Towards the end of the twentieth century just about every book contract contained language granting the publisher computer storage and retrieval rights. Though the first people to employ the term probably did not envision e-books, the advent of digital technology sent publishing lawyers scurrying to their contracts to make sure they contained some variant of that term. For, in their opinion, the ownership of e-book rights stood firmly upon it. And when at the turn of the 21st century authors examined those same contracts, the existence of “Computer Storage and Retrieval” loomed like a snarling guard dog warning them to step no further across the owner’s line.

Though there have been some probes by authors, agents and startup e-book publishers of this and similarly ambiguous phrases in book contracts, none has ever been fully litigated. That may now change if a just-announced lawsuit is carried out to the max.

Over the Christmas holiday Publishers Lunch‘s Michael Cader broke the news that HarperCollins has sued Open Road, the independent e-book publisher founded by Jane Friedman (former CEO of HarperCollins incidentally), for infringing on Harper’s digital rights to a classic work of children’s literature, Julie of the Wolves by Jean Craighead George. The author was not named in the suit, however.

Key to Harper’s position is the phrase in its contract with the author that “makes clear that the scope of HarperCollins’ publishing rights extends to exploitation of the work ‘through computer, computer-stored, mechanical or other electronic means now known or hereafter invented’ — language that serves only to reinforce HarperCollins’ exclusive rights to publish the Work as an e-book.”

There have been some previous territorial quarrels over e-book rights based on vague contractual terminology such as the phrase “in book form” in some Random House contracts issued long before Kindle was a gleam in Jeff Bezos’s eye. If there was no such thing as an e-book when the original volume was acquired, can a publisher claim that e-book was meant by “in book form?”

The following piece was posted on our blog when Random House, feeling threatened by newly created independent e-book publishers, decided to assert its rights in no uncertain terms.  Anyone interested in the Harper-Open Road dispute will benefit from this backgrounder.

Richard Curtis

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Random Serves Notice on Would-Be E-Interlopers
Like a wolf marking its territory against rivals, Random House served unequivocal notice today on what it perceives as potential e-poachers seeking a loophole in Random’s definition of “book”.

The warning was embedded in a letter from Random CEO Markus Dohle mailed or emailed to literary agents describing the company’s plans and initiatives in the digital world. Authors were also put on notice that they are “precluded from granting publishing rights to third parties that would compromise the rights for which Random House has bargained.”

“The vast majority of our backlist contracts,” writes Dohle, “grant us the exclusive right to publish books in electronic formats. At the same time, we are aware there have been some misunderstandings concerning ebook rights in older backlist titles. Our older older agreements often give the exclusive rights 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 more relevant language that more specifically reflects the already expansive scope of rights. Such grants are usually not limited to any specific format, and indeed the “form” of a book has evolved over the years to include variations of hardcover, paperback and other written word formats, all of which have understood to be included in the grant of book publishing rights. Indeed, ebook retailers market, sell and merchandise 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 discovery stories, ideas and information 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.”

If Random’s position sounded familiar to some, it’s the same one that the company used in 2001 when it sued Rosetta, an e-book startup that offered digital editions of books by Kurt Vonnegut Jr., William Styron and Robert B. Parker, having secured them directly from the authors. Random had published the books before there was such a thing as the Internet, but nevertheless considered a book to be a book no matter what form it took. Random’s request for an injunction was denied by the court, and Random then filed an appeal. It too was denied.

Random and Rosetta eventually settled, allowing Rosetta to continue publishing the books but leaving unresolved the issue of who controls e-rights to books where the language defining them is ambiguous.

By issuing its letter to agents today, Random House reasserted its position that, ambiguous or not, the publisher considers the language in its contracts to grant it ironclad control over e-rights. Anyone who believes otherwise is advised to take a good sniff before venturing over the perimeter of Random’s territory.

