Author Sues Publisher For Portraying eBook Licenses As 'Sales' To Pay Out Fewer Royalties

from the whatever's-the-most-profitable-terminology... dept

Wed, Jun 1st 2016 2:11pm — Tim Cushing

If you're a consumer, that piece of digital wordsmithery you purchased probably isn't worth the paper it isn't printed on. Like most digital media available for "purchase," ebooks are often "sold" as licenses that allow the publisher to control use of the product indefinitely, whether through DRM or by simply attaching EULAs no one will ever read to every download.

This works out great for publishers, who can make irrational, unilateral decisions to pull their catalogs from platforms as a "bargaining tool," leaving purchasers without access to their purchased goods. But publishers (including music publishers like UMG) only use the term "license" when it's most advantageous for them. When it comes to paying authors, the terminology suddenly changes. Now it's a "sale," with all the disadvantages for authors that entails.

"Sales" is a historical term, meant to reference physical sales and the additional costs (printing, packaging, shipping) built into the process. Licenses -- and the ebooks attached to them -- have none of these costs, hence the higher payout rate. But, according to a recently-filed lawsuit, Simon and Schuster is treating ebooks like physical sales in order to pay authors lower royalties.

Lloyd Jassin of CopyLaw points out why this is worth litigating:

The distinction is significant, because the royalty rate for sales is much lower than the rate for the license of rights. If categorized as a license the author receives 50% of net receipts, rather than 25% of net typically paid to authors for the "sale" of an eBook.

Jassin also points out that after Eminem's win over UMG on the sale/license issue (dealing with digital album/track sales), most publishers rewrote their contracts to make the screwing explicit.

In the wake of the Eminem decision, most publishers amended their contracts, so the sale or license of an "eBook" is unambiguously treated as a sale. The lawsuit, therefore, challenges the publisher's interpretation of their legacy or backlist contracts.

How much of this will hold up depends a lot on when contracts were rewritten. From the consumer end, "sold" ebooks certainly looked like licenses, at least up until S&S rewrote its terms of use. Up until January 2013, the terms of use contained this paragraph:

Subject to your strict compliance with these TOU, S&S grants you a limited, personal, non-exclusive, revocable, non-assignable and non-transferable license to view, use and/or play a single copy of the Materials and download one copy of the Materials on any single computer for your personal, non-commercial home use only, provided that you retain all trademark, copyright and other proprietary notices contained in the Materials. Modification of the Materials or use of the Materials for any other purpose is a violation of S&S's or its licensor's copyright, trademark and other proprietary rights. The use of any such Materials on any other web site or networked computer environment without S&S's express written consent is prohibited.

This paragraph disappeared shortly after that, suggesting some rewriting of policies occurred as a result of UMG's settlement with Eminem in late 2012. Due to the statute of limitations, the plaintiff will only be able to challenge the publisher's last six years of royalty payments, but as recently as three years ago, Simon & Schuster was "licensing" books to customers while telling authors every ebook was being "sold."

Then there's this issue, which may result in this particular author finding he has nothing to sue about (although other authors contracted by S&S might):

According to a report in Law360, an unnamed spokesman for Simon & Schuster told Law360 that the division that published Dr. Blau's book, was sold (or was it licensed?) to another company in 1998, and that the publisher never published a digital edition of the book.

So, even if Blau's general complaint is legitimate in terms of how S&S is using sales v. licenses to decrease its royalty payouts, his specific complaint may be completely baseless.

Blau-v-S-amp-S (PDF)Blau-v-S-amp-S (Text)

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: author, digital content, ebooks, license, licenses, sales, sheldon blau
Companies: simon and schuster

26 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

That One Guy (profile), 1 Jun 2016 @ 2:14pm

Having your cake and eating it too
It's simple really, all the publisher/label has to do is explain that they're selling a license, making it both a sale and a license, allowing them to screw two people for the price of one.
[ link to this | view in thread ]
Anonymous Coward, 1 Jun 2016 @ 2:26pm

Pirate a copy and send the author buying price in cash. Innovation in supporting actual creators.
[ link to this | view in thread ]
Darryl, 1 Jun 2016 @ 2:40pm

Heads I win tails you lose.
[ link to this | view in thread ]
Anonymous Coward, 1 Jun 2016 @ 2:56pm

Re:
good luck, the author sold his own soul & foundation to the man for this. The corrupt MafiAA's has been just exactly NO SECRET for more than long enough!

