Who owns the rights to ebooks – publishers who bought the rights to publish “in book form” or the original authors? I’ll bet on the authors.

Who owns the rights to electronic versions of books governed by contracts published back in the days when there was no such thing as an e-book?

Typically, the contracts an author signed with the publishers of those books gave the publisher the exclusive right to publish “in book form” or “in any and all editions.” According to the New York Times (hyperlinks added),

In 2001, Random House sued RosettaBooks, an e-book publisher, for copyright infringement when Rosetta signed contracts with authors . . . to release digital versions of previously published novels.

In its suit, Random House relied on wording in its contracts that granted it all rights to publish the works “in book form.”. . .

In 2001, a federal judge in Manhattan denied Random House’s request for a preliminary injunction against RosettaBooks, ruling that “in book form” did not automatically include e-books. An appellate court similarly denied Random House’s request.

On Friday, however, the Times reports (hyperlinks in original) that “Markus Dohle, chief executive of Random House, sent a letter (pdf) to dozens of literary agents, writing that the company’s older agreements gave it ‘the exclusive right to publish in electronic book publishing formats.’” According to Mr. Dohle’s letter:

The vast majority of our backlist contracts grant us the exclusive right to publish books in electronic formats, as well as more traditional physical formats. At the same time, we are aware there have been some misunderstandings conceming ebook rights in older backlist titles. Our older agreements often give the exclusive right to publish “in book form” or “in any and all editions”. Many of those contracts also include enhanced language that references other forms of copying or displaying the text that might be developed in the future or other relevant language that more specifically reflects the already expansive scope of rights. Such grants are usually not limited to any specitic format, and indeed the “f0rm” of a book has evolved over the years to include variations of hardcover, paperback and other written word fonnats, all of which have been understood to be included in the grant of book publishing rights. Indeed, ebook retailers market, merchandise and sell ebooks as an alternate book format, alongside the hardcover, trade paperback, and mass market versions of a given title. Whether physical or digital, the product is used and experienced in the same manner, serves the same function, and satisfies the same fundamental urge to discover stories, ideas and infomation through the process of reading.

Accordingly, Random House considers contracts that grant the exclusive right to publish “in book form” or.”in any and all editions” to include the exclusive right to publish in electronic book publishing formats. Our agreements also contain broad non-competition provisions. so that the author is precluded from granting publishing rights to third parties that would compromise the rights for which Random House has bargained. We believe the effective exercise of electronic rights is key to the future of publishing and that the combined marketing of print and digital formats increases overall sales and creates the largest possible pool of revenues for authors and publishers, Our efforts and investments in the digital realm perfectly complement Random House’s unmatched physical sales and distribution capabilities, which remain a centerpiece of our business and relationships.

But William Styron’s family disputes Random House’s assertions that it owns the rights to publish electronic versions of Mr. Styron’s books. One problem with Random House’s position is that, despite what Mr. Dohle writes, Random House’s contract with Mr. Styron did not grant to Random House rights that refer to “forms of copying or displaying the text that might be developed in the future,” and, in further contradiction to Mr. Dohle’s words, were quite explicit in being “limited to . . . specific format[s].” As the District Court decision in the case between Random House and Rosetta Stone makes clear, Styron’s contract granted Random House “an exclusive license to ‘print, publish and sell the work in book form,’ Styron also gave it the right to ]license publication of the work by book clubs,’ ‘license publication of a reprint edition,’ ‘license after book publication the publication of the work, in whole or in part, in anthologies, school books,’ and other shortened forms, ‘license without charge publication of the work in Braille, or photographing, recording, and microfilming the work for the physically handicapped,’ and ‘publish or permit others to publish or broadcast by radio or television … selections from the work, for publicity purposes ….’”

The court reasons that the “separate grant language . . . to convey the rights to publish book club editions, reprint editions, abridged forms, and editions in Braille . . . would not be necessary if the phrase ‘in book form’ encompassed all types of books. That [language] specifies exactly which rights were being granted by the author to the publisher.”