Richard Curtis

“Authors are like mushrooms,” a writer once told me. “They’re fed a lot of horseshit and kept in the dark”

That observation served as my slogan when I launched a campaign in the 1980s to make royalty statements more transparent.  Authors today take for granted that their publishers’ royalty statements will provide vital details such as the number of copies returned or royalties withheld as a reserve against returns.

But thirty years ago that information was not provided unless an author or his agent or lawyer made a colossal pest of himself. A typical statement simply reported that you had sold, say, 1000 copies and here’s a check for $1,000.  When you asked how the publisher arrived at that figure you were given no explanation.  I likened it to being told that a baseball player had 150 hits without being told how many times he had been at bat.

After other agents joined in the assault on publishers’ accounting practices the barriers finally crumbled and publishers at last started telling authors what they needed to know in order to assess the performance of their books.

I am telling you this because we are about to enter a new phase of transparency in royalty reporting.  To their great credit, Simon & Schuster,Random House and Hachette Book Group announced initiatives to open their sales database to authors and agents, who will be able to access the publishers’ websites and view recent and cumulative activity in their account.

You would imagine that I greet this new as the fulfillment of a lifelong dream. Yet I wonder if it’s such a hot idea. I’m thinking of the burden it puts on the publishers.

Authors as a whole are more enlightened about royalty accounting than the mushroom people of a few decades ago.  Nevertheless there is a great deal of data to understand, and if an author cannot penetrate such mysteries as reserves against returns, net-price versus list-price royalty rates, or the effects of high discounts on royalty calculations, he or she is going to  hit the phones or emails and demand answers.  Multiply that by hundreds if not thousands of perplexed authors and you can imagine that the bookkeeping departments of publishers could be besieged.

This is a Law of Unintended Consequences just waiting to happen.

Publishers should not be punished for the good deed of offering transparency, but before they lift the veil on their accounting they must make sure that their statements are crystal-clear and every term unambiguously defined. That said, we wish Simon & Schuster Random House and Hachette the very best of success in this commendable initiative.

Read Authors to Get Sales Data Online From 3 Big Publishers by Julie Bosman in the New York Times.

Richard Curtis

This just in. Bob Loomis’s achievements and editorial influence have been a beacon in the publishing world.
Richard Curtis
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GINA CENTRELLO
PRESIDENT AND PUBLISHER
THE RANDOM HOUSE PUBLISHING GROUP

May 6, 2011

TO EVERYONE AT RANDOM HOUSE, INC.

I never wanted this day to ever come, but it is with a mixture of sadness, great personal fondness, and the deepest respect and gratitude that I share the news that after almost fifty-five continuous years at Random House, BOB LOOMIS, Vice President and Executive Editor, has decided to retire.

You all know how much I adore Bob, and I join you in standing in awe of what he has accomplished and contributed to our publishing. The books he has edited, by Maya Angelou, Neil Sheehan, Edmund Morris, William Styron, Robert Massie, Shelby Foote, Lisa See, and Calvin Trillin, among hundreds of others, have been part of the national conversation, and many of them continue to be read and discussed decades after their publication because of the collaboration between Bob and his authors. Book publishing formats and channels of distribution continue to evolve, but creative publishing begins with the author-editor relationship. Bob epitomizes the editor’s role at its best.

On a personal note, Bob has been a teacher and mentor to countless current and former colleagues here and across our industry. I count myself blessed to have benefited from his incomparable experience and knowledge, his love of and loyalty to Random House, and his great heart.

Bob plans to remain with us through the end of June, but we will never say farewell to him, even as we plan a proper appreciation of his Random House career. I know each of you will join me in telling him how much he has meant to us as a colleague.

After taking a year to consider its options and observe how e-book retailers were faring with the agency model, Random House today announced it was committing itself to that model, the last of the Big Six publishers to do so. The most significant aspect of this move is that Amazon is aboard. Last year when the pricing standard was adopted by the other five major houses, a bitter war broke out between Amazon and Macmillan.  There will be no such event in this instance, as Random and Amazon have worked out an agreement.

