Tom Petty, Bob Dylan Vs. Music Labels: The Industry's New Copyright War

A law from 1978 is suddenly the labels' No. 1 threat as everyone from Village People to the Eagles can now snatch back their music rights.

The music industry just can't catch a break. Major record labels, which cautiously celebrated a slight uptick in U.S. album sales in 2011 after revenue from recorded music fell a whopping 52 percent from 2000 through 2010, are now facing a new threat to their bottom lines -- and it's not online pirates or an Apple device. It's a quirk in U.S. copyright law that is about to allow a whole bunch of top artists to snatch back rights to their music, potentially forcing labels to pay big money to reacquire songs they have owned for decades.

In 1976, Congress, sympathetic to musicians who often sign away rights for a pittance before they become stars, wrote Section 203 of the Copyright Act, which gives those who sell music rights an opportunity to "terminate" grants after 35 years, provided they give proper notice between two and 10 years in advance. The law went into effect in 1978 -- the same year The Bee Gees' Saturday Night Fever soundtrack ruled the Billboard charts -- meaning that in 2013, the first crop of compositions and sound recordings comes up for termination.

PHOTOS: Grammy Parties 2012: Industry Bashes Leading Up to Music's Big Night

The ticking clock has led to a gold rush of sorts as such industry heavyweights as Bob Dylan, Tom Waits and Tom Petty have raced to file termination notices with their labels and music publishers. Companies including Copyright Recapture have even popped up offering to help relatively small-time musicians like Jim Peterik, co-writer of Survivor's 1982 rock anthem "Eye of the Tiger," navigate the ins and outs of the rules. With classic songs still generating hundreds of thousands of dollars per year in sales and licensing revenue, the sense among top music lawyers is that millions of dollars in lucrative song rights could soon revert to their original creators, creating big trouble for the traditional owners.

"The record labels are going to start losing some very valuable albums," says Los Angeles music attorney Lee Phillips, who reps several top acts, including the Eagles, that recently have filed termination notices. "I'm sure the labels are having a hundred business affairs meetings saying, 'What do we do?' "

PHOTOS: Top 5 Music Accessories

The rights grab doesn't necessarily mean that superstar rockers are planning to go into the music publishing or distribution business on their own. But taking back rights to music that has become part of the culture will allow artists to renegotiate much more favorable deals, often with the same companies that successfully exploited their work for years. Songs like Funkadelic's 1978 classic "One Nation Under a Groove," whose writers and performers might once have been paid pennies on the dollar for music sales, could soon receive dimes, nickels or even quarters, given how often that song is played.

So far, some record companies have responded as they often do -- with litigation. The dizzying complexity of the Copyright Act leaves several gray areas when it comes to determining whether artists are entitled to terminate rights grants. So-called works for hire don't fall under the rule, for instance, and music publishers have argued that a co-author of a work can't terminate his or her grant unless the rest of the co-authors are on board as well, which some lawyers say is akin to herding cats because rights often are owned by heirs or others who no longer work together.

PHOTOS: 18 of Hollywood's Most Outrageous Entertainment Lawsuits

One case being watched closely involves Victor Willis, the original Village People singer who wrote many of the group's biggest hits, such as "Y.M.C.A.," "Macho Man" and "In the Navy." Willis filed paperwork in 2011 to regain control of his share of 32 of the band's songs, including "Y.M.C.A.," which alone has generated millions of dollars since its 1978 release. After Willis delivered the bad news to Scorpio Music and Can't Stop Productions, his publishing administrators took him to federal court, arguing that the termination is improper because, among other reasons, the songs were created by several Village People and might have been a work for hire.

The Willis case, which is still being hotly litigated, raises several issues, chief among them: If one co-author can grab back rights without his fellow authors also terminating, the floodgates might open. "The unilateral right to terminate would become massive," says Los Angeles litigator Miles Feldman, who has filed notices for several musician and songwriter clients. "My sense is that the word already is going around and that artists are becoming more aware of these rights. This is only the beginning."