It seems Dan Wineman was the first to sound the alarm, with Ed Bott using his soapbox at ZDNet to shout it from the rooftops: Apple’s new “free” iBooks Author program, which allows authors to create their own professional layouts while they write books, includes an astonishingly greedy and overbearing clause in its end-user license agreement (“EULA”):
B. Distribution of your Work. As a condition of this License and provided you are in compliance with its terms, your Work may be distributed as follows:
(i) if your Work is provided for free (at no charge), you may distribute the Work by any available means;
(ii) if your Work is provided for a fee (including as part of any subscription-based product or
service), you may only distribute the Work through Apple and such distribution is subject to the following limitations and conditions: (a) you will be required to enter into a separate written agreement with Apple (or an Apple affiliate or subsidiary) before any commercial distribution of your Work may take place; and (b) Apple may determine for any reason and in its sole discretion not to select your Work for distribution.
Apple will not be responsible for any costs, expenses, damages, losses (including without limitation lost business opportunities or lost profits) or other liabilities you may incur as a result of your use of this Apple Software, including without limitation the fact that your Work may not be selected for distribution by Apple.
As Bott explains, “The nightmare scenario under this agreement? You create a great work of staggering literary genius that you think you can sell for 5 or 10 bucks per copy. You craft it carefully in iBooks Author. You submit it to Apple. They reject it. Under this license agreement, you are out of luck. They won’t sell it, and you can’t legally sell it elsewhere. You can give it away, but you can’t sell it.”
Jason Gilbert at Huffington Post considers the problems in enforcing the EULA as a “contract of adhesion” (because it’s included in the license and you have no ability to negotiate it) and as including “unconscionable” terms (a rare legal doctrine that courts virtually never apply). But there’s a more fundamental problem: the terms are unenforceable under the Copyright Act.
There are two types of licenses under copyright law, an exclusive license and a nonexclusive license. Here’s how they differ:
In an exclusive license, the copyright holder permits the licensee to use the protected material for a specific use and further promises that the same permission will not be given to others. The licensee violates the copyright by exceeding the scope of this license. …
By contrast, in the case of an implied nonexclusive license, the licensor-creator of the work, by granting an implied nonexclusive license, does not transfer ownership of the copyright to the licensee. The copyright owner simply permits the use of a copyrighted work in a particular manner.
IAE, INC. v. Shaver, 74 F.3d 768, 775 (7th Cir. 1996).
The iBooks Author EULA plainly tries to create an exclusive license: Apple claims, in essence, the copyright holder [that's the author] permits the licensee [that's Apple] to use the protected material for a specific use [the iBooks store] and further promises that the same permission will not be given to others [that's the 'you may only distribute the Work through Apple' part].
Here’s the problem: under the Copyright Act, an exclusive license is defined by 17 U.S.C. § 101 as a “transfer of copyright ownership,” and under 17 U.S.C. § 204 such a transfer “is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed.”
Of course, Apple doesn’t ask anyone to sign anything before using iBooks Author. There’s a lot of debate over whether a “shrink-wrap” or “click-wrap” license is enforceable (here’s an older post of mine, too), with most courts evaluating them on a case-by-case basis, but there’s no doubt that ‘using a program’ isn’t the same thing as ‘signing a written document granting an exclusive license in a copyrighted work.’
Apple seems to have recognized that problem: the EULA demands “you will be required to enter into a separate written agreement with Apple (or an Apple affiliate or subsidiary) before any commercial distribution of your Work may take place.” They’re probably relying on the Eden Toys line of court holdings, which agree that an exclusive license can’t be granted without a signed, written document, but also permit copyright holders to subsequently ratify in writing an informally granted exclusive license:
Under the pre-1978 copyright law, exclusive licenses could be granted orally or by conduct. Id., § 10.03[B], at 10-37 (1980). Under the new Copyright Act, however, Eden’s claim of an informal grant of an exclusive license seemingly must fail in light of the statute of frauds provision of the new Act, which states that an exclusive license “is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed….” 17 U.S.C. § 204(a) (Supp. IV 1980). However, since the purpose of the provision is to protect copyright holders from persons mistakenly or fraudulently claiming oral licenses, the “note or memorandum of the transfer” need not be made at the time when the license is initiated; the requirement is satisfied by the copyright owner’s later execution of a writing which confirms the agreement.
Eden Toys, Inc. v. Florelee Undergarment Co., Inc., 697 F. 2d 27 (2d Cir. 1982).
Which means that, in the end, the iBooks Author EULA leaves both Apple and the author in a strange stand-off: Apple doesn’t actually have the right to tell the author not to take their work somewhere else, but the author can’t do that without breaching the EULA — even though they retain full rights in their copyright.
But Apple has been too clever by half here: if an author does breach the EULA (by not subsequently signing the written agreement after having used the “free” software) and distributes their iBooks-created-work elsewhere, what are Apple’s damages? Because Apple doesn’t have a copyright interest in the book (like an exclusive license), they can’t claim lost royalties as the damage. Instead, they have to claim that an author breached the EULA of a program that users did not have to pay for in money.
[Update: Some readers have opined, in essence, that breaching a EULA is copyright infringement. Not necessarily so; see the Glider World-of-Warcraft case I wrote about. (The court opinion itself is available here.) Is the iBooks Author exclusive licensing provision a "condition" or a "covenant?" I'm going with covenant, because it's a promise to do something in the future, i.e. sign the subsequent written exclusive licensing agreement.]
How did this happen? By Apple stupidly overreaching. The Copyright Act includes § 204 for the precise purpose of preventing companies like Apple from trying to swindle creators of their works out from under of them, but Apple apparently has such low confidence in their own iBooks store that they don’t think any author will use it unless they believe, mistakenly, that they have to.
Frankly, I hope this incident causes some people to re-evaluate their opinion of Apple, if they still have a positive opinion of the company after the negative media attention following Steve Jobs’ death. As the New York Times recently reported, iPhones and iPads are made in China, not America, for two simple reasons: because Apple relies on labor conditions of the sort our great-grandparents fought at great personal risk to make illegal and because the Chinese government subsidizes their manufacturer’s infrastructure. That’s not “thinking differently,” as Apple mischaracterizes itself in its advertising. It is greed, pure and simple.
By Max Kennerly, Esq.