E-Book Lawsuit Revives

February 24, 2012


Neil J. Rosini, Michael I. Rudell

HarperCollins v. Open Road addresses whether older contracts conveyed e-book rights to publishers, or authors retained them.

(Originally published in the Entertainment Law column in the New York Law Journal on Friday, February 24, 2012)

The e-book format continues to be a growing force in book publishing.  Worldwide sales are predicted to reach nearly $10 billion by 2016 compared to $3.2 billion in 2011.  Whether licenses granted by authors in older[1] book publishing agreements can be construed to embrace this new technology is a major question for the industry.  The answer will determine whether traditional publishers, or authors and the digital startups that some of them now choose to license, will control e-book publishing of lucrative classic titles. Recently, this issue was raised for the second time in a decade in a lawsuit filed in the Southern District of New York.[2]

The plaintiff, HarperCollins – with nearly a 200 year history – is a major publisher of books.  They include Julie of the Wolves, by Jean Craighead George, the story of an Inuit girl who escapes her abusive husband and survives in the wild by joining a wolf pack.  This young adult book was first published by a predecessor of HarperCollins in 1972.  The following year, it earned the prestigious Newbery Medal and was nominated for a National Book Award. Over the past 40 years, HarperCollins claims to have sold more than 3.8 million copies.

The defendant in the action, Open Road Integrated Media, Inc., is a digital publisher co-founded in 2009 by the former president and chief executive of HarperCollins Worldwide.  Among its enterprises, Open Road seeks to publish as e-books[3] modern classics still protected by copyright and still exclusively licensed to print publishers by longstanding book publishing contracts.  In August, 2011, Open Road released Julie of the Wolves as an e-book along with 11 other titles by Ms. George, who authorized the publication.  In December, HarperCollins sued Open Road for copyright infringement, asserting that its 1971 book publishing agreement with Ms. George implicitly included e-books and the rights were not available for license by the author to Open Road.  (Ms. George was not named as a defendant.)

In 2001, a lawsuit was brought on comparable grounds by Random House against Rosetta Books,[4] which at that time was also a relatively new company with a business model similar to that of Open Road.  (No author was sued in that action, either.)  The litigation began with a motion for a preliminary injunction that was denied by the trial court in a comprehensive opinion rejecting a succession of arguments advanced by Random House.  The Second Circuit affirmed in 2002 in a five-paragraph per curiamopinion that explicitly reserved its view on the “ultimate merits” pending the development of a full record.  But the case was settled soon after and that record never materialized.

Open Road effectively picks up where Rosetta Books left off  (even the same firms are representing the respective parties in the district court).  Given the significance of the issues, we will briefly summarize the pleadings in the new action and then review how many of the key issues were dealt with a decade ago.

The Open Road Pleadings

In its complaint, HarperCollins seeks damages and injunctive relief arising out of Open Road’s alleged “willful infringement” of its rights under copyright, which it says would “illicitly … capitalize on HarperCollins’ four decades of publication and promotion ofJulie of the Wolves.”  The claim is based on the language of a 1971 publishing agreement that granted exclusive rights to publish the children’s novel, Julie of the Wolves, “in book form” including explicitly through “computer, computer-stored, mechanical or other electronic means now known or hereafter invented,” subject to the author’s consent should HarperCollins choose to sub-license those rights.

According to HarperCollins, the rights granted by the author “plainly encompass such electronic means of distribution” as an e-book “which is but a technology-enabled variant for how consumers can read the Work.”  The complaint asserts that the e-book concept “traces its lineage to the early methods of automated textual storage and retrieval, including microfilm and microfiche, developed as long as a century ago, as well as to the development of electronic document creation, storage, retrieval, and output mechanisms in the 1950s and 1960s.”  HarperCollins further asserts that “[w]hile the commercial realization of the e-book is of more recent vintage, its conception from these roots has long been foreseeable” and observes that “Project Gutenberg,” a plan to make available public domain books in electronic form, began in 1971. Open Road’s distribution of the text in electronic format is alleged to compete both with sales of the work in print and with HarperCollins’ own plans to publish an e-book.

