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Electronic Rights: Structuring the Rights Relationship

By Lloyd J. Jassin

It starts with a simple premise. The author owns the copyright in what she has put down on paper. In exchange for an advance against royalties, the author grants the publisher the exclusive right to print copies of her book. The terms are set down in a "standard" author-publisher agreement drafted by the publisher's attorney or borrowed from a form book.

Simple on its face. Complicated in fact. Ideally, the agreement between the author and publisher anticipates potential problems by setting down in writing all of the parties' rights and obligations. But what about new uses not contemplated at the time the parties were negotiating the terms of the book contract? Unfortunately, many pre-Internet publishing contracts did not expressly deal with what rights would be granted to the publisher beyond print-related subsidiary rights.

With rapid advances in new technology, old contracts are now being dusted off and language scrutinized to answer the question who controls various new rights created by recent technological developments. Due to ambiguities and omissions in many older publishing agreements, questions such as "Who controls e-book1 rights?" are highly controversial, subject to differing interpretations whether by reasonable people or the courts.

Random House v. RosettaBooks
: A Book by Any Other Name
Exemplifying the electronic rights controversy is the recent action brought in the United States District Court for the Southern District of New York by Random House against RosettaBooks, a start-up e-book publisher and retailing site, founded by Arthur Klebanoff, a controversial literary agent.

In its suit, Random House is claiming ownership of e-book rights to eight RosettaBooks' titles, including backlist bestsellers such as Sophie's Choice and Slaughterhouse Five. In its defense, RosettaBooks claims that it acquired the electronic rights to these, and six other titles, from the authors’ agents, and that Random House does not control e-book rights in the titles.

In its complaint, Random House argues that its author-publisher agreement provides it with the sole right to publish e-books. It bases its argument on the interpretation of certain pre-Internet contracts between Random House and its authors. Random House’s contention is based on the provision in their contract giving them "for the term of copyright, the exclusive right to publish and sell works contracted for in book form.”
As reported in the New York Times, Harriette Dorsen, Random House's general counsel, argues that "An e-book is basically the same thing as a book -- it is the same reading experience, it is a linear narrative -- and whether it is on paper or on a computer screen doesn't make any difference."2

Defining the term “E-Book” -- Buzzword or Hornet’s Nest?
When a contract is ambiguous, the job of ascertaining the parties’ intent is sometimes 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.

Whether RosettaBooks publication of e-books infringes the copyright in Random House’s bound books, therefore, may turn on whether the phrase "book form" had a specific meaning in the publishing industry at the time the agreements were entered into. Most likely, the court will ask whether distribution of books in digital form were recognized by knowledgeable people in the publishing industry at the time the contracts were drafted. The court will also analyze the contracts 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 will likely decide the matter based on social policy considerations.3 That is, when the intent of the parties -- the Holy Grail in contract interpretation -- cannot be ascertained, courts apply “off the rack” rules to decide what they feel the proper result should be. In other words, if there’s no Rosetta Stone to help decipher the parties’ intent, the court will decide the matter for the parties

Reinventing the Way People Read Contracts
Random House’s grab for electronic rights 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 Random House, motion picture studios once claimed that they already had the right to exhibit films on television, and to distribute them as home videos. Regrettably, the cases and basic principles governing contract interpretation are anything but clear.

The New York Approach
New York has adopted a rule of contract interpretation that some have categorized as pro large business, or favoring the publisher (or producer) over the licensee. 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. The seminal case for this proposition, which is cited extensively in Random House’s brief, is Bartsch v. Metro-Goldwyn Mayer, Inc.4

Bartsch involved an agreement entered into in 1930, in which plaintiff’s predecessor in interest granted Warner Bros. Pictures, all of its motion picture rights in a popular musical play.5 The issue in Bartsch was whether a grant of motion picture rights included the right to broadcast the film, based on the play, on television. The court focused on the grant of rights to “copyright, vend, license and exhibit . . . the motion picture photoplay throughout the world.” In holding that the grant did include television rights, the court observed that “if the words are broad enough to cover the new use, it seems fairer that the burden of . . . negotiating an exception should fall on the grantor,” at least when the new medium is not completely unknown at the time of contracting.6

