Copyright, Divorce and Community Property in California

Intellectual property rights such as copyrights, patents and trademarks can be valuable assets which should not be overlooked in any divorce settlement. This article will briefly look at copyrights and community property in California. In California the case of In Re Marriage of Worth established that copyright should be treated as community property subject to equal division in a marital dissolution. In that case Susan and Frederick Worth agreed in a stipulated Judgment that she would be entitled to royalties from two trivia books he authored during the marriage. When Frederick Worth later filed a copyright infringement action against the Trivial Pursuit board game, Susan claimed that she should be entitled to half the proceeds of the infringement action. The Court agreed with Susan and rejected Frederick’s arguments that State community property law was preempted by Federal copyright law. Although the decision has been heavily criticized by scholars and by other courts, it remains the law in California.

This means that when a marriage ends it is important to identify any copyright that either spouse holds, to place a value on that copyright and to make adequate provision for its division. This is especially important for copyright works such as literary and music creations which can be licensed and generate future income. For example, consider an author who writes a series of books featuring a famous cartoon character. While the non-author spouse is entitled to fifty percent of the copyright in the books written during the marriage, what is the situation where the author continues to write new books after the marriage using the same cartoon character? The post divorce books might then be turned into television shows and movies generating further income. In this kind of situation, in creating a settlement your attorney will need to distinguish and value the various forms of intellectual property that are created during the marriage. These will include the copyrights in the books and the character, good will developed by the author and trademark rights created in the character and the series. It is likely that these values will depreciate over time due to post divorce services performed by the author. This was the situation in the divorce of Charles M. Schulz, the creator of the comic strip “Peanuts”. His wife of 24 years reached a property settlement whereby he agreed to pay for a share of the revenues he received from the comic strip after the divorce that would decline from 27% to 15% over ten years to take into account the fact that over time an increasing percentage of revenues would be attributable to his personal efforts.

It is important to distinguish between the physical work and the underlying copyright in the work. For example, in the case of an artist, the community will be entitled to the market value of any unsold paintings in a divorce but if the painter is famous there may be value to the other reproduction and merchandising rights in the paintings. Even where the copyright has been sold, there may be valuable residual rights that should be considered. For example, a novelist even after selling a book to a publisher may retain movie rights and even when the movie rights are sold may be entitled to “reserved rights” such as stage and performance rights. Screenwriters who are subject to the Writers Guild of America (WGA) Theatrical and Television Basic Agreement may not be the primary owner of the copyright in their scripts which are deemed “works for hire” and are owned by the studio or production company. However, the writer may be still be entitled to “separate rights” which can include stage, publication, series and sequel rights depending on the terms of the writers negotiated contract. Given the complexity of characterizing and valuation issues, in many cases it is a good idea to retain an experienced entertainment lawyer and accountant.

The first step in a divorce is to identify the nature of the intellectual property rights that may exist. A search of the U.S. Copyright Office will determine whether the copyright has been registered in the U.S. However, copyright registration is not a requirement for copyright protection and will not reveal works that have not yet been published or exploited or foreign works. For example, a half written book or a story outline is not likely to be registered but may still have value. Informal or formal discovery methods can be used to discover copyrighted works from the creator spouse or interested third parties such as book or music publishers, agents, business or personal managers and accountants. In some cases, it might be advisable to join them in the marital proceeding. In the case of a T.V. writer you would want to examine all contracts and royalty statements. In California, section 2100 et seq. of the Family Code requires both spouses to make a “full and accurate disclosure” of all separate and community assets and liabilities and to supplement those disclosures through the proceeding. Failure to do so may result in sanctions against the non-disclosing spouse and in extreme situations an award of those non-disclosed assets to the innocent spouse.

Once you have identified community copyright there are various methods for distribution. With copyright, the cleanest method is for one of the spouses to buy out the other’s copyrights interests although this can present valuation problems. Value is often speculative especially with the development of new technologies which can take many years to add value to old properties. Another solution is to equally divide both the ownership and control of the copyright assets. Often this will be problematic since it may impair the creator’s ability to commercially exploit the work. By analogy, in dealing with the division of the family business where one spouse has been responsible for management, it would be rare to give the other spouse a say in management. That leaves the other solution which divides ownership -that is the legal title and right to revenues- between the spouses but leaves control of the copyright to the creator spouse. This can create problems since it gives the creator spouse the ability to structure deals in such a way that disadvantages the other spouse. Consider the case of Jerry Lewis and Patti Lewis who divorced after 35 years. In the divorce, Patti reached a settlement under which she was entitled to a one half interest in royalties from “Community Titles” over which Jerry retained control. This included the Nutty Professor which was remade by Universal with Eddie Murphy. In a subsequent lawsuit, Patti alleged that Jerry structured the deal with Universal is such a way that minimized the “remake rights” (to which she was entitled to 50%) but paid him substantial personal service fees as writer and producer (which did not). If you do decide to separate ownership and control of the copyright it is important to negotiate how the managing ex-spouse will administer the asset, including defending the copyright and bringing infringement claims, and what fiduciary duties will be owed to the other spouse. Also there should be provision for a buy-out in certain circumstances e.g. an ex-spouse dies or no longer has the ability to manage or either party wishes to sell.

Whatever method of division of copyright is determined it is important that all the copyright formalities for transfer are observed. Your attorney should pay particular attention to the Copyright Act’s provisions regarding termination of transfers, reversions and renewals. Any transfers or assignments should be in writing and it is wise to register the copyright transfer or assignment at the Copyright Office.

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