I would not give them shit. They made their bed let them lay in it! Someone flashed them a little cash and these dumb-asses jumped like toadies for it!
[ link to this | view in thread ]
Anonymous Coward, 1 Jun 2016 @ 2:58pm

Re: Having your cake and eating it too
The FTC should have already nailed these bastards to the wall, funny how quick they can find a person designing counterfeit underwear but complete miss an entire organization ripping off artists left and right.
[ link to this | view in thread ]
Anonymous Coward, 1 Jun 2016 @ 3:05pm

Don't do business with Americans, we are a bunch of crooks.
[ link to this | view in thread ]
Zem, 1 Jun 2016 @ 3:13pm

If only there was an organization, or guild, that stood up for author's rights.
[ link to this | view in thread ]
Anonymous Coward, 1 Jun 2016 @ 4:58pm

Re:
Har har. A serious answer, though, is not a lobbying/litigating/whining organization, but rather just every literary agent ever. You don't get a deal with a major publishing house without an agent. It is their job to know about the shenanigans that the publishers try to pull, and to make sure the contracts are in your favor. The good ones would not have negotiated a contract which counts licenses as sales.
[ link to this | view in thread ]
Coyne Tibbets (profile), 1 Jun 2016 @ 6:07pm

Abusive relationship
It's a perfect example of an economically abusive relationship. It is the publisher that is abusing the author; but like every co-dependent, the author begs for more abuse.

When an author does actually wake up and try to break the relationship, then the friendly fatherly mask comes off, and the author gets shoved out into the sub-zero cold to starve.

This author is getting nothing.The publisher has managed to maneuver the case into a corner where the author will find he has an unenforceable contract with a dead company. The publisher will owe nothing, not even continued publishing of the books. But you can bet that this "non-existent" company transferred the copyrights: the author is getting no other deal, those rights are exclusive. So the result: no money, no sales, can't walk away, can't take the books to another publisher, can't self-publish.

Screwed out of the fruits of his labor, past, present and future, where does the author go from here?

Then the publisher has the unmitigated gall to say it is the "pirates" that screw the author. And the co-dependent authors nod sagely and lay themselves over the old hot fender for ever more rape.
[ link to this | view in thread ]
Spaceman Spiff (profile), 1 Jun 2016 @ 7:03pm

Sale vs License
So, if to the author the publisher is classifying each "license" as a book sale, does that mean that purchasers now "own" the book? Does the First Sale Doctrine hold here? Oh boy, some lawyers are going to have a field day with this one!
[ link to this | view in thread ]
Mr Big Content, 1 Jun 2016 @ 11:49pm

Piracy Made Us Do It
If their were no Piracy, we wouldnt be forced to treat Authors so strictly this way. Beleive me, I have 50 years expereince in teh writing & publishing business. Piracy cuts our profits, so we have to make up the shortfall somehow.

ITS ALL YOU PIRATES FAULT!!
[ link to this | view in thread ]
Uriel-238 (profile), 2 Jun 2016 @ 12:24am

Years ago, I remember that a record label...
Were selling media (discs) when it was to their advantage to do so, and licensed content when it was to their advantage to do that.

It was an article here. I think the label was Sony.

If I remember correctly (I may not) but I think they were calling it a licensed content arguing it could not sold again (arguing it could not), but arguing it was media when the discs failed and people expected their original licenses to be honored.

This kind of dishonesty seem to be the accepted norm, now.
[ link to this | view in thread ]
That One Guy (profile), 2 Jun 2016 @ 1:31am

Re: Years ago, I remember that a record label...
Yeah, the subject has certainly come up before, but they really should be legally required to pick one of the following when someone buys from them:

A) It's a sale. Buyer can do whatever they want with their purchase, whether sell it to someone else or modify it to their heart's content, but if something breaks then it's entirely on the buyer, the seller has no obligation once the purchase is done barring a warranty or something similar.

B) It's a license. The buyer is restricted in what they are allowed to do with the purchase, dependent on the terms of the license, though within those terms they can do what they want. If something breaks then the seller has an obligation to restore access to the content that was licensed, generally by providing a new copy of the content.

Basically if it's a purchase then the seller has no obligations once the sale is made, but if it's a license then they do(or should). As it stands though, and as you noted in your comment most companies try to have it both ways, claiming that the buyer is restricted in what they can do with their purchase while at the same time claiming that they have no obligations of their own towards the customer.
[ link to this | view in thread ]
Anonymous Coward, 2 Jun 2016 @ 3:26am

Re: Re: Having your cake and eating it too
The legally-correct term is defrauding.

