Intellectual property rights, such as copyrights, patents, and trademarks, can be valuable assets that should not be overlooked in any divorce settlement. This article will briefly look at copyright and community property in California. In California, the In Re Marriage of Worth case established that copyright should be treated as community property subject to equitable division upon dissolution of marriage. In that case, Susan and Frederick Worth agreed in a Stipulated Judgment that she would be entitled to royalties from two trivia books he wrote during the marriage. When Frederick Worth later brought a copyright infringement action against the board game Trivial Pursuit, Susan claimed that she should be entitled to half of the proceeds from the infringement action. The Court agreed with Susan and rejected Frederick’s arguments that federal copyright law preempted state community property law. Although the decision has been heavily criticized by academics and other courts, it remains the law in California.
This means that when a marriage ends it is important to identify any copyright held by either spouse, assign a value to that copyright, and make appropriate arrangements for its division. This is especially important for copyrighted works, such as literary and musical creations, which can be licensed and generate future revenue. For example, consider an author writing a series of books featuring a famous cartoon character. While the non-author spouse is entitled to fifty percent of the copyright for 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? Post-divorce books could be turned into more revenue-generating TV shows and movies. In this type of situation, when creating an agreement, your attorney will need to distinguish and value the various forms of intellectual property that are created during the marriage. These will include copyrights on the books and character, goodwill developed by the author, and trademark rights created on the character and series. These values are likely to depreciate over time due to post-divorce servicing by the author. This was the situation in the divorce of Charles M. Schulz, the creator of the “Peanuts” comic strip. His wife of 24 years entered into a property agreement whereby he agreed to pay a portion of the income he received from the comic strip after the divorce that would decrease from 27% to 15% over ten years to account for the fact that over time an increasing percentage of the income 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 painting in a divorce, but if the painter is famous, there may be value for the other reproduction and marketing rights of the paintings. Even where the copyright has been sold, there may be valuable residual rights that need to be taken into account. For example, a novelist, even after selling a book to a publisher, may retain the rights to the film, and even when the film rights are sold, may be entitled to “reserved rights” such as acting and theater rights. Scriptwriters who are subject to the Writers Guild of America (WGA) Basic Agreement for Theater and Television may not be the primary copyright holders of their scripts, which are considered “works for hire” and are owned by the studio or production company. However, the writer may still be entitled to “separate rights” which may include stage, publication, series, and sequel rights, depending on the terms of the contract negotiated by the writers. Given the complexity of characterization and valuation issues, in many cases it is a good idea to retain an experienced entertainment attorney and accountant.
The first step in a divorce is to identify the nature of any intellectual property rights that may exist. A search with the US Copyright Office will determine if a copyright has been registered in the US. However, copyright registration is not a requirement for copyright protection and will not reveal unpublished or unexploited works or foreign works. For example, a half-written book or summary of a story is not likely to register, but may still have value. Informal or formal discovery methods can be used to discover copyrighted works of the creating spouse or of 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 marriage process. In the case of a television writer, you’ll 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 throughout the procedure. Failure to do so can result in penalties against the non-disclosing spouse and, in extreme situations, the award of those undisclosed assets to the innocent spouse.
Once you’ve identified a community copyright, there are several methods of distribution. With copyright, the cleanest method is for one spouse to buy the other’s copyright, although this can present valuation issues. Value is often speculative, especially with the development of new technology that can take many years to add value to old properties. Another solution is to equally divide both ownership and control of copyright assets. Often this will be problematic, as it may affect the creator’s ability to commercially exploit the work. By analogy, when it comes to the division of the family business in which 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 that divides the property – that is, the legal title and the right to income – between the spouses, but leaves control of the copyright to the creative spouse. This can create problems as it gives the creating spouse the ability to structure deals in such a way as to disadvantage the other spouse. Consider the case of Jerry Lewis and Patti Lewis, who divorced after 35 years. In the divorce, Patti reached an agreement under which she was entitled to half of the copyright in the “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 in such a way that it minimized “remake rights” (to which she was entitled 50%) but paid her substantial fees for personal services as a writer and producer (which he did not). If you decide to separate copyright ownership and control, it is important to negotiate how the managing ex-spouse will manage the assets, including defending copyrights and filing infringement lawsuits, and what fiduciary duties the other spouse will be owed. There must also be a provision for a purchase in certain circumstances, for example, a former spouse dies or no longer has the ability to manage or either party wishes to sell.
Whichever method of copyright division is determined, it is important that all copyright formalities for transfer are observed. Your attorney should pay special attention to the provisions of the Copyright Law regarding termination of transfers, reversals, and renewals. Any transfer or assignment must be in writing and it is advisable to register the transfer or assignment of copyright with the Copyright Office.
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