To place this news in context, last year we wrote the following story, Random Goes Rogue:

Random House will go against the recent rush by its Big Six buddies to the “agency” e-book retail model recently introduced by Apple.

Apple’s approach is for publishers to retain control over the list price, rather than allowing the list price to be pegged by the e-tailer, as is currently employed by Amazon. It also allows publishers flexibility in timing release of e-books – delaying them rather than releasing them simultaneously with publication of hardcover editions.

The move to the Apple model by three major houses spearheaded by Macmillan was the cause of a controversy that triggered removal of Macmillan’s buy buttons by Amazon for a week, at the end of which the e-book retailing landscape was altered, possibly forever. (For background see Apple Promoting a New (and Radical!) Model for Selling E-Books? and Publishing’s Weekend War: 48 Hours that Changed an Industry.)

Random’s decision is based on two approaches to e-book publishing that are at odds with the philosophy of at least three of its fellow publishers. A RH spokesperson voiced the opinion that publishers “have no real experience at setting retail prices.” That explains why Random held back from embracing Apple’s iPad tablet. The other reason is timing of e-book releases. “Our current policy is we release e-books at the same time as physical books,” she said. “I haven’t been convinced that it’s good for the author or consumer to delay the release.”

You can read details here: Random House sides with Amazon, e-book readers on pricing

Random’s press release is reprinted in full below.

STATEMENT FROM RANDOM HOUSE, INC. REGARDING ITS U.S. E-BOOK SALES MODEL

“Random House, Inc. is adopting the agency model for e-book sales in the United States effective March 1, 2011. Going forward, Random House will set consumer prices for the e-books we publish, and we will provide retailers with a commission for each sale. There are no changes to our terms of sale for physical books.

“The agency model guarantees a higher margin for retailers than did our previous sales terms. We are making this change both as an investment in the successful digital transition of our existing partners and in order to give us the opportunity to forge new retail relationships.

“We are looking forward to continuing to work with all our retail partners – both digital and physical — on our joint mission to connect our authors with as many readers as possible, in whatever format they prefer.”

Richard Curtis

Digital technology disintermediates everything it touches, not the least of which is real estate.  The more a business shifts its operation into the cloud – that is, to outside servers and workers  – the fewer people it needs. And it stands to reason that smaller staffs require less space. Ideally,  even a big business could run with a small staff by outsourcing information storage and other services.

This truth is as valid for publishers as it is for any other kind of enterprise, and the latest to grapple with it is Random House, a division of international behemoth Bertelsmann.  Random, reports Wall Street Journal‘s Jeff Trachtenberg and Peter Grant, “held a cocktail reception …  for real-estate brokers to discuss its plans to unload as much as 250,000 of 645,000 square feet it occupies in its headquarters building.”

At about $55 per square foot the savings could be in the millions.   “We’re in the book business,” says the firm’s Stuart Applebaum, not the real-estate business. We’ll reinvest our savings into our publishing.” Actually, though its brass may not yet see it this way, Random is drifting into a cloud itself – one we call the virtual publishing business.

Four hundred thousand square feet is still huge, and there are about 1000 staffers occupying its handsome Broadway offices.  But as the book biz shifts from tangible to virtual there could be further reductions of space and the people that occupy it.

There is one piece of real estate the company will not give up, however. “Mr. Applebaum said the company intends to keep its cafeteria on the second floor,” Wall Street Journal informs us.

Details in Big Book Publisher to Reduce Its Offices

Richard Curtis

Literary agent Andrew Wylie’s reputation as a shrewd, relentless businessman has earned him the sobriquet “The Jackal” but in the recent debacle of his failed raid on Random House he looked more like a chimp in a clown costume.

