Source: https://www.copylaw.org/2011/12/who-controls-ebook-rights.html
Timestamp: 2019-04-22 10:59:55+00:00

Document:
Copylaw: Publishing Attorney | Entertainment Lawyer: Who Controls eBook Rights?
In its complaint for copyright infringement, HarperCollins argues that its contract for Julie of the Wolves, a book first published in 1972, gives it the sole right to publish George’s novel in eBook form. It bases its argument on its interpretation of the term “in book form,” which it argues encompasses eBook rights.
By filing its complaint, HarperCollins follows a well-established pattern in the entertainment industry. Cases addressing whether older entertainment industry contracts granted rights for new uses such player piano rolls, radio, motion pictures, television and videocassettes are plentiful. Like HarperCollins, motion picture studios once claimed that they already had the right to exhibit films on television, and to distribute them as home videos.
When a contract is ambiguous, the job of ascertaining the parties’ intent is left to the courts. To determine the parties’ intent, a court will consider the precise language of the grant (e.g., the existence of any “future technologies” clause, the inclusion or exclusion of a “reserved rights” clause), whether the parties contemplated “new uses” when the contract was entered into, and the sophistication of the parties. Since contracts are not drafted in a vacuum, courts may also look at industry practice. What this case makes very clear is that a contract is a private body of law between two parties. Ideally, a contract between an author and publisher anticipates potential problems by clearly setting down in writing both parties' rights and obligations. If done properly, future readers of that contract will be able to discern what was intended.
Notwithstanding Bartsch, which can be limited to its facts (a film producer's expectations are different than a book publisher's or author's expectations), when a contract is susceptible to two reasonable interpretations, with each party knowing or having reason to know of the other party's understanding of the term, courts, as a policy matter, will often construe the agreement against the party that drafted the contract. The Restatement (Second) of Contracts states that an agreement susceptible to more than one interpretation should be construed against the party who drafted the language.5 Here, since, HarperCollins was in a stronger bargaining position, the the burden of negotiating new ways to exploit their exclusive rights, should have fallen on them.6 If the court follows the Restatement, as opposed to the Bartsch line of cases, it would appear, then, that unless the author's representative had an equal hand in drafting the agreement, which is almost never the case, the contract should be interpreted in the light most favorable to Ms. George, and, in turn, Open Road.
In Cohen v. Paramount Pictures Corp, the 9th Circuit Court of Appeals, held that “television viewing” and “videocassette viewing” were not “coextensive” terms.8 And, that a license which included the right to exhibit a film on TV did not include the right to distribute the film on home video. In resolving this “old wine in a new bottle” dilemma , the court placed primary emphasis on the fact that videocassette recorders were not invented when the license was signed. Focusing on the means by which videocassettes were viewed and distributed (i.e., by sale or rental), the court emphasized that exhibition of a film on television differed fundamentally from the exhibition by a videocassette record/player.9 A similar argument – persuasive or not – can be made for printed books sold in bookstores, and eBooks downloaded and displayed on a screen. eBooks were neither invented nor reasonably foreseeable when the HarperCollins contract was signed.
Where things get interesting, is the impact of HarperCollin’s “future technologies” or “now known or hereinafter” clause. Here the book publisher’s claim seems stronger, although, not all courts have enforced these provisions. For example, in Tele-Pac, Inc. v. Grainger, the court held that the license to distribute films for “broadcasting by television or any similar device now known or hereinafter to be made known” did not encompass videocassette rights.10 The Appellate Division of the New York Supreme Court, rejecting the lower court’s attempt to equate broadcasting with the grant of videocassette rights, held that distribution of a film by videocassettes was not analogous to broadcasting by television.
If the Southern District of New York adopts the Tele-Pac analysis, it could determine that “in book form” does not encompass eBooks. Just as broadcasting by television is not analogous to the sale of videocassettes, distribution of physical books is not analogous to the sale of downloadable eBooks. That is, a plausible argument can be made to suggest eBooks and bound books are two distinct media. Whereas a book is a book, an eBook -- whether downloadable or accessible from a cloud -- is a community. If the batteries run low on your Kindle, Nook, or smart phone, the screen goes black, and your ability to link beyond the book is lost. Unlike an ad supported Kindle, or Nook you can synch with various electronic devices, bound books are low tech, and can survive fire and ice. Run an iPad below 32 degrees, or above 95, and it's likely to shut down, whereas, legible writing on papyrus over two thousand years old has been rescued from the fiery ruins of Pompeii. When it comes to fire and ice, tree-based books trump plastic and silicon-based readers. And, have you ever tried to read an iPad in the sunlight?
There are other arguments – some favor HarperCollins' interpretation while others would support Open Road. Richard Curtis, for example, in an excellent piece on his eReads blog, addresses the significance of the phrase “Computer Storage and Retrieval” found in many legacy contracts. It’s a solid piece of reporting and legal analysis.