Oddly enough, this also describes actual counterfeiters of physical goods, who may or may not serve an actual economic purpose.
[ link to this | view in thread ]
Nate (profile), 2 Jun 2016 @ 3:34am

This isn't a royalty suit over sale/license, and it almost certainly won't get to class status.

The simple fact is S&S sold the book with its non-fiction division (S&S Macmillan, the name was) in 1998. This book has been published by Wiley for the past couple decades. (http://ebookne.ws/1WLuB43)

I'm not quite sure how this case will shake out, but I know it's not going to be the royalty suit we all expected.
[ link to this | view in thread ]
TechDescartes (profile), 2 Jun 2016 @ 8:13am

Re: Re: Re: Having your cake and eating it too
The legally-correct term is defrauding.
Lie-cense.
[ link to this | view in thread ]
John85851 (profile), 2 Jun 2016 @ 9:46am

Re:
This is a good idea, but I'd be willing to bet that the publisher has a contract where the author has to report all income, exactly so the author can't cut the publisher out of any income.
[ link to this | view in thread ]
Anonymous Coward, 2 Jun 2016 @ 10:15am

Thankfully there are websites out there where you can just download the books you want instead of relying on the goodwill of sleazy publishers to let you own what you buy, instead of renting it for a while.
[ link to this | view in thread ]
Anonymous Coward, 2 Jun 2016 @ 4:05pm

This situation is why publishers and distributors are afraid off the internet. If the authors realize they can self-publish and still get their content in front of the masses without a publisher the publishers will go out of business.
[ link to this | view in thread ]
That One Guy (profile), 2 Jun 2016 @ 4:56pm

Re:
It's not necessarily they'd go out of business so much as that if they wanted to stay in business they'd need to change, and they wouldn't be making as much money under the 'new' system.

Gone would be their gatekeeper role, the complete control over both customers and creators, instead they'd be reduced to assisting in such ways as promotion or distribution of the product, on the creator's terms though, not theirs.

They can still stay in business but they won't have the same control as before, leading to their profits taking a notable dive. That is what they're fighting so hard against.
[ link to this | view in thread ]
Wendy Cockcroft, 3 Jun 2016 @ 5:48am

Re: Re:
The need to make a living tends to have that effect on people. It's part and parcel of being a grownup. While I'm not a fan of copyright, and recently suggested we get rid of it altogether, I AM VERY MUCH in favour of ensuring that creatives get paid for the work that they do. I've also go no problem with them seeking to ensure that they are covered for sickness and retirement, etc., as long as it's not off our backs.

Until you've tried to escape wage slavery to do something you love for a living, you're not going to understand this. I do. Have a heart, and as AC @ 2:26 suggested, why not pay the author directly if you decide to download his work? It's the fear of doing all that work and getting nothing for it that drives them into the arms of the copyright maximalists in the first place. Whether it's right or wrong will never matter to the people you pay bills to.
[ link to this | view in thread ]
Wendy Cockcroft, 3 Jun 2016 @ 5:50am

Re: Abusive relationship
Yet another reason to take copyright behind the woodshed and stick a bullet in its head. Without copyright, the author would be able to self-publish and make money that way.
[ link to this | view in thread ]
Wendy Cockcroft, 3 Jun 2016 @ 5:50am

Re: Abusive relationship
Yet another reason to take copyright behind the woodshed and stick a bullet in its head. Without copyright, the author would be able to self-publish and make money that way.
[ link to this | view in thread ]
Uriel-238 (profile), 3 Jun 2016 @ 10:52am

"Part and parcel of being a grownup."
Part and parcel of being a grownup for most of us is that we can't afford any art at all except what is given (or what we take) freely.

Part and parcel of being a grownup for most artists is that they have no time or energy left to escape wage slavery to do something they love for a living. The rare exception that escapes gravity gets shot down by gatekeepers who own all ideas and will steal yours if they think it can make money.

Part and parcel of being a grownup should include (it doesn't) recognizing that this system is grossly bent to the advantage of a few at the expense of many, and that we should do everything in our power to circumvent it. We should be avoiding perpetuating a system that keeps most of us (not just some specific creatives you acknowledge) in destitution.
[ link to this | view in thread ]
Coyne Tibbets (profile), 5 Jun 2016 @ 12:03pm

Re: Sale vs License
Try arguing that and see how far it gets you.
[ link to this | view in thread ]
Anonymous Coward, 9 Jun 2016 @ 3:15am

Re: Re: Re: Re: Having your cake and eating it too
Lie sense to shill
[ link to this | view in thread ]