States Should Follow New York’s Rejection of Mandatory eBook Licensing

States Should Follow New York's Rejection of Mandatory eBook Licensing

Around the end of December 2021, rightsholders were collectively holding their breaths over several bills which proposed to force publishers into a compulsory regime for the licensing of electronic formats of literary works to libraries. Generally, these state bills mandate that publishers who distribute electronic forms of literary works to the public, such as e-books and audiobooks, must also offer to license the same to state libraries on terms defined by the state. Publishers found in violation of the law would be subject to injunctions, civil penalties, and/or criminal penalties.

In 2020, Maryland, New York, and Rhode Island began introducing these misguided bills. Unfortunately, the saga has carried into 2022 as Missouri (HB2210) and Illinois (SB 3167) are the latest states to have introduced similar legislation. Publishers are not taking this violation of their rights without a fight, as the Association of American Publishers (AAP) has brought a lawsuit against the state of Maryland, which is the only state to have enacted a compulsory licensing bill.

On the other hand, when New York considered the bill, New York Governor Kathy Hochul vetoed her state’s version of the bill in late 2021. She recognized that these compulsory e-works licensing bills are preempted by the Copyright Act, which is federal law that applies to all states including New York. New York’s veto is a welcome development, and other states would be wise to follow its lead and reject these bills before publishers’ and authors’ rights to control and commercialize their works are seriously threatened.

As explained in our prior blog post, the most glaring problem with these bills is that they are preempted by the Copyright Act. Because the Copyright Act is federal law, it prevents any state from passing laws which attempt to govern or grant any rights equivalent to the exclusive rights afforded under the Copyright Act. The proposed state compulsory licenses expressly require publishers to grant certain licenses for copyright protected works to libraries, rendering these state laws ripe for preemption challenges. In fact, Senator Thom Tillis (R-NC) requested the U.S. Copyright Office to study the preemption issue, and the Office reported back in its analysis that such legislation “would likely be preempted . . .” Fortunately, this fundamental problem was cited when the New York version of the bill was vetoed by the state’s governor. 

Due to the federal subject matter of copyright law, only the federal government has the ability to enact copyright legislation. For example, the Copyright Act contains numerous exemptions for the library communities which are the product of multilateral federal lawmaking processes. Throughout that process, the federal government is careful to avoid the broad overreach proposed by these state bills. The groups advocating for these compulsory licensing bills do not like the bargain they agreed to in federal copyright law and are now attempting an end run around those laws by getting these state bills enacted.

These compulsory licensing bills would enable states to not only encroach on legislative territory that belongs to the federal government, but they also create confusion for rightsholders. If these bills were to be enacted, rightsholders would be forced to adhere to a complicated patchwork of state laws and could no longer depend on a unified federal law to govern their rights. In fact, these state laws would likely be enforced and interpreted differently depending on the state, which would create a legal minefield for rightsholders doing business in multiple states. The proposed bills are misguided attempts to solve an unidentified problem, and they are a threat to the longstanding rights afforded by the federal Copyright Act and the U.S. Constitution.

These Bills Unnecessarily Restrict Copyright Owner’s Rights

The contexts in and details of which a publisher licenses and releases literary works is vital to their ability to further fund and distribute other works. But the state bills ignore these nuances by restricting the right and ability of publishers to license and dictate the terms (such as timing, pricing, distribution regions, etc.) of how work is distributed to the public. Publishers have numerous ways of licensing a literary work–strategies that are specifically tailored for certain types of works, formats, ages, regions, and current events and trends. Without a right to freely distribute and license a work, a creator or copyright owner would be unable to recover the time, labor, money, and creativity they poured into the work, harming their ability to recoup these costs and impeding their ability to create and distribute more works. The ability of a copyright owner to exercise these rights is fundamental in ensuring creators and copyright owners can continue creating, investing in, and disseminating additional works for the public. These state bills threaten the publishers’ and other rightsholders’ abilities to engage in these activities, and that doesn’t just harm these rightsholders—it harms everyone who enjoys creative works.

The Bills Propose Broad Solutions to a Nonexistent Problem

Another significant problem with the state bills, is that proponents of the bills have failed to identify a problem with public access to electronic literary works that would warrant actions to upset the market balance and rights as afforded by the Copyright Act. Most publishers make their catalogs of e-books promptly available to libraries. Perhaps because the supposed “problem” is poorly articulated, the proposed solutions are equally so. The state bills require publishers to provide electronic literary works to libraries on “reasonable” terms as defined by the state. While some of the bills provide examples of what a compulsory license might entail, including limiting the distribution of the electronic copies, the terms vary and would leave copyright owners guessing what courts in different jurisdictions would deem “reasonable.” It would be a guessing game that would completely disrupt the vibrant publishing market.

Proponents of the bills argue that a compulsory licensing regime would facilitate access to these works for library patrons. For example, they argue that publishers’ licenses to libraries for electronic works is cost-prohibitive since a regular consumer could buy an e-book (or a similar electronic format of a literary work) at a lower price than a library could. But arguments like this one gloss over the fact that libraries already have access to these works and the key differences between a library and an individual consumer: a library freely loans out evergreen electronic literary works, multiple times to multiple patrons while an individual consumer purchases these works for personal use.