The answer of Open Road filed last week denies most of the plaintiff’s substantive allegations including these: that the grant to HarperCollins transferred “the right to publish the work as an e-book,” that Harper Collins “spent any money promoting, or in any way promoted” the novel, and that Harper Collins “ever intended to publish [the novel]… as an e-book.”  The answer asserts that there was no royalty provision in the agreement between HarperCollins and the author that was “keyed to the sale of Julie of the Wolves as an e-book.” It also denies the plaintiff’s allegation that “the concept of an e-book is a natural extension and outgrowth of technological developments that significantly predate HarperCollins’ publishing agreement.”[5]  Consistent with that denial, the nonagenarian author is quoted in a recent statement released by Open Road to say: “When I signed that contract in 1971, eBooks did not exist so I could not have granted those rights.  I am with Open Road all the way.”  Ms. George has also declared her intent to intervene as a defendant in the action.

Rosetta Books

In its 2001 suit against Rosetta Books for copyright infringement and tortious interference, Random House argued that its publishing agreements with certain authors, dating back to the 1960s, 1970 and 1982, included an exclusive license to publish e-books.  Its motion for a preliminary injunction was denied by the district court based on “the language of the contracts and basic principles of contract interpretation.”

Random House, which was founded in the 1920s, was and remains a major publisher of books.  In 2001, Rosetta, like Open Road, sought to publish electronically back-list classics licensed to others under longstanding book publishing agreements.  Its success depended on the exclusion of electronic book publishing rights from the scope of those agreements.

In 2000 and the beginning of 2001, Rosetta made deals with several major authors to publish titles such as The Confessions of Nat Turner and Sophie’s Choice by William Styron; Slaughterhouse –Five, Cat’s Cradle and other works by Kurt Vonnegut; andPromised Land by Robert B. Parker. All of these books were being published in print form by Random House. The day after Rosetta offered these titles and others for sale over the internet in e-book format, Random House sued.

The district court’s opinion first discussed the nature of e-books.  The court noted that they are created by converting digitized text into a format that computer software could deal with, which readers downloaded to read on a desktop or laptop computer, personal digital assistant or dedicated handheld device.  Although the text of an e-book matched its printed counterpart, “various features” were added to e-books such as electronic search, storage and manipulation of electronic notes by the reader, and the capacity to highlight text and to “bookmark” text that could then be accessed through hyper-links.  Tables of contents of e-books could jump via hyperlinks to specific chapters and the “font size and style” of the text could be modified to show more or fewer words on a page. Users of e-books also could summon up the definition of any word in the text.

Turning next to the language of the Random House agreements with these authors, the court noted that there were various differences among them but they all used the phrase “print, publish and sell the work[s] in book form” to convey rights to Random House.  The Styron, Parker and one of two Vonnegut agreements also contained non-compete clauses, appearing in various forms, which restricted further use by the authors.  Two agreements forbade the authors from publishing material that was reasonably likely to injure the sale of their books by Random House. Another agreement forbade the author from publishing any “edition, adaptation or abridgement” of the work.  Two agreements granted Random House the exclusive right to “Xerox” and other forms of copying, “either now in use or hereafter developed.”  One agreement granted “microfilming” rights. (The 1982 Parker agreement, however, reserved to the author “mechanical or electronic recordings of the text.”)

Random House contended that the phrase “in book form” meant “to faithfully reproduce the author’s text in its complete form as a reading experience and that since ebooks concededly contain the complete text of the work, Rosetta cannot also possess those rights.”   It also cited the non-compete clauses as evidence it was granted broad exclusive rights that included e-books.

In construing the scope of the copyright licenses, the district court looked to New York state contract law, which expressly governed the interpretation of each agreement.  This required the court to “consider the entire contract and reconcile all parts, if possible, to avoid an inconsistency.”  Citing Second Circuit precedents, the district court then focused on how the scope of licensee rights would be determined when “new marketing channels made possible by technologies developed after the licensing contract” came into being.

That question was to be resolved by reference to “neutral principles of contract interpretation rather than solicitude for either party” under Boosey & Hawkes Music Publishers, Ltd. V. Walt Disney Co.[6]  Accordingly, quoting that decision,  “If the contract is more reasonably read to convey one meaning, the party benefitted by that reading should be able to rely on it; the party seeking exception or deviation from the meaning reasonably conveyed by the words of the contract should bear the burden of negotiating for language that would express the limitation or deviation [before the contract is signed].”

