April Productions, Inc. v. G. Schirmer, Inc.

Fuld, J.

This appeal involves the construction of an agreement for the publication of musical compositions on a royalty basis. The agreement is not expressly limited in time, and the question posed for decision is whether the publisher’s obligation to pay the stipulated royalties is for an indefinite and indefinable period — indeed, in perpetuity — or is related to, and measured by, the period for which the grantor controlled and granted the right to publish and sell copies of the work on which royalties Avere to be computed.

In August of 1917, plaintiff’s assignor, Shubert Theatrical Company, produced an English Aversion of a German musical play, entitled “ Wie Einst Im Mai,” in this country. For the American version, which Avas called'¹ May time,” a complete new musical score was composed by Sigmund Romberg, Avith lyrics by Rida Johnson Young. By several instruments, some of which are set out in the record, Shubert acquired from the authors certain rights in the music. Of those, it turned over publication and so-called mechanical rights to G, Schirmer, Inc., under the agreement upon which plaintiff’s claim is predicated. The agreement, in the form of a letter, dated September 14, 1917, from Shubert to Schirmer, recites that “ you are to publish the music of the play * Maytime ’ — book and lyrics by Rida Johnson Young, and music by Sigmund Romberg,” on the condition, among others, that “ You * * * pay us as royalty for each and every copy sold on the basis of five (5^) cents per copy, and fifty (50%) per cent, of any and all mechanical instruments * * * wherein the music of the numbers as composed by Sigmund Romberg shall be used; also a royalty of five (5^) cents per copy on each complete orchestral selection sold.”

In accord with prevailing custom that the copyright be taken out by the publisher, and in the publisher’s own name, Schirmer copyrighted the compositions and continued to publish and pay the royalties until 1945, when the original twenty-eight-year term of copyright expired. It should be noted here that the 1917 agreement, silent as to the period for which Schirmer was authorized to publish, and for which it was obligated to pay royalties, made no express grant of any right to publish after the expiration of that initial term. (Cf. Fisher Co. v. Witmark & Sons, 318 U. S. 643; Ricordi & Co. v. Paramount Pictures, 189 F. 2d 469, 471; Rossiter v. Vogel, 134 F. 2d 908; Fitch v. Shubert, 20 F. Supp. 314.)

Copyrights for the renewal term were secured by the composer Romberg and the lyricist Rida Johnson Young, or, more precisely— since she had died — her executor.¹ No application for the renewal was made by either Shubert or Schirmer. The latter could not possibly have made such an application. The only persons possessing a right to obtain a renewal under the Copyright Act were the authors, if living, or, if they were dead, their designated statutory successors, unless there was an employment for hire, in which case the employer alone would have had the right to renew (U. S. Code, tit. 17, § 24). As for Shubert, whether or not it could have applied for the copyrights for the renewal term, the simple fact is, it made no attempt to do so. In truth, Shubert disclaimed, even at the trial, any interest or concern in the copyrights or copyright ownership, and has at no time challenged or disputed the copyrights that the authors secured for themselves for the renewal term.

That being so, Schirmer entered into new agreements for the renewal term directly with the authors under which it obtained the essential license to continue to publish the music in return for a royalty of 6 cents a copy. Coincidentally, in 1945, Schirmer ceased paying the 5-cent Shubert royalty, and, two'years later, plaintiff, as assignee, brought this suit for an accounting of royalties.

Although there is no claim that the agreement here involved conferred any right to publish the music after 1945, it is plaintiff’s contention that Schirmer must continue to pay the royalties specified therein as long as it publishes and sells the music. In brief, it is plaintiff’s thesis that the agreement required Schirmer to pay royalties to Shubert without regard to copyright or copyright term.

The trial court sustained plaintiff’s construction and rendered a money judgment for all royalties accrued since 1945. The Appellate Division, two justices dissenting, affirmed. Concluding that the obligation to pay royalties for publication and recording of the works was in no way related to Shubert’s ownership of those rights, that court held that Shubert discharged, for all time, whatever obligations it was under when it gave Schirmer the “ initial opportunity ” of publication in 1917 and that “ what incidental arrangements ” Schirmer was thereafter “ obliged to effect to continue * * * publication ” of the music were “ immaterial ”.

The effect of this decision is that Schirmer must pay, not only royalties of 6 cents a copy to the owners of the renewal copyright for the privilege of publishing the works for the twenty-eight-year period commencing in 1945, but a royalty of 5 cents to plaintiff for the same privilege, even though the right of plaintiff, or its assignor, to control publication of the works expired in 1945. Moreover, even after the copyright finally expires in 1973 — when the whole world will be able to publish without hindrance and royalty free — Schirmer must, if the decision below stands, continue to pay the 5-cent royalty to plaintiff. We cannot agree that such a construction of the contract accords with the intent of the parties.

