25 September 2006

The Chickens Come Home to Roost

Professor Patry notes the recent Magistrate Judge's recommendation1 in the Perdue/Dan Brown tempest-in-a-thimble that Perdue should not be required to pay attorney's fees for losing his copyright counterclaims. Magistrate Judge Fox's recommendation (PDF) is commendably clear; it is written in English, it doesn't rely upon mulitiple citations for otherwise obvious points, and it rests upon the minimum level of legal jargon.

Unfortunately, it is also completely unrealistic, for reasons well beyond Magistrate Judge Fox's authority to reach. Here is one of several examples:

For their part, the movants maintain that the publicity campaign Perdue waged concerning his infringement allegations resulted in a resurgence of interest in one of his books, which was then not in print, but was reissued, and increased the number of sales his other book garnered. The movants contend that, owing to the publishing industry's typical customs and practices, the financial rewards they allege Perdue reaped, as a result of the instant controversy, would not be reflected in the income tax returns he disclosed to the Court, but likely would be reflected in the income tax return Perdue filed subsequent to making his 2004 income tax filing.

(slip op. at 10). Magistrate Judge Fox essentially accepts these assertions as correct.2 They aren't even close to reality. First, and perhaps most important, they neglect to allow for reserves against returns (which, given Random House's rapacious history on reserves in the last decade, is rather disturbing). Any large increase in demand for a long-ago-published book typically results in a large increase in the reserve against returns. In this instance, a typical change might have increased the reserve from 25% to 35% of shipped books—which then, in a breathtaking bit of accounting chicanery that is also "the publishing industry's typical customs and practice[]," would be calculated based on total shipments over the life of the book — not just the new demand. It gets better, too; those reserves are typically not released for at least 36 months after they are established, if ever (and "if ever" is a very good description of what happens when an out-of-print book gets reissued).

So, then, is poor Random House going to be out $310,000 in attorney's fees? I think not. Two other aspects of "the publishing industry's typical customs and practices" indicate otherwise. The most obvious is that the defense was conducted by its insurer. For a smaller publisher, this could easily result in ruinous increases in its premiums when the policy is up for renewal, especially since the premium-setting system is nowhere more opaque than in E&O policies in all segments of the entertainment industry. For a publisher the size of Random House, or a film studio the size of Sony, there's a decent chance that such an increase — if it were even imposed — would amount to less than pocket change.

More disturbing, though, are the presumed contractual consequences. In the publishing contract, Dan Brown made a warranty to Random House that his work did not infringe on any copyrights, and indemnified Random House against "costs and attorney's fees" in defending against such claims—even successful defenses against frivolous claims.3 Thus — at least in theory — a party who did not join in the motion for fees against Lewis Perdue is on the hook for those fees. Given the UK infringement action,4 that may be a case of poetic justice — even without any rhyme, meter, or reason. It is not, however, a ground for accepting "the publishing industry's typical customs and practices" as deserving any acceptance or approval.

  1. That's "recommendation," not "decision" or "opinion." It is not precedent; it does not even bind the parties in the case unless/until the District Court judge confirms and/or modifies it in his own opinion. I'd make a bet that someone in the publishing "media" will mischaracterize the recommendation as somehow binding, but I've already lost that bet.
  2. The timing issue is also a bit disingenuous, as either the parties or Magistrate Judge Fox could certainly call for Perdue's 2005 tax returns by this date, as all ordinarily available extensions for filing that return expired well over a month ago. More importantly, though, the most-important documents would have been not the tax returns, but the royalty statements… which would have been due before Random House's motion was filed.
  3. Unless, that is, Random House negotiated with Dan Brown for a less-onerous-to-the-author warranty or indemnification. <SARCASM> But Random House's editorial staff and in-house counsel both claim that they never negotiate those terms. They say so repeatedly; perhaps "incessantly" is a better characterization. </SARCASM> You are free to draw your own conclusion concerning which bit reflects less favorably upon the publishing industry… or its insurers.
  4. Let's just say that Dan Brown's reputation after that trial appears in cutting-edge dictionaries under "Pyrrhic victory."

    343. The Claimants say I should treat [Dan Brown's] evidence with caution. That is too high in my opinion. He started confidently enough but ultimately his confidence was gradually eroded by Mr Rayner James QCs protracted and carefully measured cross examination. In that cross examination Mr Rayner James QC established that in reality Mr Brown knew very little about how the historical background was researched. He in my view simply accepted Blythe Brown's research material when incorporating it in to the writing of part two of DVC. I do not believe for one minute he was analytical of it or critical of it; he simply accepted it.

    Baigent v. Random House Group, Ltd., 2006 EWHC 719 (Ch) (PDF) (concerning the very same book).