In a significant ruling regarding backlist e-book rights, a New York court this week held that e-book publisher Open Road infringed HarperCollins’ copyright with its e-book edition of Jean Craighead George’s 1973 bestselling children’s book Julie of the Wolves.

“Having accordingly relied on the words of the contract, this Court holds that, by its language, the contract grants to HarperCollins the exclusive right to license electronic publications, a right which was infringed by Open Road in its unlicensed e-book publication of Julie of the Wolves,” held judge Naomi Reice Buchwald.

While some have viewed the case as a follow-up to the 2001 landmark ruling in Rosetta vs. Random House, the judge acknowledged that her ruling “dependent as it is on antiquated language,” could be of “limited applicability beyond the confines of this contract and this case.”

The suit was filed by HarperCollins in December of 2011, after George had agreed to publish an e-book edition of her 1973 Newbery Award-winning book with Open Road. HarperCollins argued that two clauses in its contract (signed in 1971) gave it the exclusive right to license an electronic edition—albeit, only to be executed with the permission of George.

Open Road, however, believed there to be no explicit grant of e-book rights in the contract, and offered to publish the digital edition, even agreeing to indemnify George and her agency, Curtis Brown.

No damages have been assessed at this time, but the judge has ordered the parties to submit a briefing schedule on potential remedies. Under the Copyright Act, penalties for willful infringement can run up to $150,000 per work infringed.

HarperCollins signed George’s Julie of the Wolves in 1971, for a $2000 advance and standard royalties. It has since sold over 3.8 million copies. Sadly, George passed away in May of 2012.

Not Rosetta

In its complaint, and its motion for summary judgment, HarperCollins had stressed all along that this case was not a replay of the Rosetta Books case, and ultimately, the court agreed.

In 2001, Random House sued Rosetta Books, arguing that contracts for three works signed by Rosetta included the rights to publish the works in e-book editions. In July, 2001, district court judge Sidney Stein ruled that Random House’s language to “print, publish and sell the works in book form” did not include the format “that has come to be known as the e-book.” In March, 2002, the Second Circuit unanimously upheld Stein’s opinion. In 2002, Random House settled the case.

Like the Rosetta case, the heart of the issue in the HarperCollins suit is a disputed contract clause. But unlike the Rosetta case, HarperCollins argued that its contract with George included both a standard subsidiary rights grant (paragraph 23), which taken with another clause (paragraph 20), which referenced electronic usage, gave HarperCollins the exclusive right to license e-book rights.

Specifically, paragraph 20 of the 1971 contract states that HarperCollins “shall grant no license without the prior written consent of the Author… including uses in storage and retrieval and information systems, and/or whether through computer, computer-stored, mechanical or other electronic means now known or hereafter invented…”

Open Road, however, argued that the language in paragraph 20 had nothing to do with e-books. Rather, attorneys argued that the clause pertained “solely to storage and retrieval systems,” and was not a publishing grant all.

Without being able to depose George, or her agent, both of whom had passed away, the judge was left to rely solely on the contract. And in her reading, Buchwald held that the HarperCollins contract at issue “differs significantly" from its counterpart in Rosetta Books.

First, while the governing grant in both contracts conveys the right to publish “in book form,” the Rosetta contract grant is “to print, publish and sell in book form.” The word "print" does not appear in the HarperCollins contract. The inclusion of the word “print,” Buchwald ruled, “has a limiting effect and a strong connotation of paper copy,” thus distinguishing the case from Rosetta Books.

But it was the computer-related language of paragraph 20, absent from the Random House contracts at issue in the Rosetta case, that truly distinguished the case from Rosetta.

“This language, encompassing as it does the forward-looking reference to technologies ‘now known or hereafter invented,’ is sufficiently broad to draw within its ambit e-book publication,” Buchwald ruled. “Although no commercial market for e-books existed at the time of its drafting, e-book technology comprises a later-invented version of the very computer, computer-stored, mechanical or other electronic means provided by Paragraph 20.”

In a company statement, Open Road officials disagreed with the decision, and said the company was exploring its options. "While we are very disappointed with the judge's ruling, it is based largely on what we believe to be a misreading of the peculiar language in one paragraph, which is unique to a very limited number of contracts."

HarperCollins officials offered a one-sentence response: “We are pleased with Judge Buchwald’s decision that our contract clearly granted us the digital publishing rights in Julie of the Wolves.”

Royalties, Not Rights

Digital rights to deep backlist titles signed before the advent of electronic rights clauses has been a contentious issue in the industry, and as an upstart e-book publisher, Open Road has turned up the heat. One of the company's first big signings, a deal with the William Styron estate, led to a dispute with Styron's publisher, Random House, which believed it owned the digital rights. In late 2009, Random House CEO Markus Dohle sent a letter to agents claiming the company had the rights to exclusively publish the digital editions of much of its older backlist, which drew a sharp response from the Authors Guild.

Given the details of Buchwald's ruling for HarperCollins, it is unclear if the decision will have any clarifying impact on backlist rights situations at HarperCollins, or elsewhere. After all, the language at issue in this case is not HarperCollins boilerplate. In her ruling, Buchwald does seem to narrow Rosetta slightly, by citing the word "print" in book form as operative in the publishing contract. But it seems unlikely that reading would shift the legal landscape.

Indeed, it appears that digital royalty issues (more than digital rights issues) drove the HarperCollins suit. In court filings, it was revealed that George wanted to publish her e-book edition with HarperCollins, but the publisher refused to budge off its offer of a 25% net e-book royalty.

"Harper had its opportunity to publish an e-book edition of Julie of the Wolves,” Open Road argued in its summary judgment brief. “George, who was certain she retained the e-book publication rights, would have preferred to publish with Harper because of their long print association. Harper, however, would not meet Open Road's 50% royalty offer.”

The message seems clear: rather than negotiate a higher royalty and make money on a digital edition with an author who has already sold nearly four million books, HarperCollins chose to stand on principle and spend the money to litigate. For now, with a win in district court, the decision appears to have paid off, although HarperCollins still must agree to terms with George's estate if it is to publish a new e-book edition with HarperCollins.

"The decision seems quite reasonable, given the language in the contract." observes University of Maryland law professor and PW contributing editor James Grimmelmann. "Ironically, the language Curtis Brown inserted to make it harder to license digital uses without the author's consent is precisely what shows that digital uses were something both George and HarperCollins had in mind. Paragraph 20 doesn't make sense unless HarperCollins had some relevant rights for electronic media, and the language is quite broad as to what those media might be."

The result of such broad language in older contracts, Grimmelmann concludes, will continue to make digital licensing a messy proposition. "And there's no way around that mess as long as we're going to be faithful to the contracts that authors and publishers signed over the years," he says, "because those contracts are also a mess."

Correction: An early version of this story mistakenly put the damages as applying per infringement, rather than per work infringed. In fact, there is a single infringement involved here, not multiple infringements. Thus, damages could not run into the millions. We regret the error.