The opinion of the court was delivered by: DOOLING
Plaintiff a New York corporation with its principal place of business in the Eastern District of New York, publishes, among other things anthologies of stories for younger people, each anthology being devoted to a special type of story such as ghost stories, outer-space stories, detective stories, and so on. Twenty-six of the published books are in issue here. All of them were copyrighted at first publication, and it is not denied that the twenty-six copyrights received in evidence as Exhibit 1 were validly issued copyrights and at the time this action was commenced were all in full force and effect and unexpired. The books at first publication were printed on paper of good weight and quality with wide margins and in hard-cover with what is styled in the industry Grade A library binding in heavy buckram. They were sold to the trade at $ 4.08. Plaintiff's sales of its books in hard-cover editions are directed first to all book buyers, and, after the first sales period and after the paperback edition has been authorized, continuing sales of plaintiff's hard-cover edition are directed to schools, libraries and other establishments in which books are subjected to hard use, particularly by younger readers, and have to be sturdy if they are to have a long circulation life.
Plaintiff's sales of its hard-cover edition are made to a substantial number of dealers to whom defendant has sold its hard-covered copies of the Pocket Books paperback reprint of the same books (as set forth later).
Commencing with a contract made on May 13, 1964, plaintiff has granted to Pocket Books, Inc. (later the Pocket Books Division of Simon & Schuster, Inc.) the rights to publish paper-bound editions of the twenty-six titles here in issue in English and to sell them at a retail price of 50 cents each throughout the world. The right is granted for a five year period. Plaintiff, in each contract, warranted that it had not granted to anyone any other rights to publish the book in volume form for sale at a retail price of less than $ 1 with the exception of sales to or through book clubs. Royalties were payable at the rate of 1 cent per copy on the first 150,000 copies sold and 1 1/2 cents per copy on all copies sold thereafter; however those rates are based on the assumption that the retail price of the books would be 25 cents; the rate was to be increased proportionately when the retail price was higher than 25 cents. Under the contract it is provided that
"The Buyer agrees not to change the title or text of The Book without written permission from The Seller, except that The Buyer may, at his option, use or not use illustrations from the jacket or text of the trade edition provided such illustrations are the property of The Seller. The Buyer agrees to print on the verso of the title page of each and every copy of The Book which The Buyer may print the copyright notice supplied by The Seller, or, in the absence of special instructions, the copyright notice identically as found in the copy of The Book furnished by The Seller. The Seller warrants that copyright validly exists in the exclusive territories covered by this agreement, that the same will continue unimpaired during the term of this agreement, and that it will be seasonably renewed prior to expiration thereof during said term."
Quite apart from the paperback rights granted to Pocket Books, plaintiff has from time to time sold unbound printers sheets of the texts of such books as are here in issue to Bound-to-Stay-Bound Books to be bound in hard covers of library quality by the buyers on the condition that they would be sold at a price of $ 4.08 or more.
The Pocket Book editions of plaintiff's stories are re-prints; they are in different type on a smaller page and on an inferior paper of lighter weight. However, they are complete reprints, although with a different title page arrangement and usually with a picture on the paperback cover that is original with Pocket Books. The book covers bear the line "A Lantern Press Book" with the Lantern Press symbol (a lantern on a book). On the title page above the line saying "Published by Pocketbooks. New York" appears the legend "A Lantern Press Book" with the Lantern Press symbol. On the copyright page the original title of the book is given and it is stated that the book is "A Lantern Press Book, published by Pocketbooks." At the foot of the page is the copyright notice, the copyright being that of Lantern Press, Inc. The next line reads "This Lantern Press Book is published by arrangement with Lantern Press, Inc."
Defendant bought the Pocket Book paperback reprints from Affiliated Publishers commencing in 1965 and continuing through 1974. In the year commencing April 1, 1973, defendant acquired 13,500 of the Pocket Books and sold 13,300 of them, destroying the last 200 after the commencement of the present lawsuit. The books were purchased from Affiliated Publishers at the regular discount from 50 cents of 46%. The purchase orders contained no restriction or limitation and Affiliated Publishers as distributors for Pocket Books imposed no conditions in its invoice based on the purchase orders.
Defendant did not resell the books as paperbacks. Rather, it "prebound" the books and sold them at prices varying from $ 1.96 to $ 2.11 each.
The expression "prebinding" requires a word of explanation. Libraries and, particularly, school libraries found over the years that hard usage of books in circulation required them to be re-bound, and beginning in the '30s a practice grew up of anticipating the need by re-binding new books that were not ruggedly bound in order to reduce the administrative expense, the overhead, involved in waiting until a poorly bound book broke down in service before going through the procedure for having it rebound. The practice became, that is, to have books pre-re-bound, if the original binding was flimsy or in the case of paperbacks was such as not to be suited to circulatory use. Some libraries did their own pre-binding, others contracted pre-binding out.
In the case of each of the twenty-six titles here in issue the defendant sold them as pre-bound books. Its practice was, when it got the paperbacks from Pocket Books, to detach the paper covers and after preparing a hard-cover backing and stitching heavy paper to the stripped-down paperback, the paperback text would be inserted into the case and glued or pasted securely into it. The picture cover of the paperback would then be trimmed and pasted to the front of the now hard-bound book. Nothing was altered in any way. Not a line of text was changed or added or deleted or modified. The legend on the reverse of the title page remained with its statement that "This Lantern Press book is published by arrangement with Lantern Press, Inc." and the cover of the book would show, as in the paperback itself, the statement at the top "A Lantern Press Book" with the Lantern symbol, and at the bottom a reference to the original title of the book as it appeared in plaintiff's hard-cover edition. The books were sold generally to libraries, schools, etc., through distributors. The books were bound in C grade cloth rather than buckram.
Defendant did not at any time buy any books directly from plaintiff. The books that it bought from Affiliated Publishers were all regular copies of the paperbacks not in any way defective, defaced, or in need of repair. The sole purpose of preparing the kind of book that was prepared by the defendant was to extend the service life of the book and protect the text from destruction in use. At no time did defendant seek to buy the original publishers unbound sheets directly from plaintiff to bind for such library and school purposes.
Plaintiff did not learn that defendant was selling the paperbacks in pre-bound form until it saw the defendant's 1972 catalogue which at page 49 advertised the Lantern tales for sale to defendant's customers and pictured them. A similar advertisement appeared in the 1973 catalogue of defendant at page 51. Under date of July 24, 1972, plaintiff's counsel wrote defendant advising that Lantern had made contracts with the Pocket Books Division of Simon & Schuster for the publication of paper bound editions of twenty-six of its books at a price of 50 cents each and that it had come to plaintiff's attention that the books were being ...