Can my publisher stop paying me royalties because its distributor went bankrupt?

Q: My publisher told me that I won’t be getting royalties for copies of my book that it sold lately because all its bookstore sales were made through its distributor and the distributor recently filed for bankruptcy. Is there language I can put in my next contract to make sure this won’t happen to me again?

A. Bad debt and credit problems are traditional business operating risks that publishers should properly assume; they are not an author’s responsibility.

To prevent a publisher claiming that it has the right not to pay royalties because it was not paid for books it sold, add “There shall be no reduction in royalties or ‘amount received’ because of nonpayment by customers” or similar language to your next contract. (The reference to “amount received” can be deleted if your royalties are based on the book’s suggested retail price rather than on the publisher’s net receipts.) It makes no practical difference where this language is added, although the logical place would be in the section about royalty statements or the one listing royalty rates.

If your royalties will be based on the “amount received” by the publisher from sales of your book (or if the contact says that your royalties are based on the publisher’s “net receipts” and that term is defined as “amount received”), you can also ask that “amount received” be replaced by “amount payable” or that net be defined as follows:

As used in this Agreement, “net receipts” means all monies payable to the Publisher from the sale or licensing of the Work pursuant to this Agreement. In determining “net receipts” for purposes of the royalty and licensing percentage sections of this Agreement, shipping, handling and insurance charges, and sales and similar taxes shall be excluded.

Not all publishers using “amount received,” directly or indirectly, intend that it be construed as excluding bad debt. Those using it innocently will be glad to clarify the issue. For those who understand and mean what they are saying, the clarification is even more important.

Note: Rather than readily accepting a publisher’s statement that it is not required to pay royalties on books sold by it because its distributor has filed for bankruptcy and didn’t pay the publisher, authors should contact the Authors Guild or consult a lawyer to see if your publisher is correct. Even if your contract does not have any of the language recommended here and says that your royalties are based on “amounts received,” you may still be able to argue successfully that from a legal viewpoint the distributor was acting on the publisher’s behalf in collecting the money – in legal terms, as “agent” for the publisher — and that for purposes of your contract, the distributor’s receipt from the bookseller of payment for your books was the same as if the publisher itself received that money.

(Originally published in the Spring 2007 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.

Mark Levine

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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