When authors or musicians (and other kinds of talented and creative individuals) sign a contract with a publisher, it's usually structured in the following way. Every time the publisher sells a copy of the work, the author (I'm going to say author, though the artist here is a musician) gets a cut, anywhere from, oh, four percent up to maybe twenty or twenty-five percent. (The more copies that the publisher thinks will sell, the bigger a percentage they'll pay to the author, since fixed costs for the work—editing, design, mastering, preparation of "plates" [digital or metal], and the like—become a smaller percentage over a bigger print run.)
However, if the publisher licenses subsidiary rights in the work to someone else, then the author and publisher usually split the proceeds fifty-fifty. This is because the publisher is doing work to negotiate these deals—they wouldn't happen without the publisher making them happen in most cases—but not, usually, investing much, if anything, in these subsidiary-rights ventures. What sorts of things are we talking about? Translations, abridged editions, adaptations into another medium (movie versions of books! comic book versions of movies!), licensed merchandise and apparel, coursepacks, magazine excerpts... you get the idea.
Now, here's why I think that the Ninth Circuit made a good decision: The [music] publishers were trying to have it both ways. They were claiming, when it came to their talent, that they were selling copies of the works to distributors, who were in turn selling copies to their customers. They were therefore accounting for any money that came in on these deals as Sales, and paying the authors a Royalty on these sales, as their authors were due in their contracts, maybe 5, 10, 15, 20 percent. However, the publishers were turning around and treating their "distributors" on these deals very much as licensees: the publishers made them all sign license agreements, which were only in force for limited times; the publishers retained the right—and the material/electronic capacity—to withdraw access to the work; the publishers only allowed very specific in short, they called it a license, they structured it like a license, and it quacked like a license.
The court said, "Nuh uh uh! You want this to be a license because you want to keep lots of control over the work itself. You can't go paying the author like you've sold copies of the work and don't have any control over where they go from here." Calling BS on any entity trying to own both sides of an argument is a good thing in my book.
Where will things go from here? Well, the article I kicked off with does a pretty good job of summarizing things: Fretting and complaining from publishers of all stripes, then someone will take a position "for the author" and "against the industry" and bang, higher royalties for authors on electronic editions (succumbing to what will surely be an increasingly loud plaint from authors and agents for such a raise). The ways that these institutions respond is quite familiar.
To give a little background for what's going on in the last paragraphs of the article: First, there is a broad sense that the Ninth Circuit is "more liberal" than the Supreme Court (see Newdow), but that may be more of an image than the substance warrants (I do have a day job, or I'd check stats for Supreme Court reversals of 9th Circuit decisions), and this isn't a straightforward liberal/conservative issue anyhow. Within the realm of publishing, things get even more complicated; while the Ninth circuit encompasses California, and, within it, a whole squadron of film and music companies, the biggest players in the publishing of words are located in New York, in the Second Circuit, and the Second Circuit has never felt the need to bow to Ninth Circuit precedent (I suspect that the Second and Ninth Circuits might even take a tiny breath of pleasure in taking a contrary position to what the other has staked out).
Third, no one wants to take this to the Supremes, since a broad decision is an awful big gamble and this court isn't knee-jerk predictable on these issues. So we're unlikely to get a firm, nation-wide binding system to establish the lines between sales and licenses, but we are likely to see more clarity about such things in contracts.
And last, the prospect of more direct-from-publisher-to-consumer sales of electronic editions is growing. In selling such editions, publishers can maintain the control they would have to use a license to maintain in an environment of distributors and retailers.
“Justice?—you get justice in the next world, in this world, you have the law.”—Wm. Gaddis, A Frolic of His Own