Textbook Class Action Case versus Publishers and Booksellers

A six person Chicago law firm which engages in class action and personal injury cases has taken on the education publishing industry over the relatively new "inclusive access" programs which provide day one access of educational materials for students.

According to FeganScott’s managing partner Beth Fegan, who is representing the students, the agreements require students to obtain their required course materials from an “Inclusive Access” program by paying full-price for a digital access code from their official on-campus bookstore. When the semester ends, students lose access to the textbook, eliminating the possibility to resell to secondary purchasers.

“Textbooks have always been a major expense for college students, but for most, the free market allowed them to purchase or resell used textbooks to blunt the cost,” Fegan said. “These agreements rob students of that option, forcing them to play by the rules set by publishers and bookstores.”

Press release

MediaWeek Report (Vol 13, No 6): Cengage McGraw Hill Education Merger is Abandoned

Announced early Monday, Cengage CEO Michael Hansen has told staff that the proposed merger with McGraw Hill is being abandoned.  As close watchers will know, this deal faced legal headwinds not just in the US but also in the UK, Europe and Australia. While that situation may be a mitigating factor - the deal close had been put off several times even before COVID-19 - it may well be that the impact of COVID-19 on the education market has raised so much market risk that the deal is no longer viable. Additionally, COVID-19 may well have significantly changed the enterprise value for each of the Cengage and McGraw Hill businesses units which was critical to the deal fundamentals.

[I actually wrote this post on Friday when there were some rumors going about.  The PR blames the regulatory hurdles]

This deal was sold as a merger 'of equals' but perhaps that has changed to much to justify completing the deal. Is it possible with this deal dead, will one will try to take over the other? There is no question both companies are going to know the intimate details of each business and that might create a deal scenario. Perhaps believing a deal needs to be done, will they turn to another company in an effort to achieve the scale they need? Macmillan or Wiley could be a 'safe-harbor' to steam into given the circumstances. The interim (and I bet soon to be permanent) CEO of McGraw Hill is the ex-CEO of Macmillan Education. Time will tell.

Where this puts both companies will be interesting to watch.  Hansen was set to become CEO of the combined company and McGraw's CEO has already left the business.  This was Hansen's deal and whether not closing it will reflect poorly on his leadership is debatable given the tectonic changes in the market. That said, some in the industry reflected early on that the anti-competitive issues the combination faced were always going to cause problems and believed that the deal should not have been pursued in the first place. As we all know, the justice department seems to wane one way or the other depending on administration priorities and this deal didn't look like it had significant opposition in the US. That was not the case in the other markets however.

Judge Chin Decides and Everybody Wins

About eight years ago I was one of the group at the Association of American Publishers that voted to file suit against Google for the unauthorized copying of upwards of 10million books (and other bound stuff) from the collection of five large academic libraries.  It wasn't long after the vote that I wished I had missed the meeting.

If nothing else, the passage of time since that suit was filed has proven that Google's activities were not the real enemy.  Google wanted to expose content locked away on shelves (off the network) to the same readers, researchers and other content users that the very same publishers were interested in selling to.  The risk publishers anticipated - that all content would be devalued and royalties due publishers would be circumvented - looks with hindsight to have been a red hearing.  The real problem for publishers with respect to the value of intellectual property quickly became apparent from the more obvious culprit: Amazon.com, which has successfully fought off the publishers, Apple, Google and everyone else and has won the battle over value.  After eight years, the (maybe) final end to the Google Books legal wrangle is a side show to the very real problems publishers have regarding their business models.

In ruling that the scanning program at Google was indeed fair use (and so emphatically that you have to wonder what took the guy so long) we may see some new products come out of this content library.  For example, I wrote of a subscription database product that Google could launch, others have spoken about the analysis of language, semiotics and culture that could be facilitated by this database and there will no doubt be other products.  What should be clear, is that access this ruling enables will enhance our knowledge and understanding about the content itself and the evolution of the printed word.  The next eight years might actually result in something useful.