Similarly, in Boosey and Hawkes Music Publishers Inc. v. The Walt Disney Company, a case cited extensively by Random House in its brief, the Court of Appeals held that a 1939 license to use Leopold Stokowski’s “The Rites of Spring” in the Disney film “Fantasia” extended to home video distribution.7 In Boosey, the court reiterated why it was important to give intellectual property licensees adequate leeway to exploit rights in new technologies. The case broadly stands for the proposition that contracting parties should be held accountable for the reasonable interpretation of their agreements.8

Unlike Random House, which argues “book form” is synonymous with a portable reading device, the issue in Boosey was whether the right to distribute films theatrically included the right to distribute films by videocassette for home viewing. In holding the scope of a music license included home video, the court emphasized the broad terms of the grant and the fact that motion picture producers would be reluctant to explore and utilize innovative technologies if such contracts were interpreted in favor of the grantor.9 In Boosey, the court stated that “if the broad terms of the license are more reasonably read to include a particular future technology in question, then the licensee may rely on that language.”10

The principle embodied in both Bartsch and Boosey is that a sole underlying rights holder should not be placed in a position where she could blackmail the producer (and copyright owner) of a motion picture. Bartsch, in attempting to get the proper result, may have turned copyright jurisprudence on its head.11

Ambiguous Contracts Are Construed Against the Drafter
Notwithstanding Bartsch, which can be limited to its facts, 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.12 Here, since, Random House was in a stronger bargaining position, arguably, the the burden of negotiating an exception should have fallen on them.13 If the court follows these cases, as opposed to the Bartsch line of cases, it would appear, then, that unless the authors’ representatives had an equal hand in drafting the agreements in questions, the contracts should be interpreted in the light most favorable to the authors, and, in turn, RosettaBooks.

The California Approach

Opposite coasts, opposite results. California’s interpretation of contract language tends to favor the copyright transferor. It is at peace with one the primary goals of copyright law -- to protect authors from unintentional grants of their exclusive rights in their creative works.14 One leading case, Cohen v. Paramount Pictures Corp., stands for the proposition that when the agreement is equally susceptible to either interpretation, the author or grantor wins.15

In Cohen, the court held that “television viewing” and “videocassette viewing” were not “coextensive” terms.16 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”conundrum, 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.17 A similar argument can be made for printed books and books displayed on a screen. Reading a bound book does not require an e-book reader.

The court in Cohen further noted that the license reserved to the author “all rights and uses in and to said musical composition, except those herein granted to the Licensee,” thus precluding uses not contemplated by the parties.18 The court in Cohen reasoned that the holder of a license should not “reap the entire windfall” associated with a new medium.19 Cohen’s approach tends to comport with general copyright law precepts that states copyright owners should retain all rights unless specifically transferred.20 Bear in mind, in Cohen there was no “future technologies” clause, a forward looking clause that acts as a catch-all for technologies and media not yet invented. Similarly, there existed no “reserved rights” clause in the Cohen case.

The Power to Stop Exploitation of a Work in a New Media

The policy underlying New York’s approach to resolving ambiguity is to avoid deadlock between the author and the licensee that might prevent the work from being exploited in a new medium. What was at stake in Bartsch was the further exploitation of a highly successful theatrical motion picture in the new medium of television. It should be noted that unlike an e-book, a motion picture is a complex derivative work, involving the collective efforts of writers, actors, artists, musicians, directors and producers -- many working on a work-for-hire basis. There is a tremendous capital investment involved in the production of a film, and, unlike an e-book, the legal author of the film is the producer or studio. As between the writer of a first draft of a screenplay and the producer of a major motion picture, ambiguity should, arguably, be construed against the screenplay writer, since the motion picture studio (and holder of the copyright) is the only one capable of making the film available to the public. Consequently, the decision in Bartsch seems fair, although inconsistent with the exclusive rights of an author under Section 106 of the 1976 Copyright Act. That is, Bartsch does violence to federal copyright policy that protects authors from the unintentional grant of the exclusive rights to their works. It should be noted, however, that under the 1909 Copyright Act, under which Bartsch was decided, it was much easier to inadvertently transfer one’s copyright rights than it is today. Unlike today, under the old 1909 Copyright Act, an exclusive license could be implied from the conduct of the parties.21 Similarly, for a work by an independent contractor to constitute a work for hire, the 1909 Act did not require that both parties sign an agreement stating that the work would be considered a work for hire.

