United States: The Blurred Law Behind The Languishing E-Book Industry

Originally published in BNA International Piracy and Brand Awareness, May 2007¹

Predictions for the success of e-books abounded when the technology first appeared in the late 1990s. E-books became the rage at book publishing conferences² and society was on the verge of entering "the e-book age".³ But books in electronic format clearly have not taken off and may not do so any time soon. What is the problem with e-books?

Disappointing progress of e-books maybe partially due to the legal uncertainty surrounding the ownership of e-book rights. Where a book contract exists but does not mention electronic rights, ownership of those rights may depend on whether e-books are really "books". Only one district court has weighed in on the matter, and held that a right to publish "in book form" did not encompass e-book rights. E-books, according to that court, constitute a separate medium from printed books. Strong arguments support the proposition that e-books are "books," however, and ongoing lawsuits undoubtedly will refine the definition of e-book rights.

1. Background on E-books

Practical problems associated with e-books are plentiful. Many people find it more difficult to read from an electronic display than from paper. E-book displays typically show a smaller amount of text than a page in a printed book, resulting in frequent page turning. And publishers simply have not provided many titles in e-book format, making readers wary of investing inexpensive e-book reading devices.⁴ Also, other technologies have leapfrogged the e-book, offering interactive, interlinking information on media such as DVDs.⁵ E-books pose an additional problem for publishers, for whom piracy is a much bigger concern with digital e-book content than with printed content.⁶

While the e-book market can largely blame these practical problems for its bust, another explanation lurks beneath the surface: copyright law blurs the rights of authors and publishers in the electronic realm. Not surprisingly, publishing agreements executed before the existence of e-books failed to mention which party owns the right to publish works in e-book form.⁷ Does the author retain the rights not explicitly granted to the publisher or does the publisher inherit the benefit of technological advancements like the e-book?

Until either courts or legislatures resolve the tension between authors’ rights and publishers’ rights, e-books will likely continue to languish. But once e-books are decisively included or excluded from the "new use" category, publishers and authors will feel less vulnerable to legal uncertainty when investing resources into electronic publishing. Case law is sure to develop quickly, especially following the current lawsuits against Google for its Google Book Search project. Authors and publishers would be prudent to follow the developing law closely.This article summarizes the issues behind the recent and current electronic book cases and the impact that their outcomes may have on the future of electronic publishing.

The e-book rights controversy boils down to how copyright law handles the application of developing technology to old copyright licenses. Courts have struggled to reach consistent results when dealing with "new use" problems. In some cases, courts have interpreted licenses broadly, finding that it is the author’s job to exclude rights to new uses.⁸ For example, Stravinsky’s license of "The Rite of Spring" to the Walt Disney Co. for use "in a motion picture" allowed Disney to distribute "Fantasia" on the later developed videocassette and laser disc formats.⁹ Those in favor of the broad interpretation prefer depriving the author of profits from unforeseen technological developments to depriving the licensee from the reasonable terms of the contract.¹⁰ In other cases, courts have interpreted licenses narrowly, finding that grants encompass only those rights that are explicitly listed.¹¹ For example, a grant of the right to use a song in a film exhibited in motion picture theaters and by "means of television" did not allow the licensee to distribute the film on videocassette when videocassette players for home use were not known at the time of the agreement.¹² The narrow approach favors the authors, reasoning that a licensee should not reap the entire windfall associated with a new medium.¹³

Courts in both schools of thought typically consider at least three factors when approaching a "new use" problem: the language of the grant, the foresee ability of the new medium, and the similarity between the new medium and the old medium. While generally probative of the intent to grant either broad or narrow rights, the language of the grant may not lend much insight into the precise scope of the grant; after all, ambiguous language creates the "new use" problem in the first place.¹⁴ In the case of e-books, a typical license may give the publisher the right to publish "in book form".¹⁵ Whether e-book rights are literally included in such a grant depends on whether e-books count as books.¹⁶ Inquiring into the foresee ability of the new medium also fails to provide much insight into the scope of the grant. In fact, it is difficult to imagine what is not foreseeable anymore in an age where technological innovations occur so rapidly.¹⁷

