By Balu Nair
The rise of e-books in the past decade or so has brought about path breaking changes in the preferences of readers as well as in the way publishing industry does business with authors and end customers. Moreover, their rise has re-modelled many of the conventional practices one associates with the publication and sale of a book.
An instance of this is highlighted in a recent post on techdirt.com, which points out the lack of transparency, in the payment of royalty to authors in the case of e-books. According to it, an author named Dr. Sheldon Blau has sued Simon&Schuster (“S&S”), a publishing house in the US, challenging the unfair practice of publishers classifying the transmission of licences in e-books as a ‘sale’.
To put it more clearly, when the end customer pays money for an e-book, the transaction is classified as a ‘licence’ giving the publisher the rights to perpetually retain control over the e-book through Digital Rights Management (“DRM”). Although the publisher transmits the e-book to the customer in the form of a ‘licence’, in order to avoid higher royalties, they label the same transaction as a “sale” when paying royalties to the authors. Earlier, in a similar scenario in the sale of digital music files, Universal Music had to enter into an out of court settlement with musician Eminem’s producer, FBT, for paying out lower royalties by classifying the transmission of music files over iTunes as a sale.
Yet another major challenge posed by the evolution of e-books is the restrictions that the publishers place on their lending. While the doctrine of first sale protects individuals and libraries from transmitting their own print copy to a third party, the non-application of this doctrine to e-books has made lending difficult and has threatened the very purpose of libraries. With the sale of e-books catching up in India, both the above issues assume significance for Indian markets as well. In this post, I examine whether the practice of paying out lower royalties in case of e-books holds true for Indian markets as well. I also go on to analyse if there needs to be a new “digital first sale” doctrine to allow libraries to lend e-books freely.
E-books and royalties: The Indian scenario
This blog has covered in detail, in the context of the DU photocopying case (see, here and here), as to how there is often an atmosphere of mistrust between authors and publishers in India. Authors are critical of the low royalty payment by the publishing houses and are at loggerheads with them on many fundamental issues like purchasing of rights for third party citations and access. Given this scenario, one should not be faulted for fearing that advent of e-books could throw in more challenges to the author’s demands for transparency from publishers.
In order to understand the Indian scenario vis a vis e-books, I spoke with Mr. Ravi Deecee, the CEO of DC Books, one of the largest publishing houses in India. DC Books was one of the first Indian publishers to realise the potential of e-books and has made available many of their publications in the digital format. With respect to the royalty payment for e-books, Mr. Ravi Deecee pointed out that separate clauses are included within the contracts with the authors for print and digital versions. “In fact, the authors stand to gain more royalty from the sale of digital versions as publishers incur no separate costs (like printing, binding etc) for the transmission of digital versions”, he said. Mr. Unni R, a prominent author in Malayalam and whose books have been published by DC Books corroborated this, indicating that at least the much maligned ‘Indian publisher’ is yet to emulate the practices of its foreign counterparts. Nevertheless, one would need a survey of a wider scale to objectively assess if the practice is same across the board for all Indian publishers.
It would also be interesting to see if at all there could be a tax implication in case the publishers choose to classify the transactions differently vis a vis the end user/ purchaser and authors since S.194J (c) of the Income Tax Act, 1961 requires the publishers to deduct ten percent tax on the royalty paid. My first guess is that classification of the transactions differently at two different ends could certainly raise prima facie suspicion as far as the tax authorities are concerned.
E-books and lending
Another critical issue that the licensing of e-books raises is that of access. As mentioned above, e-books usually come with restrictive covenants and the end users are limited in their rights to further transmit their copy. This is a particularly pressing issue for libraries as the demand for e-books is growing and any restrictions on lending curtail the functioning of libraries. It is in this context that there have been strong demands, especially from libraries, to import the doctrine of ‘first sale’ to the digital sphere (see, here and here). According to the first sale doctrine as it applies to the non-digital world, once a legitimate copy is bought by someone, they are entitled to lend, re-sell or distribute their copy. Nevertheless, the person is barred from making copies of the original. Thus, the copyright holder’s rights of distribution with respect to the particular copy come to an end on its first sale though his right of reproduction remains.
The question of whether the first sale doctrine can be applied to e-books has been widely debated and came up for adjudication in the case of Capital Records v. Re Digi. The Defendant Re Digi was a digital platform where one could buy and sell used digital music files bought from iTunes. The Plaintiffs brought an action against Re Digi claiming that its actions were in violation of their copyright. The defendants argued that the first sale doctrine would apply and people were free to resell their digital files. The Court ruled that Re Digi’s actions were not covered by the first sale doctrine as it only gave the buyer the rights of distribution and not one of reproduction. It held that whenever a digital copy is transmitted through the internet, irrespective of the fact that the original copy is deleted or not, a new copy is created and thus first sale doctrine does not come into play. The Court held that according to the laws of physics, “it is simply impossible that the same material object can be transferred over the internet.” Thus, the right of reproduction, which gives the copyright holders the sole right to “exist anew” a copy of their work, is violated by the transfer through internet. Thus, the Court ruled in favour of the plaintiff and held that unless the digital file is transmitted along with the storage device (say, the computer itself or the hard drive), the same cannot come within the protection of first sale doctrine.
The ruling points to the obvious limitations in applying the principles of non-digital world literally to the digital sphere. The Court’s conclusion in the matter was irrespective of the fact that De Rigi used a technology, which deleted the original file whenever a transfer over the internet occurred. But, the judge felt the fact that the file has moved from one material object to another is sufficient to establish that reproduction has occurred. Although one would be tempted to take the position that first sale doctrine should apply whenever the original digital files ceased to exist, the question of when exactly a digital file ceases to exist perpetually is a question that the judges are ill equipped to address. Therefore, I certainly feel that the onus is on the legislature to modify the first sale doctrine to fit the needs of the digital world.
Thus, the need for a digital first sale doctrine has been loud and clear for quite some time now. There have been efforts to kick start a dialogue around the lending of e-books (see here andhere). At a time when subscription based lending model of e-books and journals is gaining ground in India as well, there is a need to examine and suitably modify our copyright laws. Unless action is taken at the earliest, this story of e-books might have a sour ending.
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Copyright 2016 SpicyIP. This article has been crossposted with permission from SpicyIP.
Image Credit: Maximilian Schönherr under CC BY SA 3.0