Moreover, unlike Bartsch, where the court expressed concern that intransigent copyright owners might prevent producers from exploring new technologies, authors are both anxious and fully capable to exploit potential future uses themselves. Due to breakthroughs in computer technology which allows every author (and agent) to become a publisher, the policy concerns that compelled the court to favor a producer over an author in Bartsch seem not to apply in the Random House case. Put another way, if the social policy objective underlying Bartsch was to encourage the growth and exploration of new technologies, in a world where authors can sell their works direct to the consumer, authors may be better situated than traditional publishers to adapt their books for sale as portable e-books. This is especially true for authors of older books which no longer have the active support of the publishing house – books that are being warehoused by publishers due to inadequate reversion clauses that deny authors the chance to recapture their publishing rights. In such instances, arguably, it is the author, not the publisher, who has the greatest incentive to get the work back in the bands of readers.

Deciding the Random House Case
Random House’s position that the term “book form” includes rights that were not expressly granted is inconsistent with the manner in which book rights sold in America. Authors, literary agents and publishers have been arguing for decades over what specific rights the publisher is entitled to under a standard book contract. As a rule, authors represented by agents, control first serial (prepublication extract rights licensed to newspapers and magazines), translation, motion picture, television, radio and merchandising rights. Since the advent of electronic rights, authors, agents, and authors’ groups, have argued that electronic rights belong to authors unless expressly granted to the publisher. Recently, for example, the right of magazine and newspaper publishers to sell articles by freelancers on CD-ROMs and in electronic databases without permission or payment was successfully challenged by the National Writers Union.22 In short, each exclusive right that makes up an author’s copyright is jealously guarded, and, as a rule, sold piecemeal to one or more persons to maximize the author’s return.

Moreover, Random House’s claims – at least with respect to works by Kurt Vonnegut, William Styron and Robert Parker – are further undermined since these agreements contain what are commonly called “reserved rights” clauses. For example, the Parker agreement states “All rights not specifically granted to Dell are reserved to the Author for his own use.” Therefore, to hold that the licenses included the right to disseminate e-books, would require the court to ignore the express intent of the parties

Where the Random House agreements contain “future technologies” clauses, the book publisher’s claims are 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.23 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.24 If the Southern District of New York adopts the Tele-Pac analysis, it may determine that an e-book is not a bound volume, just as a photograph is not a painting. A plausible argument can be made to suggest e-books and books are two distinct media. For example, e-books are downloaded and scrolled, and, if the batteries run low on your portable reader, the screen goes black. Books are purchased and leafed through. Unlike portable readers, or your desktop computer, bound volumes can be burnt and buried, but later rescued and read as clearly as the page in front of you. For example, legible writing on papyrus over two thousand years old has been rescued from the fiery ruins of Pompei. By contrast, the shelf life of a portable e-book reader (or desktop computer) probably lasts about five to seven years.

Publishers arguing that they control e-book rights should first check to see if there’s language in their publishing agreement that conflicts with the broad scope of their future technologies clause. For example, in the Random House case, territorial restrictions in their standard author-publisher agreement may be construed against them since territorial restrictions are essentially meaningless on-line. Put another way, to the extent online zoning is infeasible, seemingly, it would be hard to argue that a print publisher acquired online rights when the right to publish in “book form” was limited to the United States and Canada. Of course, the availability of geolocation products that figure out where people are when they gain access to the web, and block web pages from being seen (another nascent technology), may tip the balance in the publisher’s favor. A related problem would arise if Random House were to prevail in the RosettaBooks dispute. With no borders on the Internet, Random House’s exploitation of English-language Internet rights would have the ability to undermine the author’s reserved rights. For example, to the extent any of the contracts reserved to their authors English language rights in the British Commonwealth, the sale of a single e-book to a citizen of the UK via the Internet would, in theory, violate that author’s copyright.

