This follows on the heels of a 2007 lawsuit by Eminem’s managers against his record labels based on a similar rationale—the labels owed him more money because digital music “sales” are actually “licenses.” Eminem won that suit, and the Supreme Court declined to consider it in 2011. I’m a little embarrassed now that I thought that this would strengthen the publishing-industry position that digital content was just “licensed,” because the opposite had already occurred, three years earlier—publishers had changed their new contracts to indicate explicitly that e-books pay royalties at the “sale” rate. (The Authors Guild wasn’t happy about that, but what could they do except write angry letters about it?)
It took a few years, but it seems that chicken is finally starting to come home to roost. Dr. Blau’s lawsuit holds that e-books are licenses, not sales, and royalties should be paid out at the license rate—double the current sale rate. If this goes through, it has the potential to do some serious financial damage to publishers everywhere. If Dr. Blau loses on appeal, it has a strong potential to go to the Supreme Court the way the Eminem suit didn’t—a loss could set up a circuit split between New York’s 2nd Circuit and the 9th Circuit in which Eminem had his win, meaning SCOTUS would have to step in to break the tie.
This has been a known issue to e-book users for quite some time. For all that e-book stores feature a “Buy” button, not a “License” button, you don’t actually get the legal right to treat an e-book the way you would a print book—reselling it, or lending it to friends. That’s prohibited in the license, and enforced by restrictive DRM. This all came up in the House hearings on the First Sale Doctrine in 2014. John Villasenor thought that e-book sellers should just inform customers more clearly that they’re only licensing the e-book, not “buying” it, and that would make everything better by incentivizing “content providers to offer licenses that are more flexible”. I still think that outlook is far too optimistic.
In any event, it’s not clear yet whether the fallout from this case will have any effect on consumers’ purchases of e-books. If royalty rates have to go up, it’s possible publishers could try to raise their e-book prices even further to cover those outlays. But it’s still too soon to know. It’s entirely possible that the lawsuit will fizzle, given that Dr. Blau did sign a contract, which he needn’t have done if he found the terms objectionable. I’ll definitely be keeping a close eye on the progress of this lawsuit.