Showing posts with label electronic rights. Show all posts
Showing posts with label electronic rights. Show all posts
Saturday, February 18, 2012

Open Road Update: ePubber Tells HarperCollins to Hit the Road

ere is a link to Open Road's answer to HarperCollins' recently filed lawsuit against them. Nothing surprising here. Open Road refutes HarperCollins’ legal position that the term “in book form” in a pre-Internet age contract includes eBook rights.

As you may recall, in its complaint for copyright infringement, HarperCollins argued that its contract for Julie of the Wolves, a book first published in 1972, gave it the sole right to publish Jean Craighead George’s YA classic in eBook form.

The big issue, hiding in plain sight, is the issue of competitive books. Most see the case through the lens of "who should control eBook rights?," but there's little doubt in my mind that the novel issue is not one of property but of equity or fairness. And, as they say, fairness is in eye of the beholder.

By way of background, most "standard" author-publisher contracts (actually there's no such thing as a standard contract in the publishing industry) prohibit the author from publishing a "competitive" book without first receiving the publisher's permission.

In its recently filed answer,Open Road neither denies nor admits that its digital version of Wolves competes directly with the sale of the book in paper form. As I wrote previously, while the grant of primary rights did not mention eBook rights, a court might find it unfair for Ms. George to collect royalties from HarperCollins, while, at the same, time enjoying a royalty stream for the same work from Open Road. There is, however, scant law on the enforceability of non-compete clauses found in publishing contracts -- and even less law on liability for deliberate or tortious interference with such contractual relationships.

Next Stop on the Long Litigation Road

What's next?  Briefs will be prepared and a parade of industry experts will be asked to submit expert affidavits in support of either HarperCollins or Open Road, stating under "penalty of perjury," that the ability to read text on a screen [did] [didn't] date back to 1971 (or earlier).

Side Bar 

If you have a sense that we've been down this road before, you are correct.  Open Road and HarperCollins' lead attorneys duked it out in 2001-2002 in the Rosetta Books case.  Yup, they've even taken the same sides of the issue.  In 2002, Rosetta, won an appeal affirming a trial judge's decision not to enjoin Rosetta from selling eBook editions of Random House's Slaughterhouse Five, Sophie's Choice and other  bestselling backlist titles.


The Rosetta Books decision reminds us that eBooks have been poised to cannibalize books in print for over decade.  This time, however, traditional publishers such as HarperCollins and Random House are in a more vulnerable position, as today it is clear that you cannot remain profitable on the sale of bound books alone.


Book Publishing Contract Checklist


Author Joins Fight Over eBook Rights -- Wall Street Journal (Article)
Random House v. Rosetta Books -- (2d Cir. 2002) (Court Doc)
How Controls eBook Rights? -- Copylaw (Legal Analysis)

Monday, September 27, 2010

Music & Publishing Industries Suffer Setback in Digital Download Case

Copyright Alert: 9th Circuit Holds Digital Downloads are Licenses Not Sales
FBT Productions LLC v. Aftermath Records (9th Circ. 2010)

What should musicians and authors be paid for digital downloads?  In a decision with implications for the publishing industry the Ninth Circuit Court of Appeals recently ruled that rapper Eminem’s production company was entitled to 50% of his record label’s revenue from digital sales. 

The issue in F.B.T. Productions v. Aftermath Records was whether a digital download was a “sale” or a “license.” Like the music industry, publishers have taken the position that digital downloads should be accounted for as sales not licenses.  Typically, the royalty rate paid for subsidiary rights revenue is split 50/50 between the author and publisher, compared to 25% of net paid to authors for the “sale” of an eBook. 

Distinguishing Sales and Licenses
In its September 3, 2010 ruling, the court held that digital downloads should not be treated as auditable physical units for royalty accounting purposes.   The ruling is important for the recording industry, because recording artists (like book authors) receive 50% of the record company’s net receipts from rights licensed to third parties -- as opposed to 12% to 20% of the retail price. 

The divisibility of copyrights was the theory relied upon by the court in determining that a digital download from the iTunes store was not a sale but a license. 

The Ninth Circuit held:

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 “license” 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.

To the extent publishers transfer the right to make digital copies available to a digital download distributor, who then sells direct to consumers, it would, under the holding of this decision, constitute a license.  Digital download distributors do not, to quote the decision, “obtain title to digital files.”  The legal principle is quite simple.  Copyrights are divisible.  They can be assigned for less than their complete term, for a particular territory, and for a particular use -- rather than all rights under copyright.  If iTunes or Amazon or Sony or Kobo purchases an eBook from a publisher and resells it to a consumer, in the Ninth Circuit, it would considered a sale.  On the other hand, if the publisher retains ownership of the files, and receives periodic statements iTunes, et al, the rule of the case, applied mechanically, would categorize revenue from the "sale" of a digital download as subsidiary rights income.  

Many contract templates have already been modified by publishers in anticipation of a decision such as this one.  As such, they are likely immune to the decision's economic impact.  With regard to legacy or backlist contracts, labels and publishers will try to mitigate the impact of this decision by seeking retroactive contract amendments, and, perhaps, waivers of claims for back royalties.

