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.
Conclusion
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 Jassin@copylaw.com. 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).
C:\FILES\ARTICLES\INPRGRSS\REVISED.WPD
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.”)
12 RESTATEMENT (SECOND) OF CONTRACTS
§ 206 (1981).
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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