Is Your Publishing Contract Enhanced eBook & iPad Ready?

What Legal Lessons Can the 7-Inch Single Teach the Publishing Industry? 

By Lloyd J. Jassin

Why is Arthur Godfrey smiling?  In 1949 the former CBS pitchman understood that each new electronic technology changed the nature of what, and how, we communicate.  And, his attorney knew that advances in new technology, in this case, the recently introduced 7-inch Microgroove single, would challenge the way entertainment contracts for pre-1949 recordings would be interpreted.

Old Wine in New Bottles

Just as in the 40s and 50s, with rapid advances in new technology, old contracts are being dusted off and language scrutinized to answer the question “Who controls new rights created by recent technological developments?”  Due to ambiguities and omissions in many older publishing agreements, "Who controls enhanced eBook rights?" has become a controversial topic, subject to differing interpretations.    

Exemplifying the digital rights controversy is the December 11, 2009 letter from Markus Dohle, CEO of Random House, in which he boldly asserted that RH controlled the “vast majority” of digital rights to its backlist.  This assertion  precipitated a collective “Yeah, right!” from literary agents across the globe.  This article, among  other things, looks at how courts interpret pre-digital age contracts.    

To be clear, Mr. Dohle’s claimed ownership of backlist digital rights is based on a very favorable (for RH) interpretation of  pre-digital age contracts, in which RH received “for the term of copyright, the exclusive right to publish and sell works contracted for in book form.”  

Are 360 All Rights Deals in the Our Future?

What is also significant about RH’s pronouncement, is that it likely presages a new, more muscular approach to contract negotiation by the big six publishers.  Specifically, I refer to 360 deals.  Increasingly common in the music industry, with a 360 deal, a publisher would receive a percentage of earnings from ALL of the author’s activities, instead of just book sales.  Traditionally, motion picture, television, dramatic and merchandising rights, as well as lecture fees, were off limits to publishers.  Synergy, which media monoliths CBS and New Corp claimed would transform the publishing industry when they acquired, respectively, S&S and the House of Harper, hasn't happened in a big way.  In short, 360 deals are ill-advised.

Has Random House Reinvented the Way We Read Publishing Contracts? 

Random House’s grab for digital 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, videocassettes, and even paperbacks and eBooks, 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.  While the cases are not uniform in their holdings, rest assured, basic principles of contract interpretation exist to guide us.  
   

How to Interpret Old Contracts

When a contract is ambiguous, the job of ascertaining the parties’ intent may, ultimately, be left to a court to decide.  Since contracts are not drafted in a vacuum, courts look at industry practice.  In the case of eBook and enhanced eBooks, courts will ask whether distribution of books in digital form was recognized by knowledgeable people in the industry when the contract was drafted.  Courts will also look for any provisions that tend to limit the “exclusive right to publish . . . in book form."   For example, did the author negotiate a “reserved rights” clause?   To be clear, the majority of courts have held that a grant of future technology rights cannot be inferred from an agreement, unless the technology was known at the time of the grant. 

When a contract is susceptible to two reasonable interpretations, the Restatement (Second) of Contracts, states that the agreement should be construed against the party who drafted the language.  Since Random House was in a stronger bargaining position, unless it could be shown that the author (or agent) had an equal hand in drafting the agreement, RH’s backlist contracts would be interpreted by courts in a light most favorable to the author.

Contract Fixes

-->Unfortunately, there are no neat definitions for what many are calling enhanced eBooks.  In the old days (i.e., six months ago), so-call enhanced eBook rights fell within the meaning of the terms “interactive” or “multimedia” rights.  Whereas, an eBook and a book are both linear narratives, an enhanced eBook is a horse of a different color.  Since the sale of film or television rights – which are generally retained by the author -- could be impacted by a grant of multimedia rights, as a rule, agents and knowledgeable publishing attorneys, strike all reference to “interactive” or “multimedia” rights from publishing contracts.  Few publishers balk at this.  As an alternative, if a publisher does balk, most accept language that limits the grant, e.g., “Multimedia rights shall not include traditional motion picture, television or video rights in linear form or audio rights.”  Another contract fix is written approval by the author, prior to turning their book into a multimedia derivative work.
While RH’s pronouncement does violence to federal copyright policy that protects authors from the unintentional grant of the exclusive rights to their works, under the 1909 Copyright Act, it was much easier to inadvertently transfer one’s copyright rights than it is today.  Unlike today, under the old 1909 Copyright Act , which still applies to works published before 1978, an exclusive license could be implied from the conduct of the parties

Where the Random House agreements Mr. Dohle cites to contain “future technologies” clauses, RH's claim is much stronger -- although, not all courts have enforced these provisions.  For example, in Tele-Pac, Inc. v. Grainger, a New York 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 a court were to adopt the Tele-Pac analysis, it might determine that an e-Book is not analogous to a bound volume,  just as a film is not a videocassette.  Whereas a plausible argument can be made that e-Books and books are two distinct media, a compelling argument can be made that an enhanced eBook and bound book are two very distinct media -- the latter having more in common with film and television adaptation rights, rights traditionally retained by the author.   Interestingly, where an author retains enhanced eBook rights, a question exists as to what contractual limits, if any, exist on the author’s ability to synch audio, video and still images with the book’s text.   

Conclusion

Whereas the display of the verbatim text of a book on a screen is an eBook, an enhanced eBook (whether an iPad, app, or website combining text, graphics, audio and/or video) is a derivative work and is a matter for informal or formal negotiation. 

Today, 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.  Ultimately, authors will have to decide how much faith to place in their publisher’s ability to produce and market so-called enhanced eBooks.  Alert authors, before taking that leap of faith, however, must modify their publishing agreements so their ability to exploit lucrative film and television rights (in partnership with others) is not inadvertently undermined.     

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).  Follow him on Twitter at www.twitter.com/lloydjassin.