Non-Competition Clauses
While Random House’s attorneys may be accused of trying to stretch the definition of “book form,” it is hard to take issue with the proposition that a publisher should be able to protect its investment in an author’s work. Since verbatim text that appears on computer screen has the ability to replace bound books, the court may decide the case on the basis of Random House’s boilerplate “non-competition” clause. While Random House may not have updated its contracts to specifically deal with electronic rights issues, in the interest of protecting its market for its bound books, all of its contracts contain fairly broad non-competition clauses. Since these clauses are designed to protect the publisher, the court may find it unfair for Random House’s authors to collect royalties from their print publisher, while, at the same, time enjoying a royalty stream for the same work from what some may consider a competing medium (i.e., e-books). Moreover, 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.25 While this doctrine is riddled with exceptions, is not without force.26

A Modest Proposal
While the e-book war is being fought over contracts drafted a half-century ago, most trade and academic publishers today will demand the right to display the full verbatim text of a work in electronic media. Because e-books have the potential to undermine a print publisher’s investment in an author’s work, authors today should grant publishers so-called e-book rights -- provided those rights are defined narrowly. Unfortunately, there are no neat definitions for what many call e-books. For example, the addition of audio or visual components to an author’s text creates what is known as an “interactive” or “multimedia” work. Whereas the display of the verbatim text of a work on a screen is an electronic version of a book, a multimedia work (whether a portable plastic reader, DVD or website combining text, graphics, audio and/or video) is a derivative work and is a matter for negotiation. As a rule, most print publishers are only in a position to exploit non-interactive rights. Most will be satisfied to obtain what is know as either display or verbatim electronic rights, as opposed to interactive or multimedia electronic rights.

The latter, having more in common with motion picture or television rights, than print publication rights.

With respect to new author-publisher agreements, provided proper credit and adequate compensation are given (and the author has an opportunity to recapture her rights if royalties fall below a certain level), one would guess that most authors and agents would readily grant e-book rights to their publisher partner, i.e., the right to display the full verbatim text of a work in electronic media.

Of course, there is the unresolved matter of those contracts drafted a half-century ago which prescribes either an inadequate royalty, or no royalty at all, for e-books. A decision favorable to Random would result in a windfall for publishers – many of whom have been holding off author demands for more favorable royalty rates and reasonable out-of-print clauses. In the past, when a book was no longer available for sale, the author would have the option to recapture her rights from the publisher. This is not so in a world where books can be stored digitally and printed (or downloaded) one at a time for sale to a consumer. As a result of digital technology, a book can stay “in print” forever today. Therefore, if Random House prevails, authors who signed contracts with publishers with “standard” or “pre-digital” out-of-print clauses could be severely disadvantaged -- having their books held hostage notwithstanding the fact royalty streams have slowed to a trickle.

Another unforeseen consequence of a decision favorable to Random House concerns e-book royalties. Like the contractual plight of the rhythm and blues artists who recorded from the 40s to 60s, and received only a small fraction of what today’s recording artist’s received – often 1% to 5% of the wholesale price versus 10% of retail today – pre-Internet authors, for the most part, receive a disproportionately small share of what today’s authors are receiving from the exploitation of e-book rights.

Last year, Random House, in a brilliant strategic move, took a page out of the music industry’s book, which in the late 1980s took unprecedented steps to pay back royalties and increase royalty rates for all of its disadvantaged artists. Random House, which is the largest trade publisher, unilaterally agreed to split electronic book sales revenues 50:50 with its authors – both retroactively and prospectively. Now, if the rest of the industry would similarly acknowledge the dramatic changes which have taken place in the book business, and, across the board revise their contracts, then authors, and Author’s organizations, would have less to fear from a“bad” decision in the Random House case. Regrettably, Random House’s “sweetening” of the royalty pot was a unilateral move.

Unlike Napster, the free musical swap system with daily hits of up to 2 million, the number of digital download of e- books is relatively modest at this time – and is likely to remain so for some time. Consequently, it is unlikely the Random House decision will turn millions of apathetic readers into electronic zealots. At the end of the day, it’s hard to get excited about who has the right to put text into little plastic boxes.

