Random House and the e-book publisher Rosetta Books reached an out-of-court settlement last week that ends copyright infringement charges RH had brought against Rosetta when the e-book publisher released electronic editions of eight Random novels (News, Mar. 5, 2001).

"We took them on and beat them twice. At a certain point the question is, what's to be gained going through an elongated process of beating them again and again?" Arthur Klebanoff, Rosetta chairman and CEO, said in his characteristic take-no-prisoners tone. But most of the discussion last week was marked not by the fighting words of moral correctness or the inalienable rights of intellectual property holders but of cooperation and building markets. Random spokesperson Stuart Applebaum said that "publishing, not litigating, is our preferred activity. We all realized we're better served coming up with a constructive rather than a pugilistic solution. We believe there's a viable future for e-books, and litigating would not get us there as quickly" as an agreement, although he added "two rounds without a knockout doesn't make for a victory in the publishing ring."

The settlement gives each side something they wanted: for Klebanoff's Rosetta Books, the right to continue to be the sole publisher of the eight Kurt Vonnegut, William Styron and Robert Parker works that started the lawsuit; for Random, the sharing of revenue from the publication of "several dozen highly regarded recently published and backlist works of fiction and nonfiction by major authors drawn from all Random House Inc. imprints." Klebanoff said the list hasn't been confirmed because some authors still have to sign off on a deal. Rosetta will publish and market these books while, as a licensor, Random will share in the royalties. An unspecified advance will be paid to each of the unspecified authors to be published by Rosetta.

The lawsuit had brought Rosetta's business to its knees (in fact, the business had never really gotten off the ground; Random filed the suit mere weeks after Rosetta launched). "A lot of things have been frozen," Klebanoff said. "The settlement gives us forward movement with other publishers. It gives us forward movement with other authors. It gives us forward movement with investors." As a result of the settlement, Klebanoff said he hoped to negotiate similar licensing deals with other houses, as well as to continue buying rights directly from authors, even where the contracts contain ambiguous language. "The good news, and the big advantage we have over other e-book companies, is that we're not dead."

The settlement did leave each side the opportunity to cling to its principles. "Our position has not changed one bit," Klebanoff said. Applebaum conceded that the parties "still have a fundamental disagreement." That disagreement—who controls e-book rights in contracts that don't explicitly grant those rights to the publisher—wasn't clarified since the case got only as far as an appeal on the preliminary injunction. Authors' advocates, however, were quick to point out that the initial ruling from district court judge Sidney Stein could have some teeth. "We have a real opinion that has the value of precedent that says the old contracts did not grant e-book rights and that those rights were retained by the authors," said Paul Aiken, executive director of the Authors Guild, which had filed an amicus on behalf of Rosetta.

Others noted that Random's success in extracting royalties set a different, albeit nonlegal, precedent. "If I had to award points, I would say it's a victory for the copyright holder," said one e-publishing expert, referring to the publisher. "It basically says that at the end of the day, in cases where contract language is ambiguous, it's better to negotiate than to seize rights."

Observers said that each side underestimated how far the other would go: Klebanoff has said publicly that he didn't expect Random to sue and Random surely thought a lengthy legal battle would wear down a garage-sized operation. But each side stubbornly stuck it out until, very quickly, the two decided they had had enough of the staring contest and walked away. On the table behind them, they left a stack of philosophical arguments, a rough blueprint for e-book licensing agreements and plenty of lawyer's bills.