The similarity between the new medium and the old medium appears to be emerging as the most important, or at least the most contentious, factor in the "new use" analysis of the e-book.¹⁸ Indeed, in the only case to consider the e-book rights problem thus far, Random House v. Rosetta Books, the district court relied heavily on its finding that e-books are a separate medium from printed books to support its narrow interpretation of rights granted.¹⁹ Rosetta Books found that grants by authors of the right to publish "inbook form" did not include the right to publish e-books, allowing the authors to retain e-book rights in their works and license them separately.²⁰

In finding that e-books are a separate medium from printed books, the court reasoned that users can manipulate the digital content of an e-book in ways that they cannot manipulate a printed book.²¹ Furthermore, e-books require a piece of hardware and a software program to view the text.²² The court explained that e-book content can be electronically searched, fonts can be changed, segments can be highlighted and bookmarked, chapters and sections can be hyperlinked, and a built-in dictionary might provide definitions and pronounce words a loud.²³

Rosetta Books is the opinion of one district court applying New York state contract law.²⁴ Though the decision was affirmed on appeal, the United States Court of Appeals for the Second Circuit did not express any view as to the ultimate merits of the case.²⁵ Whether publishing agreements that license the right to publish "in book form", like the one a tissue in Rosetta Books, transfer e-book rights is still very much a wide-open question. Other courts may find that a transfer of the right to publish "in book form" encompasses e-book rights. The question boils down to whether e-books are, legally speaking, books.

Several strong arguments suggest that e-books should be considered books. Some contend that basic value of a book lies in the information and entertainment it provides, not its medium.²⁶ E-books display exactly the same information as their printed counterparts. Further, modern technological innovations continue to foster the overlap and convergence of different mediums, making distinction between media increasingly difficult.²⁷ Further still, books have changed form throughout history from writings on stone and wood in ancient Mesopotamia to papyrus book rolls in ancient Rome to the common printed books of today.²⁸ Each of these advancements, and many others in between, provided new features or improved efficiencies that the previous form did not offer. Why should the e-book be singled out from the evolution of books?

A breakthrough advancement known as electronic paper (e-paper) may bring the e-book physically closer to traditional printed books.²⁹ E-paper emulates the form of a real book.³⁰ A piece of e-paper essentially consists of a very thin stainless steel foil – about the thickness of three sheets of paper – that has been treated with a bistable chemical compound dubbed electronic ink (e-ink).³¹ Electronically charged particles of ink show black on one side and white on the other.³² Once e-ink covers a sheet of e-paper, the e-ink particles can display text by the application of an electric field to the e-paper.³³ The e-paper needs power only to switch the color of e-ink particles because e-ink particles remain stable when showing either their black side or white side.³⁴ E-paper looks like real paper: it is thin, light, flexible, and rollable.³⁵

E-paper technology applied to e-books severely weakens one of the two main arguments of the Rosetta Books court. In Rosetta Books, the court held that e-books and printed books are separate media because e-books require electronically powered hardware and a software program to view the text. Viewing text displayed on e-paper requires no powered hardware or software program.³⁶ E-paper also weakens the rationale of the Rosetta Books court that e-books and printed books are separate media because the content of an e-book can be manipulated in ways that the content of a printed book cannot. Once the e-paper displays text and the power source is removed, the text cannot be changed in any of the ways enumerated by the court without reapplying the power source.³⁷ Just as a printer prints text on regular paper, an electric field prints text on e-paper. Thus, a grant of the right to publish "in book form" could include the right to distribute e-books in the form of text displayed on e-paper.

