Jason Vorhees is one of the most recognizable characters in horror - his iconic hockey mask/machete combo has been grafted to the zeitgeist for decades, and was the franchise my brother and I would watch after our laughably negligent babysitter fell asleep (the 80s were a VERY different time…). Ownership of this franchise came into question around basic legal questions regarding the definition of “employment” for purposes of the Copyright Act of 1976. It is a precautionary tale for anyone drafting an intellectual property contract: decades later, a few poorly-written clauses can come back to haunt you.

Mandatory attorney disclaimer: Please bear in mind nothing in this article is legal advice: I’m an attorney, not your attorney.

Jason Vorhees, central character of Friday the 13th and horror icon, whose ownership recently came into question

Background

In Horror Inc. v. Miller, the court analyzed a contract from Horror Inc., the successors in interest to the Manny Company that hired Victor Miller to write the script for the first Friday the 13th movie. This deal, the ”WRITER’S FLAT DEAL CONTRACT,” was signed in 1979, just one year after the Copyright Act of 1976 went into effect in 1978.

Horror Inc. claimed this contract created an employer/employee relationship, which would give them the copyright for the script as a work completed under work-for-hire. However, if it did not, then Victor Miller would be able to assert his right of termination and reclaim the intellectual property core to the Friday the 13th franchise, a genre-defining intellectual property whose movies alone grossed over $400,000,000.

With little defining “employee” in the contract, the Second Circuit court had to look to the relevant definition of “employee” or “employment” for the Copyright Act in the case-law of Reid and Aymes.

The Copyright Act of 1976 and its Interpretation as Exclusive Authority

As per the Copyright Act of 1976, a transfer of copyright must be in writing and signed by the author of the work that is the subject of the rights transfer, or their authorized agent. The Copyright Act included a new right, the right of termination, that essentially allowed an author of a work to regain several important parts of their copyright 35 years after selling it.

One of the first arguments forwarded by Horror Inc. was that the designation of Victor Miller as an employee by NLRB standards would apply for copyright as well. This designation of Miller as an employee would make the work done under the contract as work completed within the scope of employment by an employee.

The Horror Inc. court quickly rejected this argument, citing precedent in stating that, although the Copyright Act does not define “employee,” “employment,” or “scope of employment,” “In Reid, the Supreme Court created an enduring framework for distinguishing between an employee and a non-employee author in matters of copyright.”

Round 1 went to Miller.

Work-For-Hire

Work-for-hire is one of the most controversial topics in intellectual property law, and for good reason: an author of an original work of art signs over every right to the work, including their right of termination. This means the employer is purchasing everything, severing the ability of the author to have any say in how their work is used or any profit beyond what is in the contract. However, this also typically results in a larger payout for artists that are aware of their rights and know how to negotiate with a right of termination in mind.

For a hiring party to own the right of termination, the work must be done by an employee in the scope of their employment, or have explicit work-for-hire language in the contract in the case of an independent contractor agreement. Should this not be the case, the author will retain their right of termination, as well as any other copyright not bargained for in the contract.

Right of Termination

The right of termination is not entirely unlike Jason Vorhees: it can survive almost anything, such as a full assignment of any and all copyright, everywhere and forever. This right is the most difficult of copyrights to bargain for: no matter how inclusive, detailed, or Draconian the language, if the work is not work-for-hire or completed within the scope of employment as an employee, the purchaser is not getting the right of termination.

The right of termination was a new feature of copyright law to legislatively address a particularly vexing issue for artists: the inability to accurately measure the value of a work before it had begun to be exploited. This uncertainty is compounded by the relatively weak bargaining positions between artists and large, legally-savvy production studios or publishers. The inequitable bargaining positions led lawmakers to legislate the right of termination to force a renegotiation after the property has been exploited long enough to give the purchaser of the rights an opportunity to profit from it and allow the artist time to understand its value.

For better or worse, creating intellectual property is like scattering seeds in a field: you simply cannot tell what individual project will succeed, and what will fail. South Park started as a low-budget project on VHS done in college by Matt Parker and Trey Stone entitled “Jesus vs. Frosty” in 1992. They were then commissioned to produce a video, “Jesus vs. Santa,” for $1,000 by a Fox Broadcasting Company executive as a video Christmas card in 1995. This coincided with the popularization of email, and was arguably one of the first pieces of viral media of the internet age as employees forwarded the video to friends, unwittingly creating the start of a media empire for this comedy duo.

Meanwhile, Morbius has 13% on Rotten Tomatoes despite millions of dollars of promotion, high production values, and Jared Leto - you simply never know...

Once properly exercised, a right of termination will return some of the most valuable rights of the property to the author. This will force a renegotiation with the previous rightsholder, or offer the author an opportunity to shop around for a new buyer.