Sarah Weinman, writing in DailyFinance.com, wonders whether he “ever intended to be a digital publisher, or even fully understood what it meant. The origins of Odyssey Editions [the firm Wylie created for his e-book venture] seemed scatter-shot and unfocused at best, starting with a May 11 incorporation filing in the the state of Delaware, and a website domain registration six days later, on May 17, through the Wylie Agency, not Odyssey.”  Was Odyssey “a real business”, Weinman wonders, “or a publicity stunt?”

If the latter, not too many folks found it funny. Some of his authors must have been pretty shook up to be used as pawns in his chess game with Random House, which declared it would do no more business with him if he went through with his e-book scheme.

Nor could Amazon.com find much humor when Wylie offered them a two-year exclusive commitment that he then had to abandon because he didn’t quite own the rights to the books he was offering. “The question of who actually owns the digital rights to works written before e-books were even a gleam in the publishing industry’s eye is still unanswered,” writes Weinman. Wylie failed to heed Random’s warnings that it would not yield those rights without a fight, warnings that were sounded nine years earlier in a lawsuit against Rosetta Books and more recently when startup Open Road Media made a similar play. When Wylie tried the same thing we wondered Will Random House Chicken Out Again?

Random House didn’t chicken out but came out with excommunications blazing, forcing Wylie to retreat from his position and inform Amazon that the titles they thought they had were actually the property of Random House. Furthermore he had to cough up to Random the e-files Odyssey had created. Those files will still be sold on Amazon, yes, but not exclusively as Amazon had expected. E-book editions of those titles will be sold in the platforms of Amazon’s competitors, courtesy of Random House.

Now Wylie can go back to being a Jackal on the hunting grounds he is familiar with, but with claws and fangs banged up by his foray into a world he does not understand. Weinman’s observations are devastating: “Considering that it’s the offspring of a literary agency that represents 700 authors and employs far fewer personnel to handle those rights, Odyssey Editions smacks of a water-dipped toe, a publicity ploy, rather than a deep commitment to digital publishing.”

Read Weinman’s Random House’s Backlist E-Book Deal With Andrew Wylie Leaves Much Unanswered for complete details.

Richard Curtis

Last January we made a pinky bet guaranteeing that e-book royalties would rise above the then ceiling of 25%. Did you take that bet? Pay up, sucker!

Faster than a double-click Random House has shifted its stance on e-book royalties and opened the door to an industry-wide raise in pay for authors as predicted here. A source close to the company says it’s prepared to abandon its fiercely defended 25% net e-royalty for a sliding scale topping out at 40%.

The source of this rapidly evolving story is Rachel Deahl of Publishers Weekly whose announced yesterday that the dispute between Random and agent Andrew Wylie was settled yesterday. Whereupon, without a missing a beat, the disclosure of Random’s liberalized royalty hit the news.

Many agents have “favored-nations” arrangements with publishers entitling authors to request a new royalty rate if the rest of the book industry adopts a higher one. It is now anticipated that agents will flood Random with requests for amendments replacing recently signed ones agreeing to a 25% royalty. It will be well nigh astounding if other publishers don’t fall into lockstep with Random’s royalty or something close to it.

The big question now is, will it stop at 40%? Many observers feel it won’t, so we urge Random’s contracts team to stay close to their keyboards in case they need to compose yet another amendment. (Full disclosure: E-Reads pays 50% net royalty and has done so from our founding ten years ago.)

Below is the relevant passage from Deahl’s article, which can be read in its entirety here.

Richard Curtis

The source said Random is offering a royalty built around a sliding schedule on e-book rights for backlist titles that can approach 40% “rather quickly.” The source explained that the royalty is based on a certain number of books selling over a specified period of time and, depending on what’s negotiated, the rate will rise based on the rate of sale.

The presumption is that Random House’s improved offer on backlist digital royalties–the source said this new approach is a “good rate” and notably better than the standard 25%–will spark the other major houses to follow suit with similar offers.

Rachel Deahl of Publishers Weekly reports that Random House and agent Andrew Wylie, locked in mortal combat over Wylie’s decision to become a publisher for his own clients’ ebooks, have settled their differences.  We were waiting to see if Random House chickened out again. They appear to have regained face.