Open Road’s unlawful exploitation of those rights is directly competitive with sales of the Work in paper format and HarperCollins’ own plans to publish June of the Wolves as an e-book. Open Road is understandably content to allow HarperCollins to have made its considerable investments in the Work, only now to reap where Open Road has not sown, by seeking to divert sales of the Work from HarperCollins in the rapidly expanding e-books market.
Because many in the book trade were not thinking about future technologies that would enable readers to license or purchase digital books, old contracts are being dusted off and ambiguous language scrutinized by lawyers like myself to answer the question, “Who controls eBook rights?” In the case of pre-Internet contracts, author and publisher often ascribe different meanings to the phrase “in book form.” Where the grant of rights can be interpreted in more than one way, it can lead to disputes, and, in the case of Jane Friedman’s Open Road, expensive and distracting litigation.
Depending upon how the case brought by HarperCollins is decided, or resolved, the big six New York-based, publishers (and their cousin to the north, Harlequin) could either score a copyright and unfair competition protection windfall, or meet their digital Waterloo. Only time will tell.
Update: On March 14, 2014 a New York federal judge handed HarperCollins a decisive victory, holding Open Road infringed HarperCollins's exclusive right to publish Ms. George's Julie of the Wolves in eBook form. What distinguished this case from the Rosette Books' decision was the wording of the contract. Here, the grant of rights ("the exclusive right to publish . . . in book form") was a broader grant than that found in the Random House contract ("to print, publish and sell"). What further distinguished the HarperCollins' agreement from the Random House agreements, was non-boilerplate language inserted by Ms. George's forward thinking literary agent which afforded the author approval over the licensing and sub-licensing of, among things rights by "electronic means now known or hereafter invented."
Anything to the contrary herein notwithstanding, the Publisher shall grant no license without the prior written consent of the Author with respect to the following rights in the work: use thereof in storage and retrieval and information systems, and/or whether through computer, computer-stored, mechanical or other electronic means now known or hereafter invented and ephemeral screen flashing or reproduction thereof, whether by print-out, phot[o] reproduction or photo copy, including punch cards, microfilm, magnetic tapes or like processes attaining similar results, and net proceeds thereof shall be divided 50% to the Author and 50% to the Publisher. However, such license shall not be deemed keeping the work in print once the work has gone out of print in all editions."
While the contract contained an author-friendly reserved rights clause ("[a]ll rights in the Work now existing, or which may hereafter come into existence, not specifically herein granted" are reserved to the author), it was the language Ms. George's literary agency negotiated that swayed the court in HarperCollins' direction. Citing a rule of contract interpretation that states "contract provisions are generally to be construed against the drafter," the court pointed out that the above amendment was "inserted verbatim into the contract at the request of Ms. George's agent." Because the suit was filed against Open Road, technically, I can't say that Ms. George was hoisted by her own petard, but, you get the point.
Relying on the pro-publisher "new use" Bartsch case discussed above, applying so-called "neutral principles of contract interpretation," the court reasoned that "[i]f the contract is more reasonably read to convey one meaning, the party benefitted by that reading should be able to rely on it; the party seeking exception or deviation from the meaning reasonably conveyed by the words of the contract should bear the burden of negotiating for language that would express the limitation or deviation." That, plus a forward looking "future technologies" clause - and specific references to exploitation by "electronic means" -- cinched it for HarperCollins.
Additional take aways: Reserved rights clauses are not all they are cracked up to be - especially if there's a grant of electronic rights to be found elsewhere in the contract. Absent an express grant of eBook rights in the main granting clause, a grant of electronic rights found in the subsidiary rights section should not be considered surplusage or useless language. Further, if you wish to argue "that foreseeability at the time of the grant is required to extend a copyright to a new use," you can't turn a blind eye to the future technology clause lurking within. Also, there's a plausible argument that electronic publishing has been contemplated by both authors and publisher for well over one hundred years. Ironically, in 1900, Harper Brothers, HarperCollins' predecessor-in-interest, offered Mark Twain a handwritten contract which was anticipated books sold or displayed by electronic means. The contract, for his autobiography, which was to be published "100 years hence." specified that the book would be issued by Harper Brothers "in whatever modes should then be prevalent, that is by printing as at present or by use of phonographic cylinders, or by electrical methods, or by any other other method which may be in use." So, 114+ years ago, Mark Twain signed a letter agreement granting Harper Bros. the right to publish his memoirs in electronic book form. Foreseeable? You decide.
Do Publishers Control eBook Rights to their Legacy Titles?
Is Your Publishing Contract Enhanced eBook and iPad Ready?