The court further opined that “a reasonable person ‘cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business,’  would conclude that the grant language does not include ebooks. ‘To print, publish and sell the work in book form” is understood in the publishing industry to be a ‘limited’ grant.’” (citations and footnote omitted)

Finally, the court pointed out that Random House itself had acknowledged that ebooks are a new medium (and thus, presumably, not within the contemplation of the parties when they entered into their agreements to allocate their respective rights):

In this case, the “new use” – electronic digital signals sent over the internet – is a separate medium from the original use – printed words on paper. Random House’s own expert concludes that the media are distinct because information stored digitally can be manipulated in ways that analog information cannot. Ebooks take advantage of the digital medium’s ability to manipulate data by allowing ebook users to electronically search the text for specific words and phrases, change the font size and style, type notes into the text and electronically organize them, highlight and bookmark, hyperlink to specific parts of the text, and, in the future, to other sites on related topics as well, and access a dictionary that pronounces words in the ebook aloud. The need for a software program to interact with the data in order to make it usable, as well as the need for a piece of hardware to enable the reader to view the text, also distinguishes analog formats from digital formats. See Greenberg v. National Geographic Soc’y, 244 F.3d 1267, 1273 n.12 (11th Cir. 2001) (Digital format is not analogous to reproducing the magazine in microfilm or microfiche because it “requires the interaction of a computer program in order to accomplish the useful reproduction involved with the new medium.”). (citation omitted; hyperlink added).

There’s no question the publishing houses are fighting for their very existence. It’s interesting, though, that copyright holders are fighting the publishing companies over those rights. So much of the focus in this area of late has been over Google’s right to copy books to make them searchable so that they could be found and, as a result, purchased or otherwise obtained from the rightful owners of the books themselves. But now it’s the publishers who are trying to stretch the rights they contractually negotiated for decades ago to realms no one imagined at the time.

It will be interesting to see where this goes next. As a contracts professor, my first impression is that Random House isn’t exactly in the strongest of positions.

Legal education is monumentally difficult. Legal “rules” are not “rules” in the sense most people understand them; they are, instead, formulations intended to reach just results based on the evidence in individual lawsuits.

In making the point set forth in the title of my post, it is worth repeating the message I sent this morning to my Contracts students, who are in the midst of studying for the first semester exams. My students are in the midst of making the transition from the lay understanding of legal “rules” as “rules” of the sort that govern the outcome of scientific experiments to the professional understanding that legal “rules” are professional terms of art used to articulate arguments intended to achieve justice in individual cases. It is not an easy transition to make, and it is a transition from a way of perceiving rules that seems to dominate the thinking of the vast majority of mankind to a way of perceiving rules as man-made constructs intended most of all to do justice to individuals.

As I wrote to my students, focusing on legal issues relating to the interpretation of disputed contract terms (the last subject of our semester’s study):

In trying to understand the law we are applying, consider the teachings of the teachings of the Chuang-tzu, a collection of writings from the fourth, third and second centuries B.C.:

Great understanding is broad and unhurried; Little understanding is cramped and busy.

Trying to understand the rules that pertain to contract interpretation will not come through a cramped and busy effort to memorize the “parol evidence rule” and the rules regarding when evidence outside of a writing is permitted to interpret the writing.

Instead, understanding contract interpretation will come first from from a broad and unhurried consideration of what language the parties are disputing the interpretation of. Then you must understand why each party considers his interpretation the correct one. What evidence does each party have that his interpretation is correct? How persuasive do you consider that evidence?

If one side’s interpretation is more persuasive, that will likely be the correct one. One must first consider the writing setting forth the purported agreement, the purposes of the purported agreement, the situations of the parties, and any other evidence that may bear on the meaning of the written agreement. Only after considering all these matters (which can range far and wide) and coming to some individual, human understanding of whether one person’s interpretation or the other’s is more persuasive can on go back to the rules to and use those rules to show how the rules and the evidence together will lead to that more persuasive result.

Thus, for example, in Thompson v. Lilly, 26 N.W. 1 (Minn. (1885), the buyer of logs insisted the seller did not supply logs of as high a quality as the parties had agreed the seller would provide. The parties had written the following brief agreement:

AGREEMENT.

Hastings, Minn., June 1, 1883.

I have this day sold to R. C. Libby, of Hastings, Minn., all my logs marked ‘‘H. C. A.,’’ cut in the winters of 1882 and 1883, for ten dollars a thousand feet, boom scale at Minneapolis, Minnesota. Payments cash as fast as scale bills are produced.

[Signed] J. H. Thompson,

Per D. S. Mooers.

R. C. Libby.

The Minnesota Supreme Court concluded that “[t]he written agreement . . . , as it appears on its face, . . . purports to be a complete expression of the whole agreement of the parties as to the sale and purchase of these logs, solemnly executed by both parties.” Thus, the court concluded that the buyer could not prevail on his claim that he and the seller had in fact agreed that the logs he had purchased were supposed to be of a higher quality than those logs the seller actually supplied.

But there really is nothing in the written agreement itself to preclude the reasonable possibility that the parties had also agreed that the logs marked “H.C.A” would be of the higher quality the buyer had not received. What is it about that 3 line agreement that suggests that it is the exhaustive statement of all the terms the parties agreed to?

