# Who Keeps the Royalties: Mills Music v. Snyder and the Derivative Works Exception to Termination

> When an author's heirs terminate a publisher's copyright grant, who collects on the records already licensed? The Supreme Court split 5-4 and let the publisher keep its cut.

Topic: Copyright  |  Author: Lidiia Levitska  |  Source: Intellectual Property Law (outsideipcounsel.com)
Canonical: https://outsideipcounsel.com/blog/mills-music-v-snyder-derivative-works-exception/


The 1976 Copyright Act gave authors and their heirs a powerful new tool: the ability to terminate old copyright grants and reclaim rights they or their forebears had signed away decades earlier. But Congress carved out an exception for works already built on the old grant, and *Mills Music, Inc. v. Snyder*, 469 U.S. 153 (1985), decided January 8, 1985, asked who profits from that exception. The answer split the Court 5-4. Writing for the majority, Justice John Paul Stevens held that when the heirs of songwriter Ted Snyder terminated his grant of "Who's Sorry Now," the publisher Mills Music could keep collecting its negotiated share of royalties on the hundreds of recordings licensed before termination. The case remains the leading interpretation of the derivative works exception in Section 304(c)(6)(A).

## At a glance

- **Case:** *Mills Music, Inc. v. Snyder*, No. 83-1153, 469 U.S. 153 (U.S. Jan. 8, 1985).
- **Court:** Supreme Court of the United States; opinion by Justice Stevens for a 5-4 Court; dissent by Justice White, joined by Justices Brennan, Marshall, and Blackmun.
- **Posture:** Reversing the Second Circuit, which had ruled for the Snyder heirs after the district court had ruled for Mills Music.
- **Holding:** The Section 304(c)(6)(A) derivative works exception preserves the entire pre-termination contractual arrangement; the publisher who authorized derivative works under the original grant continues to receive its bargained-for royalty share on those works after termination.
- **Significance:** Defined the scope of the derivative works exception, settling that termination does not strip middlemen of their negotiated cut on derivatives lawfully made before termination.

In 1923, Ted Snyder wrote "Who's Sorry Now." In 1940, he assigned his renewal-term interests to Mills Music in exchange for royalties—an advance, a fixed sum on sheet music, and 50 percent of the net royalties Mills received from mechanical reproductions. Mills, in turn, licensed over 400 record companies to make recordings of the song, each an independently copyrightable derivative work. After Snyder's death, his heirs invoked Section 304(c) to terminate the 1940 grant and reclaim the copyright. They then argued they were entitled to all the royalties flowing from the pre-termination recordings—cutting Mills out entirely.

## The termination scheme and its exception

Section 304(c) lets an author or statutory heirs terminate a pre-1978 grant during a five-year window and recapture the copyright, notwithstanding any contract to the contrary. Congress designed it to give authors a "second chance" to benefit from works whose value proved far greater than anyone foresaw at the original bargain.

But Congress balanced that against reliance interests. The derivative works exception, Section 304(c)(6)(A), provides that "a derivative work prepared under authority of the grant before its termination may continue to be utilized under the terms of the grant after its termination." Records already pressed under the old license could keep being sold. The dispute in *Mills Music* was not whether the records could keep playing—everyone agreed they could—but who would collect the income they generated: the publisher who arranged and authorized them, or the author's heirs who now held the recaptured copyright.

## The majority: the whole grant survives, including the middleman

Justice Stevens read the phrase "under the terms of the grant" to preserve the entire contractual structure that produced the derivatives, not just the record companies' right to keep exploiting them. The "grant" that authorized the recordings was the 1940 Snyder-to-Mills assignment, and "the terms of the grant" included Mills's role as the licensing intermediary and its negotiated 50 percent share. Because the recordings were "prepared under authority of the grant before its termination," the exception kept that whole arrangement in place.

The majority emphasized that the exception was a carefully bargained compromise. Stripping Mills of its share, the Court reasoned, would not channel a windfall to the author by some natural logic; it would simply rearrange a settled distribution scheme that Congress chose to leave intact for pre-termination derivatives. The statute's text and structure, the majority concluded, did not single out the publisher for elimination.

## The dissent: a second chance the author never got

Justice White, joined by three colleagues, dissented vigorously. He read the termination provisions as designed to return to authors the benefits of their works, and he argued that the exception should preserve only the right of the record companies—the actual makers of the derivatives—to keep using them, while the publisher's middleman share should revert to the heirs. In the dissent's view, allowing Mills to keep collecting frustrated the central purpose of the 1976 Act's termination right: to let authors and their families recapture value that intermediaries had locked up under improvident early deals.

The 5-4 split reflects a genuine ambiguity in the statute. "Under the terms of the grant" can plausibly mean the royalty rates that govern continued use, or the entire web of grants and sublicenses that produced the derivative. The majority chose the broader reading; the dissent the narrower one. The choice has shaped how publishers, labels, and heirs value catalogs ever since.

## Open questions

- **What if there is no intermediary?** *Mills Music* involved a publisher between author and record companies; how the exception applies to direct author-to-user grants is less contested but distinct.
- **Does the same logic govern Section 203 terminations?** The case construed Section 304(c) for pre-1978 grants; the parallel exception in Section 203 for post-1977 grants raises similar but separately litigated questions.
- **How broadly does "the terms of the grant" reach?** The majority preserved the full arrangement, but later disputes test which contractual terms truly travel with a pre-termination derivative.

## Implications

- **For songwriters and heirs:** Termination recaptures the copyright going forward, but it does not necessarily redirect royalties on derivatives already made; pre-termination deals can keep paying intermediaries.
- **For publishers:** A negotiated share of royalties on derivatives authorized before termination can survive the author's recapture, protecting catalog value tied to existing recordings.
- **For record labels and other users:** Derivatives lawfully made before termination may continue to be exploited "under the terms of the grant," preserving the economics of works already in the market.
- **For deal drafters:** Because so much turns on "the terms of the grant," the precise structure of licenses and sublicenses—who authorized what, and on what terms—directly determines post-termination outcomes.

## Frequently asked questions

**What is the derivative works exception in copyright termination?**
Under Section 304(c)(6)(A), a derivative work prepared under a grant before that grant is terminated may continue to be used under the terms of the grant after termination. Records, films, and other derivatives lawfully made before termination keep running on the old deal.

**Why did the publisher keep collecting royalties after the heirs terminated the grant?**
Because the records were derivative works made under the original grant before termination. The Court held that the exception preserves the whole pre-termination contractual structure, including the publisher's negotiated share of the royalties, not just the record companies' right to keep selling.

**Was the decision unanimous?**
No. The Court split 5-4. Justice Stevens wrote for the majority; Justice White dissented, joined by three others, arguing the exception should return the publisher's share to the author's heirs.

## Authorities and sources

- Supreme Court opinion (Library of Congress, U.S. Reports): https://tile.loc.gov/storage-services/service/ll/usrep/usrep469/usrep469153/usrep469153.pdf
- Justia case page, 469 U.S. 153 (1985): https://supreme.justia.com/cases/federal/us/469/153/
- Oyez case file (No. 83-1153): https://www.oyez.org/cases/1984/83-1153
- 17 U.S.C. § 304 (Cornell LII): https://www.law.cornell.edu/uscode/text/17/304
- 17 U.S.C. § 203 (parallel termination right, Cornell LII): https://www.law.cornell.edu/uscode/text/17/203