A careful reading of the contract itself clearly reveals the parties’ intention to require royalty payments only so long as Shubert secured to Schirmer the right to pubhsh the music. The agreement, sparse in statement, simply provides that “ you [Schirmer] are to publish the music ” and that “ you are to pay us as royalty [5 cents per copy] for each, and every copy sold.” There is, as already indicated, no express statement of the period for which Schirmer was to publish or for which it was to pay royalties. Yet the authorization to “ publish ” was necessarily confined to the term of the underlying copyrights, for that is all that Shubert had the power to grant. (See, e.g., Fitch v. Shubert, supra, 20 F. Supp. 314, 315-316.) And it follows, we believe it plain, that the duty to pay royalties on copies “ sold ” was intended to be of like duration. The words “ publish ” and “ sold,” appearing in such close juxtaposition, must have been used by the parties as parallel and congruent terms. Consequently, only when the copies “ sold ” were published pursuant to the authority conferred by the agreement, were royalties to be computed upon such sales and paid.

In our view, therefore, there can be no doubt of the parties’ design that payments were to be made solely in proportion to the benefits derived by Schirmer from the exercise of the rights granted by the agreement. In this connection, it is of surpassing significance .that the consideration reserved to Shubert — “as royalty” — was geared exclusively to the publication of the subject works. For, absent specific contractual provision, it is well settled that, where the consideration for an agreement to publish musical compositions is payment of royalties — as opposed to payment of a lump sum or of installments not related to the usufruct of the copyright, i.e., the reproduction of the work — the grantee or licensee must be given the right to use the license in order to be under an obligation to pay the royalty. (See Bottlers Seal Co. v. Rainey, 225 N. Y. 369, 372-373; Herzog v. Heyman, 151 N. Y. 587, 590-591; Marston v. Swett, 82 N. Y. 526, 529; Pomeroy v. New York Hippodrome Corp., 197 App. Div. 114; cf. Tams-Witmark Music Lib. v. New Opera Co., 298 N. Y. 163.) The period for which the grantee enjoys the right to produce under the license must necessarily measure the duration of his obligation to pay the prescribed royalty to the grantor. ‘ ‘ In legal contemplation,” this court wrote in the Bottlers Seal Co. case (supra, 225 N. Y. 369, 373), “ the enjoyment of the undisturbed use of the patent, not the mere execution of the grant, is the consideration for the royalties. The debt is not contracted until the consideration is furnished. (Garrison v. Howe, supra [17 N. Y. 458]; Whitney Arms Co. v. Barlow, 68 N. Y. 34; Gold v. Clyne, 134 N. Y. 262.) If the right to make, use and sell the patent terminates meanwhile; if the licensor does not respect the right; if it had no right to transfer; then the duty to pay royalties ceases; the time for payment never arrives and the debt is not contracted.”

Our reading of the contract in suit — as imposing no obligation to pay royalties after the expiration of the underlying-copyrights— is reinforced by an established rule of construction applied in the analogous field of patent royalty agreements. (See E. R. Squibb & Sons v. Chemical Foundation, 93 F. 2d 475, 477; Tate v. Lewis, 127 F. Supp. 105; Dwight & Lloyd S. Co. v. American Ore Reclamation Co., 44 F. Supp. 396.) “ There is a presumption that royalties are not to be paid after the expiration of a patent; if the intention is to have them continue longer, the parties should phrase their contract in language from which such intention may fairly be inferred.” (E. R. Squibb & Sons v. Chemical Foundation, supra, 93 F. 2d 475, 477.) In point of fact, an agreement to pay royalties on the manufacture of a patented article “ after the patent expires, whatever the legal device employed,” may be unenforcible as contrary to public policy. (Scott Paper Co. v. Marcalus Co., 326 U. S. 249, 256.) For our purposes, the same rules should apply to royalty agreements involving copyrighted literary property, inasmuch as both forms of property — patent and copyright — may be enjoyed for only a limited period of time under the United States Constitution (art. I, § 8, cl. 8).

It is urged, however, that the cases cited are inappropriate, first, because the contract nowhere uses the term “ copyright ” and, second, because Shubert did not copyright the songs before turning them over to Schirmer for publication. Such an argument ignores the realities of the arrangement made between parties well versed in the intricacies of music publishing.