The district court decided that “the most reasonable interpretation of the grant” in all of the contracts – to “print, publish and sell the work in book form” – does not include the right to publish as an e-book.  It consulted a dictionary published by Random House for the meaning of “book”:  “a written or printed work of fiction or nonfiction, usually on sheets of paper fastened or bound together within covers.” References in the agreements to publication in “book club editions, reprint editions, abridged forms and editions in Braille” would have been superfluous if “in book form” embraced all types of books.   The court also found that the phrase “is understood in the publishing industry to be a ‘limited’ grant.”

The district court found no support for Random House’s position in the non-compete clauses because they “must be limited in scope in order to be enforceable” in accord with New York state precedents, and “the grant of rights follows from the grant language alone.”  Furthermore, if the authors did violate this clause, Random House’s remedy would be against the authors, not Rosetta.  And the clause forbidding “xerography and other forms of photocopying” could not be stretched to include new forms of publishing such as e-books.

Further, the Court noted that the “new use” in question — electronic digital signals sent over the internet – is a separate medium from the original use – printed words on paper — and could be manipulated in ways that analog information cannot.  Accordingly, Second Circuit precedents that “apply to new uses within the same medium” (such as display of a motion picture on television or videocassette) were inapposite.  Instead, the district looked to a New York state appellate decision, Tele-Pac, Inc. v. Grainger,[7] that distinguished Second Circuit “new use” principles and held that the right to broadcast by television “or any other similar device now known or hereafter to be made known” was “so dissimilar from display on videocassette and videodisc” as to preclude inclusion of video rights.  Moreover, the publishers were not entitled to whatever favorable consideration might be given a licensee who wishes to publish in a new medium a derivative work it created that was based on the author’s work; here, the original work itself would be used in the “new medium.”  Lastly, the court found that traditional book publishers were no more likely than start-ups – like Rosetta — to make advances in new technologies.

On appeal, the Second Circuit upheld the denial of the preliminary injunction “without expressing any view as to the ultimate merits of the case.” [8] Still, the court’s opinion offered encouraging words to both sides.  It acknowledged that there was “some appeal” to Random House’s argument that “an ‘ebook’ … is simply a ‘form’ of a book, and therefore within the coverage” of its license.  On the other hand, “the law of New York, which determines the scope of Random House’s contracts, has arguably adopted a restrictive view of the kinds of ‘new uses’ to which an exclusive license may apply when the contracting parties do not expressly provide for coverage of such future forms,” citing Tele-Pac, Inc. v. Grainger.  But perhaps most significantly, the Second Circuit was unwilling to disturb the district court’s decision in the absence of a full record that would include “inter alia, the ‘evolving’ technical processes and uses of an ebook … and the reasonable expectations of the contracting parties ‘cognizant of the customs, practices, usages and terminology as generally understood in the … trade or business’ at the time of contracting” (citations omitted). 


[1] Current publishing agreements offered by book publishers unambiguously transfer electronic rights as well as print rights.

[2] HarperCollins Publishers LLC v. Open Road Integrated Media, LLP, (1:11-cv-09499-NRB) filed December 23, 2011 in the Southern District of New York.

[3] The abbreviated form of “electronic book” is variously spelled as “e-book,” “eBook,” and “ebook.”  We prefer to use “e-book” except that when quoting sources that spell the word differently, we will use their spelling.

[4] Random House, Inc. v. Rosetta Books LLC, 150 F.Supp.2d 613 (S.D.N.Y. 2001), aff’d 283 F.3d 490 (2d Cir. 2002).

[5] Although the answer refers to a “mandatory arbitration provision” in the HarperCollins agreement with the author, no motion has yet been brought by Open Road to compel arbitration of the dispute.

[6] 145 F.3d 481 (2d Cir. 1998).

[7] 168 A.D.2d 11, 570 N.Y.S.2d 521 (1st Dep’t 1991).

[8] 283 F.3d 490 (2d Cir. 2002).