There are four tests for fair use and Judge Chin as ruled as follows on these:

On purpose and character of use:

Google's use of the copyrighted works is highly transformative. Google Books digitizes books and transforms expressive text into a comprehensive word index that helps readers, scholars, researchers, and others find books. Google Books has become an important tool for libraries and librarians and cite-checkers as it helps to identify and find books. The use of book text to facilitate search through the display of snippets is transformative.

On the 'nature of the copyrighted work':

While works of fiction are entitled to greater copyright protection, Stewart v. Abend, 495 U.S. 207, 237 (1990), here the vast majority of the books in Google Books are non-fiction. Further, the books at issue are published and available to the public. These considerations favor a finding of fair use.

On the "amount and substantiality of the portion used":

Google limits the amount of text it displays in response to a search.

Lastly, on the "effect of the use upon the potential market for or value of the copyrighted work":

...a reasonable factfinder could only find that Google Books enhances the sales of books to the benefit of copyright holders. An important factor in the success of an individual title is whether it is discovered -- whether potential readers learn of its existence. (Harris Decl. ¶ 7 (Doc. No. 1039)). Google Books provides a way for authors' works to become noticed, much like traditional in-store book displays.

In his concluding comments the Judge states:

In my view, Google Books provides significant public benefits. It advances the progress of the arts and sciences, while maintaining respectful consideration for the rights of authors and other creative individuals, and without adversely impacting the rights of copyright holders. It has become an invaluable research tool that permits students, teachers, librarians, and others to more efficiently identify and locate books. It has given scholars the ability, for the first time, to conduct full-text searches of tens of millions of books. It preserves books, in particular out-of-print and old books that have been forgotten in the bowels of libraries, and it gives them new life. It facilitates access to books for print-disabled and remote or underserved populations. It generates new audiences and creates new sources of income for authors and publishers. Indeed, all society benefits.

The wider relevancy of this opinion on fair use may well extend the law and could result in implications for other media and content businesses.

The Wiley Copyright Case Reaction

As you probably know, the case regarding re-importation into the US of books sold in another country which was brought by John Wiley & Sons against a Thai 'importer' was lost today when the Supreme Court decided to overturn the lower courts ruling in favor of Wiley. Instead, in a 6-3 decision the court sided with the defendant (Kirtsaeng).

The Wiley statement in response is terse but here is the AAP statement in reaction to the case:

Washington, DC; March 19, 2013 — The following statement was released today by Tom Allen, President and CEO, the Association of American Publishers, in response to the Supreme Court’s decision in Kirtsaeng v. John Wiley & Sons, Inc:

“We are disappointed that today’s copyright decision by the US Supreme Court ignores broader issues critical to America’s ability to compete in the global marketplace. To quote Justice Ginsburg’s dissenting opinion, the divided ruling is a ‘bold departure’ from Congress’ intention ‘to protect copyright owners against the unauthorized importation of low-priced, foreign made copies of their copyrighted works’ that is made ‘more stunning’ by its conflict with current US trade policy.

“The Court’s ruling on a narrow question of statutory construction revealed diverse views among the Justices on whether Congress, in enacting the importation prohibitions, intended to facilitate the ability of publishers and other US copyright owners to segment their foreign and domestic markets with different pricing strategies in order to compete effectively in global trade.

“The decision will have significant ramifications for Americans who produce the books, music, movies and other content consumed avidly around the world. The Court’s interpretation of the ‘first sale’ provision of US copyright law will discourage the active export of US copyrighted works. It will also reduce the ability of educators and students in foreign countries to have access to US-produced educational materials, widely considered the world’s gold standard.

“Despite their differences, all of the Justices acknowledged the increasingly critical importance of foreign markets to the well-being of the US economy and that the impact of US copyright law on the development and growth of American participation in global trade is ultimately a matter for Congress to decide. AAP expects that Congress will likely consider whether the impact of the Court’s divided ruling on the ability of US producers to effectively compete in global markets requires legislative clarification. AAP will be prepared to participate on behalf of publishers in whatever process Congress undertakes to consider and address these issues.”