Admittedly, there are a few things you might point to to support the court’s conclusion: the writing states price, it states the identifying marks on the buyer’s logs, and it states the delivery place and times. We might infer that if it includes all of those things it must include everything the parties had agreed upon.

But are we to suppose that in 1883 Minnesota in a sale between a logging company and a lumber buyer the technical requirements of the parol evidence rule were foremost in the buyer’s and seller’s minds? And are we to suppose the 3 line agreement was intended as the height of formality. And when, for example, would “winter” begin in Minesota — November, December 21, at first frost? To suppose the seller of logs and the buyer of logs would have put into the writing something they considered important is to be naive about how commercial transactions really take place (even today in the vast majority of commercial transactions, and even among investment bankers in the high flying world of Wall Street finance in which I once practiced).

In other words, if you merely start with the proposition that the parol evidence rule excludes the consideration of evidence regarding the content of a contractual agreement that is not contained in a final and complete written record of the agreement, you hardly have a convincing argument that the decision in Thompson v. Lilly must have been correct.

But if you look at the evidence recounted in the opinion (and the absence of certain evidence) the wisdom of the result (if not the clarity of the reasoning) becomes much, much more apparent — the buyer is claiming the agreement included a promise that the logs the seller was providing would be of a higher quality than the logs that were delivered. And while the writing in and of itself doesn’t inherently exclude that possibility in any conclusive way I can fathom, what evidence does the buyer have that the agreement included a promise of higher quality logs? Only the buyer’s own self-serving testimony. There is no corroborating testimony from, say,  others in the logging trade in 1883 Minnesota that an agreement on quality like that insisted upon the buyer would be expected. There is no documentary evidence outside of the 3 line agreement regarding the parties’ negotiations. There is no evidence that the buyer’s purposes for buying the logs should have indicated to the seller that higher quality logs were what the buyer expected. There is no indication the price the buyer agreed to pay reflects a market price for logs of a higher quality than that which he received.

In short, apart from the buyer’s self-serving testimony, there is no evidence of any sort that any agreement on the quality of the logs had been reached. In the absence of any evidence other than the buyer’s self-serving testimony in support of his position, the court conclusion that the three-line agreement contains all the material terms of the agreement does in fact seem convincing. If, on the other hand, others in the trade suggested the quality of the logs would not have been included in the written agreement or that the price in the agreement reflected a price for higher quality logs, the court would have had a much more difficult time suggesting the three line agreement contained all the material terms of the agreement.

Thus, the parol evidence rule does its job in this case — it prevents the dispute from ending up as a trial in which the buyer’s uncorroborated and self-serving sworn statements will be weighed by a jury against the writing and the seller’s sworn statements. But if we merely considered the 3 line agreement without considering what other evidence the buyer had (or did not have) in support of his position, the parol evidence rule in and of itself would have provided a very poor guide to determining whether there would be any justifiable basis for a trial on the buyer’s claims.

To engage in the extra effort of trial in Thompson v. Lilly would have been unreasonable as a matter of the administration of justice in that there seems no persuasive reason in the first place to believe the buyer. Trials are expensive and burdensome affairs. And keeping the case from trial prevents a jury from being persuaded by improper factors (such as preferring the buyer as a person to the seller). Thus, the court invoked the technical rule — the parol evidence rule — to produce an outcome that seems fair, just, and in accord with a common sense view of the evidence.

In other words, the legal rules and their proper application arise from the evidence the parties bring to bear. The rules do not predetermine disputes that are predictable before they arise. Instead, they provide the legal language (developed over the centuries’ long development of the common law) in which to couch the just conclusions compelled by the evidence.

So, as I explained to my students, when you are trying to figure out on an exam how to answer a question, consider first: what question you are you trying to answer. Then consider what evidence you have from each side of the dispute that helps persuade one way or another in answering that question. Then weigh that evidence and consider what we are primarily trying to determine in contract law: what the parties intended to agree to.

Then, and only then, use the rules to structure the presentation of your understanding of the proper resolution to the dispute. You are likely being asked to present your personal and human understanding as an intelligent adult being asked to solve a previously unsolved problem for the first time in your life. You are not merely being asked to repeat material your professor asked you to learn but to apply that learning to resolve new problems in a creative and original way no one other than you can be relied on to answer — that’s what you’re going to be doing as a lawyer!

I do not mean to minimize the importance of knowing the rules. You must know the rules. The rules are the language the law uses to structure the presentation of your persuasive explanations. Merely to give a recitation of your personal reaction to the evidence without reference to the rules is not to act as a lawyer. But the rules will only make sense to you if you use them to come to a result that makes sense to you as a human being.

