Can my publisher cheat me of my royalties by selling my book through its subsidiaries?

Q. Royalties on two textbooks I wrote are being watered down because my 1980s contracts didn’t anticipate sales of e-textbooks or rentals of my textbooks in regular and digital formats. More importantly, the contracts didn’t anticipate that my publisher would own or control the companies that handle its digital and rental copies. As a result, my royalties are calculated based on the revenue my publisher receives from these captive companies rather than the larger amount those companies received from the students who bought the book. How can I avoid this outrageous situation in the future?

A. Presumably you and other authors entitled to royalties from the same publisher have banded together to hire a good lawyer to deal with the existing publisher. Although I’m not a litigator, I believe the courts would frown on shenanigans like that. You should also consider publicizing the situation without omitting the name of the offending publisher(s). Even if a court finds the practice legal, in my opinion it’s clearly unethical. Good reputations are important to textbook publishers, and if they can be embarrassed by accurate recitations of the facts and circumstances, publicity is certainly a weapon to brandish.

As to your future contracts, here are two versions of the type of clause you’ll want to include.

The first is one that authors should already be including in all their contracts and isn’t specific to e-books or electronic rights, viz.,

Except as otherwise specifically provided in this Agreement, any license granted, or copies of any version of the Work sold or rented, by Publisher under this Agreement to an Affiliate shall be granted, sold or rented on financial and other terms which are no less favorable to Publisher than the terms upon which Publisher would have granted such license, or sold or rented such copies, to an unrelated or unaffiliated person or entity.

Even better would be adding “in an arms-length transaction and” after “rented” but many publishers won’t agree to that.

The second, which has the benefit of being more specific and eliminates the question implicit in the prior one of what terms are “no less favorable,” would be:

For purposes of the provisions in this Agreement providing for payments by Publisher to Author (as royalties or otherwise) computed based on amounts received by Publisher, those amounts shall instead be computed based on amounts received by the relevant Affiliate of Publisher in those situations where Publisher has directly or indirectly provided the relevant version of the Work to an Affiliate (by sale or otherwise) and the amount received by the Affiliate from its customer or the end user is greater than that received by Publisher from such Affiliate.

If using this version, a similar paragraph should be added to cover subsidiary rights licenses, where the author’s share is a specified percentage (never less than 50 percent) of what the publisher – or its affiliate — gets from the ultimate licensee.

In either case, the following definitions should be included in the contract:

As used herein, “Affiliate” means a Person that directly or indirectly, through one or more intermediaries or otherwise, controls, or is controlled by, or is in or under common control with, Publisher. “Person” includes any individual, firm, division, corporation, limited liability company, joint venture, partnership, trust or other unincorporated organization or association or other enterprise.

Before using either of the two suggested clauses, of course, you should check with your own lawyer to make sure it interfaces correctly with the other provisions in the publisher’s proposed contract and does what you intend.

(Originally published in the Spring 2011 issue of the Authors Guild Bulletin. © Mark L. Levine)

Answers to questions on this site are general in nature only. You should consult a lawyer for information about a particular situation. For more information about book publishing contracts and issues, see Levine’s book.

About Mark Levine

Mark L. Levine, a New York lawyer, is a recognized authority on book publishing contracts and the author of Negotiating A Book Contract. He currently writes the Contracts Q&A column for the Authors Guild Bulletin. More about Mark

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