

Upon concluding discovery, Marvel moved for summary judgment on three grounds: (1) Simon’s claim of authorship had previously been litigated and decided during the 1960s, and therefore was barred from being re-litigated by res judicata; (2) Simon waited too long to bring this claim and is therefore equitably estopped from raising the issue of ownership again, as that claim was previously resolved with prejudice; and (3) Simon made an unambiguous admission in the 1969 Settlement Agreement that he created the Captain America character and stories as an employee for hire, and therefore was not entitled to the termination provision of Section 304.

The District Court found that, although Simon timely filed the notices of termination, he was barred by res judicata from seeking a declaration that he was the author, and because the Settlement Agreement stated that the Captain America character and stories were “works made for hire,” Simon was not entitled to the termination provisions of the Copyright Act. The District Court therefore granted summary judgment for Marvel and dismissed the case. Simon appealed the decision to the Second Circuit Court of Appeals.

Chapter 3: The Second Circuit Decision
The Second Circuit reviewed the lower court’s decision de novo, re-analyzing each of the arguments that Marvel had raised in its motion for summary judgment. First, on the issue of res judicata, the Circuit Court reasoned that the termination right, under which Simon sought to reclaim the rights in Captain America, was newly added since the 1960s lawsuits, and therefore did not exist when those prior suits were settled. As a result, the Second Circuit concluded, res judicata does not bar Simon from asserting the validity of the Termination Notices.

Marvel’s argument that Simon was collaterally estopped from re-litigating the ownership issue was similarly rejected by the Second Circuit. Collateral estoppel applies when the same issue was (or should have been) raised in a prior proceeding, the party had the opportunity to litigate the issue, and the resolution of the issue was necessary to support the final judgment. In this case, the prior litigations brought by Simon in the 1960s ended in a stipulation of settlement, not a final ruling by a court. Because there were no specific findings of fact or law, the court reasoned, there could be no collateral estoppel on the issue of authorship underlying the claim in the suit.

The Second Circuit then considered the question of whether Section 304 of the Copyright Act was applicable to the Simon claim, extensively discussing the meaning and intent behind Section 304, which provides that authors have the right to terminate grants and licenses “notwithstanding any agreement to the contrary.”

The issue on which the court focused was whether the Settlement Agreement, which declared the Captain America character and stories to be “works made for hire,” constituted an “agreement to the contrary,” a question that the statute did not address clearly. The court therefore reviewed the legislative history of the statute, as well as guidance from the Supreme Court, to determine the intent and purpose behind the termination provision. The Second Circuit cited to Mills Music, Inc. v. Snyder, 469 U.S. 153 (1985) concerning the Supreme Court’s interpretation of the derivative works exception to the termination clause of Section 304:
“The principal purpose of the amendments in § 304 was to provide added benefits to authors. The . . . concept of a termination right itself, w[as] obviously intended to make the rewards for the creativity of authors more substantial. More particularly, the termination right was expressly intended to relieve authors of the consequences of ill-advised and unremunerative grants that had been made before the author had a fair opportunity to appreciate the true value of his work product. That general purpose is plainly defined in the legislative history and, indeed, is fairly inferable from the text of § 304 itself.” Id. at 172-73 (footnote omitted).

The Circuit Court further found that this provision “reflects Congress’ intent to protect authors from unequal bargaining positions,” and “to prevent authors from waiving their termination right by contract.”

Thus, the Second Circuit reasoned, an agreement, such as the one between Simon and Marvel, which stipulates the work was created as a work made for hire, is a type of “agreement to the contrary” authors are permitted to challenge and disavow under the statute. Otherwise, the court reasoned, the purpose and intent of Section 304(c) would be thwarted, and companies could eliminate the termination right because “litigation-savvy publishers would be able to utilize their superior bargaining position to compel authors to agree that a work was created for hire in order to get their works published.” The focus in determining authorship, stated the court, is on the actual relationship between the parties rather than the language of their agreements.

The Second Circuit therefore found that Simon was not to be bound by the statement in the Settlement Agreement. Because Simon had introduced evidence that he did not create Captain America as an employee for hire, as Marvel asserts, the court found there existed a triable issue of fact that must be decided by a jury, namely, whether Simon was the author of the Captain America character and stories, and therefore entitled to exercise the termination right under Section 304(c).

Finally, the Second Circuit found three reasons why Simon was not barred by equitable estoppel from asserting that he was the author of the Captain America character and stories. First, the court found Section 304(c) requires a lengthy period before the rights of termination may be raised, and to allow equitable estoppel under such circumstances would undermine the purpose of the statute. Second, the termination right didn’t exist until almost ten years after the Settlement Agreement was signed, and so it could not have been raised at the time of settlement. Third, the court found that Marvel could not establish detriment for equitable estoppel purposes because “Marvel has received the full economic benefit of the full twenty-eight year renewal term,” and “can continue to exploit every Captain America property created prior to the effective date of termination.”

Summary judgment was therefore reversed, and the case remanded back to the district court for further proceedings.

To Be Continued
The Simon decision has far-reaching implications and importance and is equally applicable to real-world and electronic commerce. For artists, writers, musicians, and other authors of creative works, at stake is the chance to reclaim creative works that, since being sold to corporate America, have become firmly entrenched in popular culture, providing these authors with the opportunity to once again reap some of the benefits for their creative efforts. For corporations, it raises concerns over their long-term ability to control properties they acquired as they face the very real possibility of losing all, or part, of their rights in the creative works purchased from authors during the past seventy-eight years.

The termination right of authors is still in the nascent stage, and an increased number of authors are expected to explore their rights of termination over the next few years. The reason for the expected growth in claims is due to the copyright term extensions of the 1976 Act and again in 1998 by the “Sonny Bono Term Extension Act,” which was upheld in a Supreme Court ruling earlier this term. Thus, older authors may have two opportunities to terminate the transfer of ownership, first at fifty-six years, and then again at seventy-five years (for the additional twenty years benefit of copyright protection). Section 203 similarly provides a five-year window for terminating rights for those works that were created, and those transfers made, after 1976.

The Simon decision also demonstrates the importance of understanding the “work made for hire” doctrine for freelance authors, and emphasizes one of the major drawbacks of agreeing to create “works made for hire” for other parties. Because of the attendant intellectual property implications, attorneys are well advised to exercise caution when advising their clients on “work made for hire” issues, and when reviewing agreements addressing ownership of works created by, or for, their clients under contract.