In the first place, Shubert’s contract with the owner of the original German play, one Hans Bartsch — executed in February of 1917 and from which Shubert’s rights in the play stemmed — spoke in terms of copyright. Not only did it stipulate for the renewal of the contract from season to season “ during the term of copyright of the American version,” but it specified that Bartsch would consent to the introduction of interpolated music in the play on condition that Shubert procured for him an agreement from the publisher — who proved to be Schirmer — providing that Bartsch, upon the contract’s expiration, was to have ‘/he exclusive right to use any such interpolated music in the performance of the play ¹ ‘ during the life of the copyright ”. In the light of such language in the underlying agreement between Shubert and Bartsch, the conclusion is unavoidable that Shubert, when but a few months later it made arrangements with Schirmer, was definitely copyright-conscious.

And, in the second place, turning to the contract before us, that between Shubert and Schirmer, it is clear that Schirmer agreed to pay royalties for the privilege of exercising rights existing solely by virtue of section 1 of the Copyright Act, namely, rights to publish and record the works (U. S. Code, tit. 17, § 1, subds. [a], [e]). But for these exclusive rights conferred by the federal statute, Shubert would have had nothing of value to sell or convey. (See Holmes v. Hurst, 174 U. S. 82, 86; Atlas Mfg. Co. v. Street & Smith, 204 F. 398, 402, appeal dismissed 231 U. S. 348, certiorari denied 231 U. S. 755; Krafft v. Cohen, 117 F. 2d 579, 580; American Code Co. v. Bensinger, 282 F. 829, 833.) Indeed, copyright has been described most aptly as ‘‘ the only practical method of uniting publication with profit.” (Silverman v. Sunrise Pictures Corp., 273 F. 909, 910, same case, 290 F. 804, certiorari denied 262 U. S. 758.)

Hence, although the present contract does not mention copyrights or, in so many words, grant a license under pre-existing copyrights, it was necessarily made in contemplation of Schirmer’s securing copyrights either in Shubert’s name or in its own name. As both parties well knew, since no property rights in literary or musical works survive an authorized publication without due compliance with copyright formalities (see Holmes v. Hurst, supra, 174 U. S. 82; National Comics Publications v. Fawcett Publications, 191 F. 2d 594, 598; Krafft v. Cohen, supra, 117 F. 2d 579; American Code Co. v. Bensinger, supra, 282 F. 829, 833), Schirmer’s publication of the music without first copyrighting it would have caused it to fall into the public domain, destroying, not only the rights granted to Schirmer, but also those reserved to Shubert. (See American Code Co. v. Bensinger, supra, 282 F. 829, 833; Tams-Witmark Music Lib. v. New Opera Co., supra, 298 N. Y. 163.) Copyrighting by Schirmer was, therefore — contrary to the basic premise of the dissenting opinion (pp. 381-382) — a necessarily implied covenant of the agreement, and the publisher was under a duty to take whatever steps were necessary to safeguard the rights which were the subject of the bargain.

Schirmer did, as we have seen, copyright the compositions and, in line with established trade practice, in its own name. It is to be borne in mind that Schirmer could not legally have done this in the absence of authority, express or implied, from Shubert; no one is entitled to obtain a copyright unless he himself is the author, or is — as Shubert was — the assignee of the author. (See, e.g., Mifflin v. R. H. White Co., 190 U. S. 260; Houghton Mifflin Co. v. Stackpole Sons, 104 F. 2d 306, certiorari denied 308 U. S. 597; Borden v. General Motors Corp., 28 F. Supp. 330, 334.) And, after obtaining the copyrights in this case, Schirmer held them in trust for Shubert to the extent that the latter reserved all rights except publication and mechanical rights, that is, the rights on which royalties were to be paid. (See Bisel v. Ladner, 1 F. 2d 436; Ford v. Blaney Amusement Co., 148 F. 642; Quinn-Brown Pub. Corp. v. Chilton Co., 15 F. Supp. 213, 214.)

It is thus impossible to treat this contract as one which does not involve a grant or license of rights in copyrighted musical compositions, and, accordingly, the rules of construction applicable to such contracts are pertinent here. The agreement may not, therefore, in the absence of express language, not here present, be construed to require payment of royalties after the expiration of the underlying copyrights. (See E. R. Squibb & Sons v. Chemical Foundation, supra, 93 F. 2d 475, 477.)

Any other construction would, moreover, defeat the undoubted intention of the parties. Certainly, these experienced firms could not have contemplated continuation of royalty payments after the rights granted to Schirmer had expired and the exclusive right to publish the music had vested in a third party. To accept plaintiff’s position, we would have to ascribe to the parties an- intent, not only that Schirmer be required to pay multiple royalties during the renewal term — an intention not to be inferred (see Marston v. Swett, supra, 82 N. Y. 526, 533) —but also that Shubert be entitled to exact royalties after the copyrights had actually expired and the works had entered the public domain. In our view, such an interpretation would be indefensible. “ The thought behind the phrase proclaims itself misread when the outcome of the reading is injustice or absurdity.” (Surace v. Danna, 248 N. Y. 18, 21.)

