The next big copyright battle in the music world will be over termination rights

When the Copyright Act was revised in the mid-70s, artists and composers were granted “termination rights,” allowing them to apply to take control of their works after 35 years.  According to the New York Times, many have already applied to the copyright office (the law calls for applications to be filed a least two years in advance).

The record companies stand to lose millions from old masters, and argue these records are “works made for hire,” an exception to the general rule that the person creating the work is the author of the work and, therefore, the owner of the IP rights.

Here’s what the issue will center on:

Section 101 of the copyright law defines a “work made for hire” as:

• a work prepared by an employee within the scope of his or her employment or
  
• a work specially ordered or commissioned for use as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, as an instructional text, as a test, as answer material for a test, or as an atlas, if the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire.
  

The employee/employer relationship is not what one might think. The Supreme Court in CCNV v. Reid identified certain factors that characterize an “employer-employee” relationship as defined by agency law:

• The “employer” may determine how the work is done, has the work done at the employer’s location, provides equipment or other means to create the work, etc.
• The “employer” controls the employee’s schedule in creating the work, has the right to have the “employee” perform other assignments, determines the method of payment, etc.
• The “employer is in business to produce such works, provides the employee with benefits, withholds tax from the employee’s payment, etc.

Valuators need to add a review of masters over 35-years old in a music company's portfolio while reviewing Copyright Office records to see if anyone has applied to exercise termination rights. In addition, those termination rights represent still another intangible asset, some with considerable value. IPVW will watch this closely.

Google’s transfer of intangibles draws IRS attention

Bloomberg reports the IRS is auditing how Google Inc. avoided federal income taxes by shifting profit into offshore subsidiaries, including how the company valued software rights and other intellectual property it licensed abroad.

Transfers of intangibles to offshore subsidiaries located in lesser-taxed areas can allow for huge tax savings. Google, for example, is estimated to save $1B a year through this strategy. IRS is increasingly scrutinizing how these transfers are priced (ktMINE is a popular source of pricing comparables), and one prosecution led to a recovery in excess of $3B.

Stanford v. Roche mandatory reading for technology transfer pros

In the wake of Stanford v. Roche, Robert E. Smartschan, a partner at Kaufman & Canoles, recommends research institutions reduce to writing all researchers’ assignments of intellectual property rights created “in the course of their work for or at the direction of” the institution.
Smartschan feels the case should be “mandatory reading” for all technology transfer professionals, as it yields guidance on how to make sure written IPR assignments find their way into employment agreements, confidentiality agreements and NDAs, policy documents, invention disclosure forms, and other documents. Readers can download Stanford v. Roche here (scroll down to FREE resources).

AICPA revised IPR&D Aid will expand valuation techniques for acquired R&D

The newly revised IPR&D Practice Aid from the AICPA will significantly expand consideration of various valuation techniques, Tony Aaron (Ernst & Young), co-chair of the AICPA task force that’s revising the AID, told ASA attendees this week. For example, compared to the 2001 first edition, in which the valuation chapter contained only 70 paragraphs, the revised chapter will have more than 200.

The original Aid also focused primarily on the multi-period excess earnings method (MPEEM), said David Dufendach (Grant Thornton). The relief-from-royalty method was conspicuously absent. This method recognizes that the owner of a technology is excused from having to license it, and reflects the value of the technology as the royalty savings attributable to ownership. The updated version will contain examples of MPEEM, the relief-from-royalty method, and decision tree analysis, thereby removing any perceived barriers to their use and according them appropriate weight.

The ASA presenters indicated that the AICPA hopes to expose a working draft of the IPR&D Aid for public comment sometime this fall, with a final version to be released by the middle of next year.

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