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Rosetta Books continues to successfully battle Random House in a high-stakes case involving the electronic rights to published books. Indeed, as recently as March 8, a federal appellate court affirmed a trial judge’s decision not to enjoin Rosetta from selling certain e-books. THE LAWSUIT Rosetta entered into agreements with various authors to allow Rosetta to sell e-versions of some well-known books, such as “Slaughterhouse-Five” and “Cat’s Cradle” by Kurt Vonnegut and “Sophie’s Choice” by William Styron. About one year ago, Random House sued Rosetta, arguing that its rights in the paper versions of these books extend to electronic versions. Essentially, Random House argued that e-books really are just another form of paper books. Random House asserted that when authors granted it the exclusive right to publish, print and sell their copyrighted works “in book form,” this implicitly included books in electronic form. THE PRELIMINARY INJUNCTION MOTION Random House then asked a federal trial judge in New York to grant a preliminary injunction motion that would prevent Rosetta from selling e-books as to which Random House claimed exclusive rights. In considering the motion, the trial judge considered a number of factors and issues. Ultimately, the judge balanced the equities in favor of Rosetta and denied the motion by Random House. Most significantly, the judge determined that Random House did not stand a likelihood of success on the merits of its case. Random House then promptly filed an appeal with the 2nd U.S. Circuit Court of Appeals in New York. THE APPELLATE DECISION In reviewing the decision by the trial judge, the 2nd Circuit was required to give great deference to the trial judge’s decision by ascertaining whether he had abused his discretion. The 2nd Circuit found that the trial judge did not abuse his discretion, and the denial of the preliminary injunction motion was affirmed. The 2nd Circuit did note that “there is some appeal to [Random House's] argument that an ‘e-book’ — a digital book that can be read on a computer screen or electronic device … is simply a ‘form’ of a book, and therefore within the coverage of [Random House's] licenses.” But, under the governing law of New York, there is a “restrictive view of the kinds of ‘new uses’ to which an exclusive license may apply when the contracting parties do not expressly provide for coverage of such future forms.” Furthermore, the 2nd Circuit agreed with the trial judge that whether Random House’s licenses extend to e-books is quite fact dependent and relates to the reasonable expectations of the contracting parties based on “the customs, practices, usages, and terminology as generally understood in the … trade or business” at the time of contracting. The record on these facts was more fully before the trial judge, so the 2nd Circuit was not willing to overturn his decision. Finally, the 2nd Circuit concluded that the balance of hardships tips in favor of Rosetta: “while Random House expresses fears about harm to its goodwill if Rosetta is allowed to proceed with its sale of e-books, Rosetta, whose entire business is based on the sale of e-books, raises a reasonable concern that the proposed preliminary injunction will put it out of business or at least eliminate its business as to all authors who have executed similar contracts.” UPSHOT At this point, Random House now must proceed with a trial of its case before the same trial judge. Given that the trial judge already has found that Random House does not have a likelihood of success on the merits, it is likely that Random House will not succeed at trial, unless new or different facts are developed to support its case. If Random House loses at trial, it will be able to proceed with a full appeal. However, at least so far, the Court of Appeals has not been too sympathetic. The ultimate resolution of this case could have a real impact. Although the demand for e-books currently is not high, sales should continue to increase significantly over time. Thus, the outcome of this lawsuit could greatly affect who gains the benefit of sales in this market — Rosetta or Random House. Eric J. Sinrod is a partner in the San Francisco office of Duane Morris, where he focuses on technology and litigation matters. His Web site is sinrodlaw.com and his firm’s site is Duane Morris.Mr. Sinrod may be reached by e-mail at [email protected]

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