Intellectual property generally relates to three bodies of law: copyright, trademark and patent. Each has it’s own universe of significance, rights, remedies, and the like. In this page, we’re going to be focusing on copyright, a legal tool every artist, writer, or other type of creator needs to understand.
In particular, we will cover how to deal with copyright when creating your estate plan, including who your copyright goes to after you die, ways to transfer copyright, and more.
Before we dive into that, however, let’s start with a bit of an overview. The video below discusses what copyright is, what a registration is, what it means to not be registered, and features some cool examples.
READ THE TRANSCRIPT
Hi. Thanks for tuning into another dose of Bite-Sized Bits of Knowledge, where we give you meaningful information in a short amount of time. We’ve talked about a lot of really interesting stuff for businesses. Formation, operations, governing documents. We talked a little tax. Today we’re going to get into intellectual property.
Intellectual property is things you can’t touch. They’re not tangible. That’s why they’re sometimes referred to as intangible property. Intellectual property consists of, generally, copyright, trademark, patent. Copyright, trademark, patent.
Let’s talk about Copyright. So, copyright is generally protecting your original works of authorship. It could be written, novels, books, magazines, short stories. It doesn’t matter. That includes typing. It doesn’t need to be a pen. It includes audio, like music, musical lyrics, musical notes. Really quite a few things – more than you think – in terms of music. I’ll get into that in a minute. Video like this, like a video. I’m going to get into how to slice and dice some of these rights later. But just suffice to say that copyright protects original creations. It has to be original.
For example, Vanilla Ice – “Ice Ice Baby.” That was in part a riff on David Bowie’s song called “Under Pressure.” There was litigation and he lost, and it was probably very humiliating for him to suffer that defeat for among other reasons that he humiliated himself.
Mike Tyson is another example. He had this tattoo on his face in the movie The Hangover, which apparently was owned by the tattoo artist, and it was not done with his consent. So there was litigation. And of course, they settled.
But the point is that these original works can be protected and can be enforced. And there’s a broad statute and body of law to protect those rights.
Copyright, as I mentioned. Original works of authorship. There’s a common law protection upon creation. It’s presumed to be protected upon creation, upon pen and paper without having to file anything. However, you’ll learn – hopefully not the hard way – that to enforce those protections, to have rights to damages under those protections under the federal statute, you have to have a registration.
So you really shouldn’t sit on your rights. You really shouldn’t sit on your rights. It’s a mistake to get cute or smart and think, “Well, I have common law rights, so I’m just going to sit on it. I’m going to allocate resources to other things.”
If copyright is important to your business, if you’re an artist, you’re a musician, if you’re doing things that are foundationally based on intellectual property and copyright, you should absolutely invest in an attorney that focuses on this area.
I’m not that person. I know a lot about it from my professional and my personal experience. But I personally hire attorneys that specialize in this area because on the other side, we’ll talk about litigation in another video and what that looks like.
But in this context, there are litigators who specialize in intellectual property and trademark, copyright litigation. And so they’re going to exploit small mistakes, and small mistakes have very significant consequences, and you do not want to leave your business vulnerable to those consequences.
So I recommend that you really take it seriously, get it protected and at least get advice to make those informed decisions in terms of monetization of some of these types of assets.
These are assets, by the way. Intellectual property is an asset. You can sell it outright. Just, “Here you go, give you some money, give me some royalties.” You could sell it or you can license it. You can also license parts of it you can chop it into pieces and license pieces of it.
For example, this video – I know you’re enjoying it. I could license this video to you on a certain medium like digital medium, linear TV medium, or non-mobile medium. I can license you in a certain language, limited to a certain language, limited to a certain geography, limited to a certain amount of time. And as the owner of the copyright you can negotiate all those terms. What’s payment going to look like? Is it royalties? Is it upfront? Fees are based on advertising revenue.
There’s a lot of ways to think about this stuff, and the last thing I’ll mention there is that it could be exclusive and nonexclusive – there’s a lot of ways to skin a cat. You need to know what you’re doing when you get into the space, and I recommend that you hire a professional.
I’m going to get into trademarks and patents in the next few videos, so in the meantime I just want to thank you for stopping by. Don’t forget to download the free business planning stress test – it’s linked below in the description. Stay tuned for more.
Here’s that business planning stress test mentioned: https://legacy.haimolaw.com/Business-Planning-Stress-Test
Now that you understand the basics of copyright, let’s take a look at some specific issues related to it.
How Your Copyrighted Works Fit into Your Estate Plan
Generally, if you are the owner of copyrighted work, both the work itself (book, painting, etc.) as well as the copyright should be included in your estate planning documents – typically a will or trust. In cases where copyright is not mentioned in one of these documents, the law is set up so that it will be automatically transferred to the decedent’s heirs.
There are a number of potential issues with this. First of all, in practical terms, this means that one beneficiary might inherit the actual work, while another may end up with the copyright for it. Another problem? The tax burden that comes along with owning the copyright depends on the value of that copyright, so the person who inherits it could end up owing a significant amount they weren’t expecting. Because of this, it is very important to specifically choose who will receive your copyright.