“Employment” & Independent Contractors

Work done within the scope of employment, without an agreement to the contrary, will be owned by the employer. This includes the copyrights to this work. However, keep in mind that the copyright for work that falls outside of the scope of work defined in the employees position will (likely) be at least partially retained by the author.

Should a worker not be considered an “employee” for purposes of copyright law, they will then default to being an “independent contractor.” The same scope of work rules apply in that the scope must be defined, and the work must fall within that scope for work to be owned by the hiring party. The law requiring copyright transfers to be in writing applies, and any transfer of copyright to the hiring party will need to be spelled out in an independent contractor contract, i.e. using the words “work-for-hire.”

Because work-for-hire contracts may fail, it is standard operating procedure amongst responsible clause drafters to create a backup assignment clause for all intellectual property created during work. This backup assignment clause will not apply to right of termination as this can ONLY be transferred in work-for-hire. However, it will preserve the rights of the hiring party to the property until the right of termination matures 35 years later.

While a backup assignment clause would not have changed the outcome of this case, Miller could have arguably gone after whoever owned the franchise for decades before he did, so it is worthy of mention.

Definition of “Employee”

As mentioned above, the definition of employee is spelled out in the Reid case, Community for Creative Non-Violence v. Reid. In Reid, the Supreme Court interpreted what the definition of “employee” is. This includes 13 factors, 5 of which are highlighted as particularly relevant in a subsequent case, Aymes v. Bonelli, referred to as the Aymes factors. The Aymes factors are:

· Hiring party’s right to control manner and means of creation

· Skill required (the more skill, the more likely they are to be seen as an independent contractor)

· Employee benefits

· Tax treatment

· Whether a hiring party has the right to assign additional projects

These factors consider how much control and other touchstones of the authority expected in an employer/employee relationship are present in a work arrangement. Should the Reid factors fail, the worker will be considered an independent contractor, and the contract will require work-for-hire language to transfer the right of termination.

Court’s Application

The contract was analyzed by the Second Circuit in a lawsuit regarding the right of termination that revolved around the definition of “employee” in Horror Inc. v. Miller. This case is a precautionary tale for anyone currently planting the seeds of a media franchise with a work-for-hire or employment contract.

Considering the circumstances of Victor Miller’s labor, the court went through their application of the 13 Reid factors. Looking to the previous court’s analysis laying out the 5 Aymes factors, they found that

The Manny company exercised some, but not much, control over Miller’s working conditions;
Miller was a highly skilled employee (which weighs towards independent contracting);
Manny did not have the right to assign additional projects to Miller
Manny did not provide health insurance, paid vacation time or other benefits typical of employees; and
Manny never withheld or deducted taxes (as is typical of employers).

With these and other Reid factors weighing in Miller’s favor, they held that he was not an “employee” in the context of the Copyright Act. Once Miller was declared an independent contractor without a contract specifying work-for-hire, the court held that Miller retained his right of termination.

Effect on Brand

A right of termination returns most, but not all, of the intellectual property rights to the author. For example, the rights to the derivatives created before the right of termination is exercised are still retained by the person or entity that created them.

However, exercising this right would return the right to make new derivatives to the author, as well as other important rights necessary for a franchise. Considering the merchandise, sequels, licensing agreements, and vast array of other derivatives still being made from the original property, this could freeze production on anything new, crippling the brand’s ability to remain relevant in a fast-paced media environment.

While Horror Inc. would retain things like the sequels or merchandise already produced, these are not movies or items that would be likely to make it back to a theater and reinvigorate the brand: the 80’s slasher had its time in the sun, and as media that helped define the 80’s and early 90’s before the massive fracturing of viewing habits via streaming, its derivatives remain broadly and consistently relevant in the nostalgia market. That being said, the reinvigoration of new media and other derivatives to meet the shifting purchasing habits of its market is vital, with sequels and remakes becoming a stable of the American market.

The Takeaway

The natural implication is that the logic behind a right of termination is quite sound: we simply cannot tell whether a work of art, such as a screenplay, will ever find an audience. However, just in case it does, it’s good to have the details of who owns what worked out in a well-written, legally-binding contract that takes a right of termination into account during negotiation.

Special thanks to Larry Zerner - Larry played Shelly, widely-regarded as the best non-Jason character in the franchise, and one of the few that I still remember from my original viewing as a child 30 years later. I reached out to Larry, currently an entertainment attorney in Los Angeles, who was generous enough with his time to answer a few questions for an upstart entertainment attorney such as myself, and even sent me over a copy of the decision in this case at a time before I knew how to use Pacer and telling me he was having lunch with the dude who played Chunk in the Goonies the next day (also an entertainment attorney in LA). Long may he reign over 80s nostalgia…

Horror Inc. v. Miller: Work-For-Hire Gone Wrong