Other reaction:

Publishers Weekly

Statement from John Wiley & Sons Inc.

Libraries appear excited:  This from the The Library Copyright Alliance (LCA) which consists of three major library associations — the American Library Association, the Association of Research Libraries, and the Association of College and Research Libraries:

Today the US Supreme Court announced its much anticipated decision in Kirtsaeng v. Wiley a lawsuit regarding the bedrock principle of the “first sale doctrine.”The 6-3opinion is a total victory for libraries and our users. It vindicates the foundational principle of the first sale doctrine—if you bought it, you own it. All who believe in that principle, and the certainty it provides to libraries and many other parts of our culture and economy, should join us in applauding the Court for correcting the legal ambiguity that led to this case in the first place. It is especially gratifying that Justice Breyer’s majority opinion focused on the considerable harm that the Second Circuit’s opinion would have caused libraries.

Selections from the opinion on FindLaw:

Wiley filed suit, claiming that Kirtsaeng's unauthorized importation and resale of its books was an infringement of Wiley's §106(3) exclusive right to distribute and §602's import prohibition. Kirtsaeng replied that because his books were "lawfully made" and acquired legitimately, §109(a)'s "first sale" doctrine permitted importation and resale without Wiley's further permission. The District Court held that Kirtsaeng could not assert this defense because the doctrine does not apply to goods manufactured abroad. The jury then found that Kirtsaeng had willfully infringed Wiley's American copyrights and assessed damages. The Second Circuit affirmed, concluding that §109(a)'s "lawfully made under this title" language indicated that the "first sale" doctrine does not apply to copies of American copyrighted works manufactured abroad.
...
Section 109(a) says nothing about geography. "Under" can logically mean "in accordance with." And a nongeographical interpretation provides each word in the phrase "lawfully made under this title" with a distinct purpose: "lawfully made" suggests an effort to distinguish copies that were made lawfully from those that were not, and "under this title" sets forth the standard of "lawful[ness]" (i.e., the U. S. Copyright Act). This simple reading promotes the traditional copyright objective of combatting piracy and makes word-by-word linguistic sense.

In contrast, the geographical interpretation bristles with linguistic difficulties. Wiley first reads "under" to mean "in conformance with the Copyright Act where the Copyright Act is applicable." Wiley then argues that the Act "is applicable" only in the United States. However, neither "under" nor any other word in "lawfully made under this title" means "where." Nor can a geographical limitation be read into the word "applicable." The fact that the Act does not instantly protect an American copyright holder from unauthorized piracy taking place abroad does not mean the Act is inapplicable to copies made abroad. Indeed, §602(a)(2) makes foreign-printed pirated copies subject to the Copyright Act. And §104 says that works "subject to protection" include unpublished works "without regard to the [author's] nationality or domicile," and works "first published" in any of the nearly 180 nations that have signed a copyright treaty with the
United States. Pp. 8-12.
....
A nongeographical interpretation is also supported by other provisions of the present statute. For example, the "manufacturing clause," which limited importation of many copies printed outside the United States, was phased out in an effort to equalize treatment of copies made in America and copies made abroad. But that "equal treatment" principle is difficult to square with a geographical interpretation that would grant an American copyright holder permanent control over the American distribution chain in respect to copies printed abroad but not those printed in America. Finally, the Court normally presumes that the words "lawfully made under this title" carry the same meaning when they appear in different but related sections, and it is unlikely that Congress would have intended the consequences produced by a geographical interpretation.
....
But the law has not been settled for so long in Wiley's favor. The Second Circuit in this case was the first Court of Appeals to adopt a purely geographical interpretation. Reliance on the "first sale" doctrine is also deeply embedded in the practices of booksellers, libraries, museums, and retailers, who have long relied on its protection. And the fact that harm has proved limited so far may simply reflect the reluctance of copyright holders to assert geographically based resale rights. Thus, the practical problems described by petitioner and his amici are too serious, extensive, and likely to come about to be dismissed as insignificant--particularly in light of the ever-growing importance of foreign trade to America.