The court regarded the record label’s ability to regain possession of the digital files at any time as a key element in supporting it’s finding that the label did not “sell” anything.
There is no dispute that Aftermath was at all relevant times the owner of the copyrights to the Eminem recordings at issue in this case, having obtained those rights through the recording contracts in exchange for specified royalty payments. Pursuant to its agreements with Apple and other third parties, however, Aftermath did not “sell” anything to the download distributors. The download distributors did not obtain title to the digital files. The ownership of those files remained with Aftermath, Aftermath reserved the right to regain possession of the files at any time, and Aftermath obtained recurring benefits in the form of payments based on the volume of downloads . . . Under our case law interpreting and applying the Copyright Act, too, it is well settled that where a copyright owner transfers a copy of copyrighted material, retains title, limits the uses to which the material may be put, and is compensated periodically based on the transferee’s exploitation of the material, the transaction is a license.
Importantly, if FBT were applied to books, you would find the word “license” multiple time, in, for example, Amazon’s Digital Distribution and Sony’s eBook agreements with publishers. 
Opportunities for Authors & Strategies for Publishers
 There is no way to predict whether the Second Circuit would follow the same line of reasoning as the Ninth Circuit.  Historically, the Second Circuit and Ninth often come to different conclusions via-a-vis new media issues.  No doubt, the commentators will have a day of it.  The decision will be opposed by the music and publishing industries.  Public statements will be made stating that the decision should be limited to the facts of this particular case.  And, while Eminem’s label may threaten to take the case to the Supreme Court, it will likely not act on that threat, as a final adverse judgment (assuming the Supreme Court would hear the case) would be devastating to that beleaguered industry.   
"The Penguincubator"
Dowload or Book Sale?
Penguin's Early B2C Experiment
Like the recent Random House–Wylie dust up, and the Rosetta Books decision, matters such as this are usually settled on confidential terms.  As the  FBT decision is not limited to records, agents and publishers should turn to their lawyers to help them determine what is the best current business practice in view of this important decision.  Consequences?  Agents will be emboldened to demand higher royalties from digital downloads, raising the familiar argument, "There's little direct cost today in getting eBooks into readers' hands.  Give me more!"   The future?  eBook rates for backlist titles (but maybe not for frontlist titles) will rise above 25%, and some wise publisher in the next six months will issue a press release stating that “In the light of dramatic changes that have taken place in the book publishing industry over the past several years, it is only fitting that the authors who comprise our backlist – and their heirs – be paid in accordance with today’s standards.”  
As the Rosetta Books decision illustrated, additional rights beyond primary rights, when sought by a publisher, are subject to separate negotiations and consideration.  If not resolved by a separate agreement, or amendment to the contract, such matters can wind up in court.   Whether this decision helps establish new ground rules for artist and author compensation remains to be seen.  I bet it does. 

How will this affect book publishing?  Will it accelerate the pace of the industry’s transition from a B2B to a B2C model?  Will conglomerates unload (trade) publishing houses?  Will Google start acquiring houses like the TV networks once went after studios?  A Penguincubator on every corner?  Stay tuned. It's not the end of publishing, just another chapter. 

Monday, May 24, 2010

Did Mark Twain Invent the Ebook?

Wait for All Your Friends (and Foes) to Die Before You Publish an Autobiography

The Independent reports that the University of California, Berkeley, will release the first volume of Mark Twain's autobiography -- much of it previously unpublished.   Clearly, Mark Twain could have said hundreds of unpleasant things in print about his contemporaries while he was alive, but he decided against it.  Whether for the benefit of his children, or because he feared reproach (and libel lawsuits) of those he might wound, in 1909 he agreed to his publisher's plan to put his autobiography under seal for 100 years.  In addition to delaying publication, he and his publisher agreed to an ingenious marketing plan to promote the book from beyond the grave.

Authors sell books.  So, publishers are often stymied by the untimely (pre-publication) demise of an author. As a rule, shades of dead authors don’t do much to hand-sell their books.  Not so with Mark Twain.   According Eugene Exman's The House of Harper, Twain’s inability to promote his forthcoming autobiography may have been greatly exaggerated. In Exman’s book, he reports that one-hundred copies of Twain's memoirs were to be signed by Twain before his death.  In the year 2010 they were to be redeemed by the original purchasers' heirs for an additional payment of $50.00.  As an aside, if the heirs of the original purchasers are anything like you and I, this brilliant marketing plan will likely be foiled due to lost claim checks. 

While Twain did not want to inflict unnecessary wounds on those he wrote about, he clearly wanted to deal out justice from the other side – and make certain his memoir had maximum impact when it was published. One has to wonder if the one-hundred signed copies was a turn-of-the-century fabricated trade news story, or whether a Mark Twain time capsule with a trove of signed first editions resides somewhere in the Harper archives.

Was Twain’s Publishing Contract the First to Include an Electronic Rights Clause?
Mark Twain & Nikola Tesla.  circa 1894

Twain was a gadgeteer.  He was an early adopter of new technology.  According to his unpublishedautobiography, he claimed that he was the first person in the world to use a typewriter for writing literature.  Attaining a modest competency of twelve words per minute, he abandoned the typewriter in the late 1870s because he found it was "degrading his character."  Having been in several legal scrapes, Twain valued the advice of his publishing attorney, whose fingerprints are all over his forward-looking 1909 Harper Bros. agreement.  Informed most likely by his dual interests in the law and novelties, Twain's publishing agreement is distinguished by what may be the first "electronic rights" or "future technology" clause to appear in a publishing contract.
Under the 1909 handwritten agreement, his publisher received rights to publish his memoir “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 method which may be in use.” [Emphasis added].

To paraphrase Twain, his autobiography is likely the last ship to leave his literary shipyard.  Unlike many authors, the delay was "not purposeless, but intentional" -- right down to the the turn-of-the-century Wild Wild West-like (as in James West and Artemas Gordon) "future technology" clause.