For reasons which must now appear evident, it may not be said —'as it was in the court below — that Shubert was entitled to collect royalties in perpetuity merely because it executed a document in 1917 giving Schirmer the initial privilege of publicaron at that time. Obviously, it was not merely the “ designation ” of Schirmer as publisher, but the grant of a right ,to undisturbed enjoyment of the privileges conveyed, that constituted the consideration for the payment of royalties. (See Bottlers Seal Co. v. Rainey, supra, 225 N. Y. 369.) Nor may it be said that the arrangements that Schirmer was compelled to make with the authors to be permitted to continue publication for the renewal term were merely “ incidental ” and, therefore, “immaterial.” Those agreements were just as basic and necessary in acquiring rights for the post-1945 period as was the agreement with Shubert for the original term. In fact, Shubert conceded, by its acquiescence in the authors’ claim to the right of copyright renewal, that in 1917 it had nothing to give Schirmer beyond the initial twenty-eight-year period. Schirmer had no basis whatever for reliance on the title of its grantor after 1945, inasmuch as the latter disclaimed any interest in control or ownership of the copyrights, and did not even register a claim to the renewal term.

We would add a further word concerning the suggestion that Shubert might have owned these rights for the second term of twenty-eight years, either as employer for hire or otherwise.

The legal effect of assignments from the authors, Bomberg and Young, to Shubert did not, so far as the record before us reveals, give the latter the right to the copyrights for the renewal term upon the expiration of the initial term. The right of renewal afforded the authors of a copyrighted work is in reality a new grant or estate, not arising out of the original copyright (see Silverman v. Sunrise Pictures Corp., supra, 273 F. 909, 911; Fitch v. Shubert, supra, 20 F. Supp. 314, 315), and, absent proof, completely lacking here, that Shubert had obtained from either the composer or the lyric writer any rights beyond the original term, that is the period for which the rights were conveyed. (See Fisher Co. v. Witmark & Sons, supra, 318 U. S. 643; Ricordi & Co. v. Paramount Pictures, supra, 189 F. 2d 469; Rossiter v. Vogel, supra, 134 F. 2d 908.) If there could have been any doubt that the term was so limited in this case, it was laid to rest by Shubert’s action, or, rather, inaction, in 1945. Its conduct was patently inconsistent with any claim that it possessed rights following that first copyright term. If Shubert had any right to renew as employer for hire, it would have had to obtain the renewals in its own name. (See Tobani v. Carl Fischer, Inc., 98 F. 2d 57.) As already appears, Shubert did not, by word or action, even intimate that it had any right in or to the copyrights for such a period.

Nor would plaintiff be helped, or its position improved, by supposing that the present copyright owners, Eomberg and the Young estate, lacked power to secure the copyright renewals, on the ground that the true author was Shubert as employer for hire. Such a hypothesis could lead only to the conclusion that no valid copyrights existed and that the work had fallen into the public domain, deprived of all protection. (See Tobani v. Carl Fischer, Inc., supra, 98 F. 2d 57.) Certainly, no court in a case such as this would or should declare a forfeiture of the rights of those who, as authors, obtained the renewal copyrights. And, beyond that, if such a forfeiture were to be adjudged, with the consequent termination of copyright protection, the result would be, as already demonstrated, that Schirmer’s duty to pay royalties would likewise terminate.

In sum, then, Schirmer’s obligation to pay royalties under the 1917 agreement was measured by the duration of the rights thereby conferred. That obligation, accordingly, came to an end in 1945. To the soft impeachment — that by so holding we are “ construing ” this contract “ to make [it] mean ” what we believe it “ should have said in the first place ” (opinion of Desmond, J., p. 378) — we cannot resist observing, what, perhaps, has been overlooked, that there “is no more likely way to misapprehend the meaning of language — be it in a constitution, a statute, a will or a contract — than to read the words literally, forgetting the object which the document as a whole is meant to secure.” (Central Hanover B. & T. Co. v. Commissioner of Int. Rev., 159 F. 2d 167, 169, per Learned Hand, J.)

The judgment should be reversed and the complaint dismissed, with costs in all courts.

1 . Under the United States Code, in 1945 as well as in 1917 and today, the original term of copyright is twenty-eight years. An additional term of twenty-eight years may be obtained by application made by the author, if then living, or by his widow, widower or children; if there be none, then by the author’s executor or, if he died intestate, by his next of kin. And, the statute continued, in the case of a work copyrighted “ by an employer for whom such work is made for hire, the proprietor of such copyright ” is entitled to the renewal (U. S. Code, tit. 17, § 23, renumbered § 24 in 1947).