You also have to keep in mind that rules in contract law sometimes serve purposes other than merely giving effect to what the parties intended. Rules such as the statute of frauds, for example, will in the absence of clear and convincing evidence of agreement avoid the administrative difficulties and expense of full-blown trial in certain types of important cases in which the parties have not supplied either the formal requirements evidencing such agreements or can supply other evidence as convincing as those formal requirements.

Again, this is not to discount the importance of the rules. You must know the rules to articulate your arguments in a manner that makes sense to lawyers, judges, and law professors. You are now a member of a profession, and you must communicate in the language of the profession. But you will never persuasively apply those profession-specific rules without first understanding the human disputes, the evidence, and the ways that evidence persuades human beings as to the merits of the disputes. Then, and only then, can you begin to structure your arguments in a manner that usefully employs the technical legal rules.

As a final note, my disquisition here should put to rest the myth — even one propounded by the Chief Justice of the U.S. Supreme Court as a means of obtaining confirmation in the course of a farcical political show — that applying legal rules to resolve legal disputes is the same as calling balls and strikes.

Few people read them, but some online agreements are enforceable, and some aren’t; it’s a mess.

Just 3 days ago I wrote about two conflicting decisions concerning the enforceability of online contract provisions that do not require consumers to affirmatively click an “I agree” button. Well, today techdirt points me to a new court decision invalidating such a provision: according to MediaPost, the court “ruled that Internet retailer Overstock can’t enforce the manadatory arbitration agreement set out in its online terms and conditions because there is no evidence that consumers read the policy.” According to the decision, the plaintiff  ”lacked notice of the terms and conditions because the website did not prompt her to review the terms and conditions and because the link to the terms and conditions was not prominently displayed.”

As I wrote the other day, under all the court decisions I am aware of online sellers can ensure that their contracts are not invalidated on these grounds merely by requiring the affirmative act of clicking on an “I agree” button. As I read all of these decisions, online agreements that require the consumer to click “I agree” are enforceable despite the fact that consumers generally do not read the agreements.

To rule otherwise would overturn ages of decisions imposing on the consumer a “duty to read” that binds them to agreements they express agreement to even if they don’t understand what they are agreeing to. It would also leave open to dispute any online transaction that the consumer decided he or she didn’t like, a result that would mire our economy and courts in a mess to deep to contemplate.

There is a solution, however, and it’s one that hit a high gear 50 years ago only to peter out in the wake of our more recent passion for unregulated free markets — consumer protection laws that dictate what terms can and cannot be imposed on consumers. As the situation now stands, we are left with a patchwork effort to find traditional contract rules to come up with fair results (such as invalidating mandatory arbitration clauses that deprive consumers of any meaningful remedies for wrongdoing by online sellers).

In the meantime, I can only repeat what I wrote the other day:

Online sellers: if you want to be maximize the likelihood your agreements are enforceable, do what most online sites do — require your customers to click on a button that expresses their agreement before the transaction is complete.

Online buyers: be careful. Don’t believe that you’re getting what you think you’re getting. You’re only getting what the fine print says you’re getting. But if you do get screwed, remember too that even when you sign something it might be so unfair it is unenforceable.

Again, let’s give more attention to individual justice and less devotion to abstract rules

The hope for the Obama administration I expressed in my post last Thursday was that it would promote a legal culture in which courts would begin to pay more attention to the justice required in individual cases rather than, as has been increasingly true over the last thirty years, feel increasingly bound to abstract interpretations of language that lead to plainly unjust results. My focus in that post was on statutory interpretation, but the same sentiment applies to the interpretation of contract language, as Ralph James Mooney made clear in The New Conceptualism in Contract Law, 74 Or. L.Rev. 1131, 1170-1171 (1995). Mooney also noted, as I implied in last Thursday’s post, that the new focus on abstract rules and language at the expense of just results in individual cases invariably favors moneyed corporate interests:

Just as they have in contract formation disputes, American courts recently have embraced far more conceptualist approaches to contract interpretation issues. They [exalt] the written word over the parties’ actual . . . agreement. They exercise their pre-modern faith in the objectivity of language, and overturn jury verdicts, by applying classical interpretive rules like ”plain meaning,” ”four corners,” and interpretation as a ”matter of law.” In general, American courts the past dozen years have moved noticeably away from the most fundamental theorem of contract interpretation, that the law should enforce the parties’ intention, toward a more abstract, disembodied inquiry, resembling, what should the parties have meant when they signed this form contract? In addition, this intellectual regression once again has had important political consequences. . . . Notice that, as in formation cases, it is almost invariably a seller, a bank, an employer, or . . . an insurer that benefits from the New Conceptualism in contract interpretation. This judicial tilt away from underdogs, back toward the privileged beneficiaries of classical contract law, is, of course, the New Conceptualism’s most troubling feature of all.