## Facts

- The musical composition “Bye, Bye Blackbird” was written by Mort Dixon and Ray Henderson; after renewal, their interests were assigned to Remick Music Corp., Warner’s predecessor.
- In 1969, Warner’s predecessor granted A&M Records a nonexclusive mechanical license limited to U.S. manufacture and sale of phonograph records, personal and non-assignable, and expressly tied to a specific Joe Cocker recording.
- A&M produced the Joe Cocker sound recording of the song (a derivative sound recording).
- The 1976 Copyright Act extended the renewal term and created a statutory right for authors or heirs to terminate preexisting grants during the extended period.
- Dixon’s heirs terminated the prior domestic grant as to Dixon’s share; Dixon’s domestic interest reverted to them for the extended renewal term and was assigned to Fred Ahlert Music Corp. in 1986.
- In 1993, TriStar sought to use the song in the film *Sleepless in Seattle* and its soundtrack album; Warner licensed foreign rights, while Ahlert licensed domestic synchronization and performance rights.
- Ahlert also issued a mechanical license to Sony (TriStar’s affiliate) for domestic use of the composition as embodied in the Cocker recording on the soundtrack album.
- Warner claimed that the Derivative Works Exception, 17 U.S.C. § 304(c)(6)(A), entitled it to domestic mechanical royalties from the soundtrack album’s use of the Cocker recording, notwithstanding termination.
- After Warner’s assertion, Ahlert’s agent cancelled and reissued the mechanical license on Warner’s behalf, and Sony paid mechanical royalties to Warner.
- The district court granted summary judgment for Ahlert, holding Warner’s post-termination claim exceeded the uses preserved “under the terms of the grant” in the 1969 license.

## Issues

1. Whether 17 U.S.C. § 304(c)(6)(A)’s Derivative Works Exception permits a former grantee, after termination, to claim domestic royalties from new exploitations of a pre-termination derivative sound recording beyond those authorized by the original license.
2. How the phrase “under the terms of the grant” in § 304(c)(6)(A) limits post-termination utilization of a derivative work.

## Decision

- The Second Circuit affirmed summary judgment for Ahlert.
- The court held that § 304(c)(6)(A) allows continued utilization of a pre-termination derivative work only within the scope authorized by the grant in effect when the derivative was prepared.
- Because the 1969 mechanical license was limited to A&M’s specified U.S. phonorecord exploitation of the Joe Cocker recording, Warner could not use the Exception to authorize or profit from new domestic mechanical uses by third parties (e.g., Sony’s soundtrack album) after termination.
- Warner was not entitled to domestic mechanical royalties from the *Sleepless in Seattle* soundtrack album based on the Derivative Works Exception.

## Legal Principles

- Termination under § 304(c) restores to authors or heirs a new set of rights in the extended renewal term, cutting off a terminated grantee’s domestic rights except as preserved by statute.
- The Derivative Works Exception in § 304(c)(6)(A) preserves only the ability to continue exploiting a pre-termination derivative work “under the terms of the grant,” not broader rights to approve new uses or collect royalties from uses outside that grant.
- “Under the terms of the grant” is construed as a limiting phrase: post-termination exploitation must match the manner and extent contemplated by the operative pre-termination license.
- A mechanical license that is nonexclusive, territorially limited, personal, non-assignable, and tied to a particular recording and licensee does not preserve a former publisher’s right to capture post-termination royalties from later third-party distributions outside those terms.

## Conclusion

The Second Circuit held that the Derivative Works Exception preserves only those exploitations of a pre-termination derivative sound recording that fall within the original license’s limits; it does not permit a terminated grantee to claim domestic mechanical royalties from later soundtrack-album uses not authorized by the pre-termination grant.


Fred Ahlert Music Corp. v. Warner/Chappell Music, Inc., 155 F.3d 17 (2d Cir. 1998)