Winnie the Pooh [Merchandising Case]

The 9th Circuit Court of Appeals has issued a ruling on who owns the merchandising rights to Winnie-the-Pooh, in Milne v. Stephen Slesinger, Inc.Download file. The litigation has been known for being extremely contentious and drawn out, extending over a decade with hundreds of millions of dollars in royalties at stake, and with lots of press coverage. See background on the case in a series of posts from the Legal Reader.

Stephen Silverman, Inc. (SSI) acquired merchandising rights to Pooh from the author Alan Alexander Milne in 1930 and then granted them to Disney in 1961. In 1976, the copyright law was revised to permit authors or their heirs to terminate a transfer of copyright in certain circumstances. A.A. Milne died in 1956, and as a result, to avoid this possibility, in 1983 SSI and Disney entered into a new agreement with Christopher Robin Milne.

SSI eventually sued Disney over royalties, alleging that Disney had underpaid over the years. Disney however worked with the sole remaining heir, Clare Milne, daughter of Christopher Robin, to try to sever SSI's rights and thus short-circuit the litigation. In 2004 Clare Milne sent SSI a termination notice under the copyright act's Section 304 termination of transfers provision. She also made a same-day deal granting her reversionary rights to Disney. Disney in turn agreed to fund the litigation against SSI.

The 9th Circuit sided with SSI in the ruling, and concluded that SSI still owned valid rights under the 1983 agreement. The case turns on a technical point of the law, namely, that for works existing prior to 1978, the agreement to be terminated must have been entered into prior to 1978.

The Court held that the post-1978 agreement that Christopher Robin made in 1983 therefore could not be terminated, despite various technical legal arguments made by Clare Milne and her counsel David Nimmer, author of the treatise Nimmer on Copyright. See prior post with interview of Professor Nimmer.

The Court concluded that the 1983 agreement was not an "agreement to the contrary" under the statute, such as an agreement to make a will or a future grant and thus undercut the termination of transfer provisions.

The Court also concluded that the 1983 agreement was valid notwithstanding Clare Milne's argument that a "moment of freedom" was necessary to exist between the revocation and the re-granting of rights. The Court held that any such "moment of freedom" from simultaneous transactions did not apply because the 1983 agreement was not a termination of transfer under the statute.

"Even assuming that Congress intended such a 'moment of freedom' between a contractual revocation and re-grant of rights, we note that Christopher's ability to exercise his perceived termination right gave him all the freedom he needed to refrain from entering into a new grant of copyright rights to SSI. He parlayed that right into a new agreement giving increased compensation to the Pooh Properties Trust, of which Clare is a prime beneficiary."
"In doing so, he fulfilled the very purposes for which Congress enacted the termination right. Thus, it defeats common sense to suggest that he needed to take a walk around the block between the time he revoked the old agreement and entered into the new one."

As a result, unless the U.S. Supreme Court accepts an appeal of the case, SSI's royalty suit against Disney will proceed in the new year. It is a bit ironic that Disney's attempt to avoid a termination of transfers with the 1983 agreement led to today's ruling where their attempt to assist Clare Milne in severing that agreement failed. Clearly Disney is opportunistically doing whatever it takes to preserve its financial interest in the Pooh franchise.

The case also points out a little known aspect of the copyright law -- the termination of transfer provisions in Section 203 and Section 304 of Title 17. When renewal rights to copyright were eliminated, these provisions were designed to protect widows and other heirs from a situation where many years down the road everyone else reap huge financial gains from a popular work where the author originally did not have sufficient leverage to make a good deal.

The case also suggests that the termination of transfer provisions can be avoided by publishers and other grantees if they enter into pre-emptive agreements like the 1983 agreement to avoid exercise of the statutory termination of transfer.

For those of you who, like myself, spend time watching Pooh videos with little people, you can now use that time to think through these fascinating copyright issues.

Rodney D. Ryder