Writes Deahl:

“Random House, which charged last month that The Wylie Agency might be in murky legal waters by releasing e-book editions of titles by some of its authors, seems to have won the showdown, so to speak. The publisher and the agency have just released this joint statement:

“We are pleased to announce that The Wylie Agency and Random House have resolved our differences over the disputed Random House titles which have been included in the Odyssey Editions e-book publishing program. These titles are being removed from that program and taken off-sale. We have agreed that Random House shall be the exclusive e-book publisher of these titles for those territories in which Random House U.S. controls their rights. The titles soon will be available for sale on a non-exclusive basis through all of Random House’s current e-book customers. Random House is resuming normal business relations with the Wylie Agency for English-language manuscript submissions and potential acquisitions, and we both are glad to be able to put this matter behind us.”

More to come on this as we reach out to both parties.

Read it here RH and Wylie Come to Terms; Random ‘Wins’

Was this all a ploy for Wylie to wrest a higher royalty than the 25% that Random is offering everyone else?  If so, a lot of authors and agents will not rest easy until they know what RH agreed to.

RC

Revolutions produce unlikely heroes, and the Digital Revolution has produced a very unlikely one in the form of a man that many believe is so wanting in ethical principles that he is nicknamed The Jackal. Yet it is on literary agent Andrew Wylie’s fangs and claws that the populist dream of a fair e-book royalty rests as he dares the world’s highest profile trade book publisher to do something about the slap he has administered to its face.

The smart money is on The Jackal, and to understand why you have to think like a jackal.  While pundits debate contract law and publishing ethics, the real war is being conducted on a less visible battlefield. But it is one on which Wylie holds the high ground.

To understand Random House’s reluctance to protect its rights from Wylie and other marauders you need to understand a number of not so obvious factors.  The most salient of them is this: Publishers are loath to sue authors (or the widows and children of authors).

Let’s see how these factors play out in the power struggle unfolding before our eyes.

Random House not confident of its legal position

In 2001 Random House sued Rosetta, an e-book startup that acquired directly from authors the digital rights to books by such Random House lions as Kurt Vonnegut Jr., Robert B. Parker and William Styron, books that were still in print in paper format under Random House imprints. Random had published them before there was such a thing as e-books, but nevertheless considered a book is a book is a book whether in tangible or digital form. The courts however rejected Random’s position, denying their request for an injunction against Rosetta. Random filed an appeal and the court turned it down. A second appeal was rejected too, forcing Random to work out a settlement with Rosetta. The critical issue – what is a book? – remained unlitigated and left Random uncertain about its legal position.

Random Backs off from Open Road Threat

When publishing superstar Jane Friedman launched her Open Road e-book venture she declared her intention to start with several works by Styron including Sophie’s Choice and the Pulitzer Prize-winning Confessions of Nat Turner. The problem was, Random House claimed it owned those rights (presumably having recovered them from Rosetta as part of the settlement) and it issued a stern warning to all “third parties” without naming Friedman specifically. Authors, stated CEO Marcus Dohle, are “precluded from granting publishing rights to third parties that would compromise the rights for which Random House has bargained.” By drawing a line in the sand, Random expected Friedman and other potential interlopers to back off or face the full wrath of the publisher’s litigators. (see Random House Serves Notice on Would-Be E-Interlopers)

It is  a fundamental business principle that you don’t make threats you aren’t prepared to act on. And that is why we were flabbergasted four months later to learn that Random House had released e-rights to the Styron estate (See Random Returns Sabre to Scabbard in Styron E-Book Standoff). What was that about?

“The decision of the Styron estate is an exception,” Random executive Stuart Applebaum explained. “Our understanding is that this is a unique family situation.”

Why, after rattling its saber so truculently, did Random give in? In our estimation it’s because ultimately, to make good on their threat, they would have had to sue Styron’s widow and children. And that would be a public relations disaster.