Transferring by Will vs. Transferring by Trust
With most assets, transferring them via a trust is seen as offering more protections. Where copyright is concerned, however, this is not the case. This is due to termination rights – a concept we’ll cover in more detail later.
What do termination rights have to do with whether you use a will or trust?
The way termination rights work, they are set up to pass on to the surviving spouse and children of the creator – known as “statutory heirs.” Moreover, it is not legally possible for the creator to waive or transfer termination rights to anyone else during their lifetime.
So, for example, if you placed your copyright in a trust with the intent that it be given to a close friend after your death, your statutory heirs would have the right to undo this, because you were attempting to transfer your termination rights during your lifetime.
The only way to accomplish this kind of transfer is to include it in your will. Do this, and your statutory heirs will not be allowed to terminate the transfer.
What If You Transfer by Lifetime Gift?
A third way to transfer your copyright is by lifetime gift. This is the easiest way to transfer a copyright, but that doesn’t mean it’s the best way. In fact, this method comes with a couple of potential issues.
- Copyright value appreciation will not be excluded from the creators taxable estate. In other words, it could result in higher taxes. This is due to issues related to the creator’s termination right.
- The copyright won’t qualify as a capital asset. This is due to the fact that receiving the copyright as a gift means that the recipient must adopt the basis of the person transferring the gift for income tax purposes. In contrast, if the copyright is still held in the creator’s taxable estate at the time of their death, it will get a stepped-up basis based on fair market value at the time of death or a separate valuation date and does qualify to be a capital asset.
Obtaining the Full Copyright Term
For works created on or after January 1, 1978, copyright lasts for the life of the creator plus 70 years. However, that only applies if the death of the creator is recorded with the United States Copyright Office.
Doing this is actually what causes that copyright to be extended for the legally protected additional 70 years. If the death is not recorded, it is presumed that the work should go into the public domain upon reaching the earlier of these two options:
- 95 years from the dates of first publication
- 120 years from the creation of the work
Understanding the Right to Terminate Transferred Copyrights
“Can copyright be terminated?”
You may be able to regain the rights to work you previously gave away, and so may your statutory heirs after your death. But without the right precautions, this could be the case whether you intended it or not.
This right to terminate transferred copyright has only been available since 2013. Many estate planning attorneys, particularly those without experience handling copyright issues, may not be aware of the specifics. In fact, it’s so new that the courts haven’t fully interpreted and applied the related provisions yet, and as such, there is still some uncertainty about it.
This right was created to protect artists who may have made sales early in their career for a small amount. Then they experienced greater fame or success later that made the initial work much more valuable. After 35 years, they can gain their work back and benefit financially.
So Can Copyright Be Terminated?
Here is some key information about copyright transfers:
- If you transferred the copyright to your work after January 1, 1978, and it was not considered “made for hire”, you can regain that copyright.
- It must be during a five-year period beginning 35 years after the date that rights were transferred or licensed.
- If the copyright also included the publication rights, then this window begins 35 years after publication or 40 years after execution of the grant, whichever is earlier.
- In order to exercise this right, you or your statutory heirs are required to notify the copyright holder no earlier than 10 years before that five-year window opens and no later than two years before that window closes.
Consider this Scenario:
If you are an artist who transferred your copyright on January 1, 1978, then the five-year window would begin January 1, 2013. And you would have to notify the current copyright holder of your intent to terminate by January 1, 2003 at the earliest or January 1, 2016 at the latest.
Potential Complications for Estate Planning
Unfortunately, the 1976 Copyright Act that granted this right also created an automatic right of inheritance for your surviving spouse or descendants. So even if you do not intend to make them beneficiaries of your estate, your statutory heirs will automatically inherit the right to terminate if you die before the window is closed. You cannot choose which heir is given the copyright.
For example, you may have disinherited your children from your estate, giving everything to your spouse. But your children still retain the right to terminate your transferred copyrights, which means they could gain those rights during the five-year window and benefit financially.
What If You Don’t Have an Estate Plan?
If you die after giving notice but before the date where the copyright transfers back to you, the copyright will pass according to your estate plan. In the absence of an estate plan, it will pass according to intestate succession. Either way, this may come with a downside: your estate may remain open until the copyright has reverted to the estate. And that can take up to 15 years.
You may want your copyright to stay in the hands of the person or organization who currently has it. For example, many artists give their copyright to their privately-run foundation. Then that foundation often relies on income generated from that copyright in order to remain functioning. They also protect the artist’s legacy after death.
Planning Ahead in Regard to Transferred Copyright
So how do you prevent your heirs from terminating that transferred copyright and taking it for themselves? You need to transfer the copyright in your last will and testament in order for it not to be subject to termination rights.
This exception is not applicable to other testamentary substitutes, such as revocable trusts. It’s likely that the drafters of this law in 1970s did not have the foresight to anticipate the lengthy process of probate.
These types of details are why it is so important to seek the help of an estate planning lawyer with experience handling copyright matters. Otherwise, the copyright to your works might not end up where you intended after you pass.
Originally published 4/7/22. Updated 10/12/23.