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Who Controls eBook Rights?

30 December 2011

IP, publishing and entertainment lawyer Lloyd J. Jassin comments on the HarperCollins suit:

This article looks at HarperCollins’ recently filed lawsuit against eBook publisher Open Road, and the role legacy publishing contracts, and contract ambiguity, plays in the battle over lucrative eBook rights.

Let us consider HarperCollins’ legal position that the term “in book form” in a pre-Internet age contract includes eBook rights that were not expressly granted.

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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.

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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.

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Most likely, the court will ask whether the distribution of books in digital form were recognized by knowledgeable people in the publishing industry in 1972.  The court will also analyze the contract to see if there are any provisions that tend to limit the “exclusive right to publish . . . in book form.” If the court finds there is no clear intent – which is often the case in dealing with a later developed technology — the court may decide the matter based on social policy considerations.

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New York courts have adopted one rule of contract interpretation that favors large entertainment companies.  The rule states that if there’s a broad and general grant of rights, an ambiguous grant will be interpreted to apply to technologies that were known at the time of the grant.

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Where things get interesting, is the impact of HarperCollin’s “future technologies” or “now known or hereinafter” clause.   Here the book publisher’s claim is much 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. 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. If the batteries run low on your Kindle, Nook, or smart phone, the screen goes black.  Unlike an ad supported Kindle, or Nook you can synch with various electronic devices, bound books are low tech, and can survive trial by fire and water.  For example, legible writing on papyrus over two thousand years old has been rescued from the fiery ruins of Pompeii. By contrast, the shelf life of a portable e-book reader is probably three to five years, and no eBook can survive a dip in the lake or fire.

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While HarperCollins pleads one count of copyright infringement, its complaint often reads like a complaint for breach of contract and state law unfair competition.  Reference is made to a provision in George’s contract that requires HarperCollins to ask George to consent to the license of “computer, computer-stored, mechanical or other electronic” rights.  It’s unclear if this provision supports the publisher or Open Road.  The drafter of the complaint makes a point of stating that George’s ability to withhold consent, does not give her the ability to grant any third party the right to publish an eBook edition.   While the original advance paid to Ms. George, the royalty structure of the publishing contract, and publisher’s P&L for the book, did not value non-volume eBook rights, the exploding market for e-books, and the very real danger Open Road poses, is recognized in several places in the complaint, but no more poignantly than in paragraph 29:

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.

HarperCollins’ attorneys may be accused of trying to stretch the definition of “in book form,” but, it is hard to take issue with the proposition that a publisher should be able to protect its investment in an author’s work. While the grant of primary rights does not mention eBook rights, the court may find it unfair for Ms. George to collect royalties from her print publisher, while, at the same, time enjoying a royalty stream for the same work from Open Road.  However, there’s scant case law on the enforceability of non-compete clauses found in publishing contracts.  Even in the absence of a non-compete clause, there is an implicit duty in every publishing agreement that neither party will do anything that will destroy or injure the right of the other party to enjoy the benefits of the contract. While this doctrine is riddled with exceptions, is not without force.

Link to the rest at CopyLaw

Passive Guy doesn’t completely agree with Mr. Jassin’s analysis, but neither of us have seen the entire underlying publishing contract.

PG is surprised a copy of the contract wasn’t attached to the Complaint. He is also surprised the Complaint didn’t quote the entire paragraph under which HC is pursuing its claim. PG speculates that the remainder of the paragraph may be unhelpful to HC’s contentions.

Big Publishing, Contracts, Ebooks

One Comments to “Who Controls eBook Rights?”

  1. Just one more reason to go and remain indie. To fellow indie writers who’ve had sugarplum visions of being “discovered” by a big Pub World outfit: READ AND BEWARE!

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