Whether Styron was truly an exception or Random blinked, one thing was clear to publishing professionals: sooner or later there would be further tests of the publisher’s determination. How would Random react the next time?

We’re about to find out.

Don’t Bother Suing Agents

Claiming that he hates the low e-book royalties paid by traditional publishers (see Random House Changes E-Book Royalty Policy), agent Wylie, representing hundreds of distinguished authors such as Salman Rushdie, Martin Amis and the late John Updike, announced that he is starting his own e-book publishing venture and intends to launch it with books published by Random House and other trade book publishers.

Does he have the right to do that? Wylie says he does: “The fact remains that backlist digital rights were not conveyed to publishers, and so there’s an opportunity to do something with those rights,” he declares.

Despite what happened with Open Road, some industry observers expected Random House to threaten to sue Wylie’s ass into pebble-sized pieces. But Wylie knows they won’t, because, generally speaking, agents are not legally liable for breaches of contract committed by their clients. A lawsuit against Wylie would in all likelihood be thrown out of court, and the judge would tell Random that if they have a beef it’s with Wylie’s authors, they’ll have to sue Wylie’s authors. Which brings us back to our thesis: Publishers are loath to sue authors (or the widows and children of authors).

So? How does Random intend to punish Wylie? “Regrettably,” Applebaum declared, “Random House on a worldwide basis will not be entering into any new English-language business agreements with the Wylie Agency until this situation is resolved.”

This is known as the We’ll Cut Off Our Nose to Spite Your Face ploy, and it will avail Random nothing. Wylie’s clients are so coveted by Random’s rivals that if Random made good on its threat you’d see the greatest migration since the Aleuts crossed the Bering Land Bridge.  Jackals are standing by!

Buyer? Seller?

Though legal threats won’t faze Andrew Wylie, handling the challenge of being both an agent and an e-book publisher might. A number of knowledgeable people like Macmillan’s John Sargent have not only deplored Wylie’s decision to put all his authors’ eggs in Amazon’s basket but have questioned whether it’s in the best interests of his authors. There is arguably more money to be made selling not just to Amazon but to Sony, Barnes & Noble, Apple, Kobo, and other retailers.

Navigating the shoals of conflict of interest between buyer and seller is another daunting task. Even if he is able to build a “Chinese wall” insulating the two functions from short-circuiting each other, Wylie’s own clients will reasonably want to know how it’s going to work: “If my agent is now my publisher, who am I supposed hire to negotiate with him?”

Will Wylie’s stratagem succeed in forcing publishers to raise their royalty rate?  Not a chance.  E-book royalties will eventually go up, but it will be no thanks to Crusader Wylie. But we thank him for articulating the dissatisfaction of authors and agents with low royalty rates and for so fearlessly acting on his convictions.

Richard Curtis

After warning e-poachers to keep their mitts off its books (see Random House Serves Notice on Would-be E-Interlopers) Random House agreed to let the William Styron estate place e-book rights to some of the late author’s books with recently formed independent e-book company Open Road Integrated Media.

It was speculated that Random’s threat last winter, advising authors they were “precluded from granting publishing rights to third parties that would compromise the rights for which Random House has bargained,” had been provoked by Open Road’s announcement that it had reached agreement with the Styron estate. So it is puzzling that Random yielded to the very same company without a fight. Motoko Rich, writing the story up in the New York Times, seems to suggest that the accommodation was achieved by friendly persuasion stemming from warm feelings between the company and the estate.

Random’s Stuart Applebaum, however, asserted that “The decision of the Styron estate is an exception to these discussions. Our understanding is that this is a unique family situation.” Whether the publisher will be moved by similar auld lang syne appeals from other authors is an intriguing question. But Random has not made it easier on itself by making an exception to its own stern rule.

Read Rich’s story in detail: Random House Cedes Some Digital Rights to Styron Heirs

Richard Curtis
Every Blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by the New York Times.