Another uncertainty in the question of e-book rights results from differences in state contract law. The interpretation of a license purporting to grant a copyright license is actually a matter of state contract law rather than copyright law.³⁸ Of articular importance to e-book rights is the degree to which state contract laws allow the introduction of extrinsic evidence, such as evidence of the parties’ intentions, to interpret the meaning of language used in the contract.³⁹ A court relying only on the contract language could interpret the same license to publish "in book form" differently from another court allowing the introduction of extrinsic evidence.⁴⁰ In finding that the grant to publish "inbook form" did not encompass e-book rights, the New York district court in Rosetta Books interpreted "in book form" from the language of the contract itself in combination with trade usage definitions without considering any other extrinsic evidence.⁴¹

Serious legal uncertainty exists as a result of this dispute over e-books being books, which hampers the progress of e-books. Authors do not know whether they own e-book rights in their writings after entering publishing agreements, making them less likely to license their e-book rights or publish in e-book form themselves. E-book publishers may think twice about licensing e-book rights from authors who have previously licensed their bookpublishing rights, as it is possible that author will sue for copyright infringement. Until book rights become clearer, e-books will likely continue to languish.

According to Google’s web page on the history of Google Book Search, Google’s co-founders began Google with a goal of digitizing vast collections of books in order to make them available for searching and analyzing with web crawlers.⁴² In 2004 and 2005, Google began its "Library Project" of scanning books with its partner universities and the Library of Congress, inciting some controversy and debate over the rights to the books.⁴³ That project, later re-named Google Book Search, provides a search engine that enables users to view short portions of text based on matches of a search.⁴⁴ The text surrounding the match of a search maybe as long as two pages before and after the match for books that Google has been authorized by the publisher to include in Google Book Search.⁴⁵ For other books, the text surrounding the match of a search is only a "snippet" of a few sentences.⁴⁶ Google intends to scan and include in Google Book Search every book ever published – an incredible goal, and far more reaching than any other book scanning project.⁴⁷ In late 2005,the controversy over copyrights turned litigious when authors and publishers sued Google for the alleged copyright infringement of protected books.⁴⁸

Google Book Search obtains the content for its book searching functionality through two different routes: agreements with publishers and agreements with research libraries.⁴⁹ So far, Google has agreements with nearly every major publisher⁵⁰ and with at least twelve research libraries.⁵¹ Some libraries have contributed their entire collections while others have limited their contribution to public domain works. Others still have provided select collections.⁵²

The Google lawsuits focus on whether scanning copyrighted books and providing short portions of text from those books to users constitutes a "fair use". But the e-book rights issue resides in the standing of the parties.⁵³ In order for a party to have standing in a copyright infringement suit, the party must own a valid copyright interest covering the particular right that the alleged infringement violates.⁵⁴ As previously discussed, however, the owner of e-book rights is difficult to identify when an author has assigned the right to publish "in book form" to a publisher without specifically mentioning electronic rights. Resolving the standing of the authors and publishers in the Google lawsuits requires courts to examine whether such publishing agreements transferred electronic rights to the publisher or whether the author retained some or all electronic rights.⁵⁵ This examination should lead to a clearer and more precise answer to the e-book rights question.

A controlling answer to e-book rights question would almost certainly directly impact the success of e-books. Clarifying the legal uncertainty associated with e-book rights would allow parties to deal more comfortably and encourage widespread distribution of e-books by rightful owners of e-book rights.

Even if a clear and controlling answer to the e-book rights question does not result from the Google lawsuits, however, the outcome of the lawsuits is still important to the success of e-books. In exchange for a library’s book collection for scanning, Google provides the library with an electronic copy of each book in the collection free of charge.⁵⁶ Once a library owns a free set of e-book copies of its book collection, it may implement an e-book loaning system, perhaps driving it to purchase and add more e-books to its collection. Once libraries start providing e-book services, readers will likely adapt to e-book technology and become e-book purchasers themselves. In fact, infiltrating the library market may well be the turning point for e-books.⁵⁷ The outcome of the Google lawsuits will define Google’s ability to offer free scanning services for libraries’ book collections, which will likely have a profound effect on how quickly libraries will embrace e-books and whether the e-book market will begin to see success.

Identifying the rightful owner of electronic books depends largely on whether e-books are really books. Strong arguments support the proposition that they are, but the conclusion of the current litigation surrounding the Google Book Search will likely result in a clearer answer. Regardless of whether such an answer results, however, defining Google’s ability to continue scanning library books will influence the library market, and consequently the overall market, for e-books.

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