NY Bill Vetoed; Publishers Continue to Fight MD Law

The New York version of the compulsory licensing bill, Bill 5837-B, was passed by the state legislature in June 2021 but was eventually vetoed by New York Governor, Kathy Hochul in December, who understood that compulsory licenses at the state level would intrude on federal copyright protections.

Despite New York’s rejection of compulsory licenses, publishers continue to battle a similar bill in Maryland state court that unfortunately already has been enacted. The Maryland version of the bill became law in May 2021 (Md. Code, Educ. §§ 23-701, 23-702) and was slated to become effective starting January 1, 2022. The Association of American Press Publishers (AAP) filed suit against the State of Maryland and also moved for a preliminary injunction around mid-December to prevent the law from taking effect on January 1. AAP noted in its complaint that the U.S. Congress had never granted compulsory licenses for literary works of any format and that the bill would interfere with the current balancing act by publishers when they license electronic forms of literary works to libraries (and elsewhere). Formally, AAP raised:

  • an express preemption claim under the Constitution and the Copyright Act;
  • a conflict preemption claim under the Constitution and Copyright Act;
  • violation of the dormant commerce clause claim under the Constitution since the bill regulated interstate commerce; and
  • violation of the due process clause under the Constitution based on undefined and overbroad requirements of the compulsory license, particularly because a publisher found in violation of the law may be subject to criminal penalties.  

As mentioned before, given that the U.S. Copyright Office, the federal agency in charge of interpreting copyright law, indicated that preemption issues likely plague the validity of these state bills, Maryland will have a very difficult time making its case that the state’s compulsory licensing scheme is constitutional and justified.

The State responded to the lawsuit in mid-January, defending its “legitimate interest in protecting its citizens, including libraries and their patrons, against unfair, abusive, or deceptive trade practices.” In fact, the opening line of the State’s brief proclaims that “[t]his case is not about copyright protection—it is about the unfair and discriminatory trade practices of publishers at the expense of public libraries.” But as mentioned previously, under federal law a copyright owner has the fundamental right to choose or not to choose to license a work at all, to some, or to everyone.

The State further argues that the law does not compel publishers to license their works to libraries. Instead, it notes that “[t]he only obligation that the Act imposes on publishers is that they offer to license electronic literary products to public libraries on reasonable terms at the same time that they offer those products to the general public.” But the State is engaging in doublespeak, since imposing such an “obligation” would result in the same outcome as “compelling” publishers to license such works on reasonable terms. Under the Maryland law, whenever a publisher offers an electronic literary work to the public, the publisher must always strike a deal with libraries to offer the same on  “reasonable terms” (as ambiguously defined). Whether it’s characterized as obligatory or compulsory­– the results are the same– publishers are severely restricted in their fundamental rights to license their works according to their wishes and needs.

Lastly (in one of the many eyebrow raising arguments), the State accuses publishers of exploiting “the rapid advancement of digital technology to discriminate against public libraries when licensing e-books and audiobooks,” noting that the first sale doctrine has not kept pace with digital works to upset the balance between publishers and libraries. It seems strange to invoke a federal copyright law doctrine as a justification to enact an overreaching state law and to also claim that there is no preemption problem. In any event, we have explained in our past position paper, why the first sale doctrine doesn’t apply to digital copies of copyrightable works.

In light of Maryland’s unsatisfactory response to AAP’s complaint, AAP CEO Maria Pallante correctly notes how the State skirts around the copyright law preemption issue, stating: “The Maryland Attorney General’s arguments are unresponsive and unpersuasive as to the legal problems presented in our lawsuit. By interfering with the exclusive rights that are the basis of copyright transactions in online markets, including library markets, the Maryland Act creates confusion in a vibrant digital economy, undermines publishing contracts, and preposterously threatens copyright owners with penalties for following the uniform authority of the U.S. Copyright Act…AAP will continue to pursue this case forcefully in federal court because a uniform and effective Copyright Act is essential to sustaining a vibrant and independent publishing industry in the United States.”

These compulsory licensing bills are not worth a state taxpayer’s dime to enact or fight in courts because they are unconstitutional and do not work to address any pre-existing or defined problem. In fact, these bills unnecessarily upset the current balance in which publishers do work with and license to libraries. Rightsholders like publishers negotiate with licensees all the time–and the Copyright Act has recognized that the rightsholder is fundamentally the best party to determine whether certain licensing terms are workable for them. These state compulsory licensing bills are an attempt by libraries and other proponents to circumvent the Copyright Act and the exceptions it already provides to libraries under section 108. But there is still an opportunity for states like Rhode Island, Missouri, and Illinois to realize that these compulsory licensing bills are misguided, unconstitutional attempts which not only tramples on legislative ground governed by the federal government but that also hurts rightsholders by creating a patchwork of overbroad, and uncertain state laws.

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