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Attorneys

Funk, Copyrights, and Collecting Judgments

July 11 2014

By James Kachmar

Litigants know that obtaining a judgment against an adversary is only half the battle.  Sometimes the efforts a litigant must expend to collect on that judgment are just as significant, if not more so, than obtaining the judgment.  In looking for assets to satisfy a judgment, litigants are reminded that a defendant’s intellectual property, including any copyrights, may be subject to execution to satisfy an unpaid judgment. This issue was recently explored in a Ninth Circuit case titled, Hendricks & Lewis PLLC v. George Clinton (the funk music superstar).

Clinton was a pioneer in funk music starring in bands such as Funkadelic and Parliament.  During the last ten years, however, he racked up legal fees with Hendricks & Lewis in excess of $3 million.  Hendricks & Lewis obtained an arbitration award in excess of $1.6 million that was later confirmed as a judgment against Clinton.

After receiving only a portion of the outstanding judgment through various collection methods, Hendricks & Lewis asked a U.S. District Court to appoint a receiver who would then attempt to sell Clinton’s copyrights in his various music to help satisfy the judgment.  The District Court agreed and appointed a receiver to do so.  Clinton then appealed to the Ninth Circuit.

One additional set of facts that is crucial to the outcome of this case was the history of Clinton’s copyrights in his music.  In July 1975, Clinton, through his production company, Thang, Inc., entered into a recording contract with Warner Bros. Records in which he agreed to make master recordings of his performances with Funkadelic.  The agreement made clear that Warner Bros. was to own in perpetuity all rights in the recordings and that neither Thang nor Clinton would have any rights.  This included an acknowledgment that Warner Bros. owned the copyrights in the recordings.  Clinton signed a similar agreement again with Warner Bros. in 1979.  Later, Clinton and Warner Bros. had various disputes and in 1982 entered into a settlement agreement under which Warner Bros. agreed to relinquish its ownership, including its copyrights, in the recordings to Clinton. In 2005, a U.S. District Court in California recognized that Clinton was the sole owner of the copyrights for the recordings.

On appeal, Clinton argued that: (1) his copyrights were not subject to execution to satisfy a judgment; and (2) even if they were, he was entitled to protection under section 201(e) of the Copyright Act which forbids the “involuntary transfer” of a copyright.

The Ninth Circuit began by recognizing that judgment collection proceedings are governed under state law.  Washington law provides that: “All property, real and personal, of the judgment debtor that is not exempted by law is liable to execution.”  Although the Ninth Circuit could not find any cases that held that a copyright was subject to execution, the U.S. Supreme Court had long ago held that a judgment debtor’s interest in a patent could be assigned to satisfy a judgment.  The Ninth Circuit reasoned “that where copyright case law is lacking, ‘it is appropriate to look for guidance to patent law ‘because of the historic kinship between patent law and copyright right law.’’”  The Court also found it relevant that it had previously held in a case arising out of California, in Office Depot, Inc. v. Zuccarini, 596 F.3d 696, that a judgment debtor’s internet domain name could also be subject to execution.

In light of this precedence, the Ninth Circuit concluded that Clinton’s copyright interests in his music could be subject to execution to satisfy the judgment.  To avoid this result, Clinton argued that he was entitled to protection under section 201(e) of the Copyright Act.  That provision provides, in pertinent part, “When an individual author’s ownership of a copyright … has not previously been transferred voluntarily by that individual author, no action by any governmental body … purporting to seize, expropriate, transfer or exercise rights of ownership with respect to the copyright … shall be given effect. …”  Clinton argued that the lower court’s order requiring the receiver to attempt to sell Clinton’s copyrights was in effect a seizure or taking in violation of section 201(e).

The Ninth Circuit began by looking at the history of the section and noted that it was intended mainly to “protect foreign authors against laws and decrees purporting to divest them of their rights” in their copyrights.  Essentially, the U.S. was concerned that the Soviet Union would forceably seize any copyrights held by dissidents in the Soviet Union and try to use those copyrights to prevent the publication of their works, such as “One Day in the Life of Ivan Denisovich” outside the Soviet Union.  Congress, in enacting section 201(e), wanted “to reaffirm the basic principle that the United States copyright of an individual author shall be secured to that author, and cannot be taken away by any involuntary transfer.”

The Ninth Circuit held, however, that this provision did not protect Clinton.  First, the Court found that the “author” of the recordings was Warner Bros. (ant not Clinton) since Clinton and his production company were “deemed [Warner Bros.] employees for hire” in their various agreements.  Because Warner Bros. was considered the “author” of these recordings for purposes of section 201(e), Clinton could not obtain any protection from this subsection.

Second, Clinton argued that the recordings were not “works for hire” and that he (and not Warner Bros.) was the original author.  The Court held that even if this was the case, Clinton had voluntarily transferred his interests to Warner Bros. and thus the protections of section 201(e) did not apply by its terms because the copyrights had been “previously `transferred voluntarily by that individual author’.”

The Court likewise rejected a couple of other arguments raised by Clinton on appeal.  It affirmed the District Court’s decision to appoint a receiver who could dispose of the copyrights in order to satisfy the outstanding judgment.

This case is a reminder to litigants that when facing difficulties in collecting on a judgment, to look to see whether the judgment debtor has any intellectual property, such as copyrights or patents, which may be available to satisfy the judgment.