So why is the Random House case so important? For over 400 years control of the book trade has resided in the hands of a relatively small group of companies – printers, binders and booksellers. Until recently, getting a manuscript from the hands of the author to the hands of the reader required the broad guidance of a publisher, and infrastructure. Due to breakthroughs in technology, author power has grown tremendously. Today an author, without a publisher-partner, can inexpensively make his or her book widely available to readers as evidenced by Stephen King’s recent experiment in e-book self-publishing and the vibrant small press movement in America. Moreover, print-on-demand technology now allows a publisher to hold the presses, so there’s less printing on speculation. Similarly, online bookstores have allowed for reduction in production waste. Simultaneously, construction of libraries, where physical objects reside, are being supplanted by virtual libraries, i.e., collections of information with instantaneous access wherever it physically resides. Whether publishers truly believe that within five years 50% of all publishing products will be in digital form or salable only through digital outlets is immaterial. What is important is that there is a hint in the air that printing, binding, and distributing books – the activities that take place after the manuscript is delivered – need not be performed by a traditional publisher. Add to the mix the fact that most readers would have to look at the spine of a book to tell you who published it, and you have a formula for dramatic change in book publishing. Like Napster, the Random House case is about redistribution of control in the digital age. It is a pitched legal battle between authors and agents on the one hand, and publishers on the other. Depending upon how the Random House case is decided, it will either be a windfall for the “big four” multinational, New York-based publishers, or, perhaps, their electronic Waterloo. Only time will tell.


Lloyd J. Jassin is an attorney and co-author of “The Copyright Permission and Libel Handbook” (John Wiley & Sons”). A former publishing executive, he has represented publishing clients for many years. He can be reached at The Offices of Lloyd J. Jassin are located at The Actors’ Equity Bldg., Suite 400, 1560 Broadway, New York, NY 10036, 212-354-4442 (tel.), 212-840-1124 (f).


1 E-books, or electronic books, are digital books that you can read on a computer screen or portable electronic reading device like the RCA e-Book, or Personal Digital Assistant (PDA) like the Palm. E-books are distributed over the Internet from retail websites, direct to the consumer, in the form of downloadable files.

2 David D. Kirkpatrick, Random House Sues Over Rights to Publish E-Books, N.Y. Times, Feb. 28, 2001, at C5.

3 See 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).

4 Bartsch v. Metro-Goldwyn Mayer, Inc., 391 F.2d 150 (2d Cir.1968), cert. denied, 393 U.S. 826 (1968).

5 Id at 152

6 Id. at 154.

7 Boosey and Hawkes Music Publishers Inc. v. The Walt Disney Company, 145 F.3d 481, 488 (2d Cir. 1997).

8 Id. at 488 n4

9 Id. at 488 n.4.

10 Id. at 488.

11 See 17 U.S.C.S. §204(a) (2001) (“transfer of copyright ownership . . . is not valid unless an instrument of . . . transfer, is in writing and signed by the owner of the rights conveyed.”)


13 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.

14 See 17 U.S.C.S. § 106 (2001).

15 Cohen v. Paramount Pictures Corp., 845 F.2d 851,854 (9th Cir. 1988).

16 Id. at 854.

17 Id. at 853,854.

18 Id. at 854.

19 Id.

20 See 1 Party, Copyright Law and Practices, 392 (1994).

21 See 3 Nimmer on Copyright, §10.03B(1) at 10-47 (2000).

22 See See Tasini v. New York Times Co., 206 F.3d 1999 (2d Cir. 1999), cert. granted, (dispute over the what the word “revision” meant); See also, Greenberg v. National Geographic, 2001 U.S. App. Lexis 4270 (11th Cir. 2001).

23 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).

24 Id. at 18,19, 570 N.Y.S.2d at 525.

25 Van Valkenburgh v. Hayden Pub. Co., 30 N.Y.2d 34, 281 N.E.2d 142, cert. denied, 409 U.S. 875 (1972).

26 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).

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DISCLAIMER: This article discusses general legal issues of interest and is not designed to give any specific legal advice pertaining to any specific circumstances. It is important that professional legal advice be obtained before acting upon any of the information contained in this article.

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