1See Dolch v. Garrard Publishing Company, 289 F.Supp. 687 (S.D.N.Y. 1968) (exclusive right of publication of books” held to encompass right to publish in paperback form). But see, Field v. True Comics, 89 F. Supp. 611, 614 (S.D.N.Y. 1950) (“the sole and exclusive right to publish, print and market in book form” did not include the right to publish the work in “comic book” form).
2 Bartsch v. Metro-Goldwyn Mayer, Inc., 391 F.2d 150 (2d Cir.1968), cert. denied, 393 U.S. 826 (1968).
5 RESTATEMENT (SECOND) OF CONTRACTS § 206 (1981).
6 See, e.g., US Naval Inst. v. Charter Communications, Inc., 875 F.2d 1044,1050,1051 (2d Cir. 1989) (interpreting ambiguous copyright grant against party preparing agreement); See, also, Rey v. Lafferty, 990 F.2d 1379, 1390 (1st Cir.) (ambiguity should be construed against drafter-grantee, especially given relative expertise of parties), 67 Wall Street Co. v. Franklin National Bank, 37 N.Y.2d at 249, 333 N.E.2d at 187, 371 N.Y.S.2d at 918; Rentways, Inc. v. O'Neill Milk & Cream Co., 308 N.Y. at 348, 126 N.E.2d at 273-74.
7 Cohen v. Paramount Pictures Corp., 845 F.2d 851,854 (9th Cir. 1988).
10 Tele-Pac, Inc. v. Grainger, 168 A.D.2d 11,13, 570 N.Y.S.2d 521, 522 (1st Dep’t 1991), appeal dismissed, 79 N.Y.2d 822, 588 N.E.2d 99 (1991).
11 Van Valkenburgh v. Hayden Pub. Co., 30 N.Y.2d 34, 281 N.E.2d 142, cert. denied, 409 U.S. 875 (1972).
12 See Wolf v. Illustrated World Encyclopedia, 34 N.Y.2d 834, 316 N.E.2d 342, 359 N.Y.S.2d 59 (1974) (author can license same illustration to another publisher absent a contractual prohibition against doing so).
Great reporting and analysis. I hope you will continue to follow this case.
Does the impact on the purchaser (i.e. buying a physical object -- book -- vs. the clear statement when "purchasing" an ebook that the purchaser is only licensing the right [usually] to download and read on one or more devices) have any bearing on how the courts might view the relationship between a physical book and an ebook?
I think a court would certainly take that into consideration.
Lloyd, how would you compare this case to the Random House vs. RosettaBooks case from the turn of the century? Random House rather hastily settled that case after the court said (in response to its request for a preliminary injunction) that it was "not likely to succeed on the merits of its copyright infringement claim”.
From my own limited research, it seems to me that case also turned on the question of what qualified as a "book".
The problem with any claim that the grant of a license to sell a work "in book form" encompasses the grant of a license to "sell" the work in ebook form is that ebooks aren't "sold".
The end user license for Kindle Editions and most (if nor all) other major ebooks makes clear that it is not a sale of the work but a limited license grant, and does not include essential elements of a "sale" such as first-sale rights of re-sale.
The clear distinction made in the license terms between the *sale* of a work in book form and the limited *license* (not a sale) of certain rights to an ebook provides a clear basis for distinguishing ebooks -- unless they are licensed on terms clearly constituting a "sale", which they almost never are -- from any contract provisions relatin to "sale" of the work.
This has implications both for the scope of the grant and, where ebooks are included in the grant, the applicable royalty: Since an ebook license is not a sale, the applicable royalty percentage is the (typically much higher) percentage provided by the contract for licenses of (subsidiary) rights, not the (lower) percentage applicable to any sort of "sale".
Edward -- You make an excellent argument. Digital downloads are licenses, not sales, and should be accounted for as such. Of course, each contract stands on its own. Recording artists -- not authors -- are at the forefront of the "license vs sale" battle. I blogged about the issue last year in the context of the Eminem case. The pro-artist decision was a major blow to record label. See, http://www.copylaw.org/2010/09/copyright-alert-music-publishing.html.
"When the facts of this case are viewed through the lens of federal copyright law, it is all the more clear that Afterrmath’s agreements with the third-party download vendors are “licensed” to use the Eminem master recordings for specific purposes authorized thereby — i.e., to create and distribute permanent downloads . . . — in exchange for periodic payments based on the volume of downloads, without any transfer in title of Aftermath’s copyrights to the recordings. Thus, federal copyright law supports and reinforces our conclusion that Aftermath’s agreements permitting third parties to use its sound recordings to produce and sell permanent downloads . . . are licenses."
Chris, unlike the Rosetta Books case, which involved multiple titles, it looks like this case (if not settled on the courthouse steps) will turn on the interplay of the "future technologies" and approval clauses. Otherwise, it looks like another old contract / new technologies case.

References: v. 
 v. 
 v. 
 v. 
 v. 
 § 206
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v. 
 v.