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.

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.

Is there a standard definition of “electronic rights”?

Q. Is there a standard definition of “electronic rights”?

A. No, not for “electronic rights” nor for the many different rights encompassed in that term. (Some contracts use “multimedia rights” instead of “electronic rights,” but there is no agreement on what that term means either.)

Most electronic rights definitions used in publishers’ contracts are too vague or too broad or both. As a result, authors and agents must negotiate appropriate definitions for these subsidiary rights on a case-by-case basis.

Authors should define each electronic right they are granting narrowly and specifically. Properly done, this will enable authors to know precisely what rights they are granting to their book publishers and which they are free to license to software companies, electronics and games companies, apps and educational developers, and other non-book companies in order to exploit non-e-book electronic rights to their work.

If, despite negotiations, the contract you sign with your publisher still contains broader definitions than you’d like, be sure to add a provision that any rights not exercised by your publisher or one of its licensees (as to any language, medium, format or territory) within x years after initial publication of your manuscript (in any form) shall revert to you upon written notice to your publisher. Such a reversion clause should always be included by authors when agented rights (e.g., translations and movie rights) have been granted to the publisher. But it is particularly important when dealing with broad electronic rights clauses because no one—not the publisher, the author or the agent – can anticipate all the possible uses of rights granted in such broad clauses. As recent history suggests, many have yet to be invented.

(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.

What does “net” mean in the royalties and subsidiary rights sections?

Q. My publishing contract doesn’t define “net.” It’s used in both the royalties and subsidiary rights sections. What does it mean?

A. “Net” is one of the worst terms for authors to leave undefined in a contract.
“Net” – more typically, “net proceeds” or “net receipts” – is what is left after various expenses are deducted from a larger amount, e.g., the book’s list price (in the royalties section, for those royalties not based on list) or the total amount paid to your publisher by a licensee (in the subsidiary rights section). Since the amount an author will receive in such situations is a percentage of the reduced amount, it is important to specify exactly what the expenses are that may be deducted in computing net. If not specified, authors may discover that the publisher’s understanding differs from theirs.

In particular, with many publishers now paying authors a royalty of 25 percent of net on e-book sales, your contract should specify that the only permissible deduction from the e-book’s price is the commission to the online bookseller (typically 30 percent at the moment). Smart authors will also provide that if the commission to the online bookseller is at any time increased, then the royalty will still be computed as if the commission was only 30 percent.

(Originally published in the Fall 2010/Winter 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.

What are “derivative rights”? Should I grant them to my publisher?

Q. My publisher just sent me its new contract for my next book. Among the rights I’m being asked to grant are “derivative rights” in my book. The term is not defined in the contract but my editor tells me that it is defined in the copyright law. Is that okay?

A. Definitions are a crucial part of contracts and can be negotiated like everything else. If “derivative rights” are included in the grant of rights, the term should certainly be defined. Unfortunately, the most accurate lay definition I can suggest, and one which is consistent with the copyright law, is “everything under the sun.”

I don’t recommend that any author include “derivative rights” — with or without a proper definition — in the grant of rights section, subsidiary rights section or anywhere else in a contract. It’s as bad as saying you’re granting “all rights” in your work to the publisher. That’s what Murray Burnett and Joan Alison, the authors of the unpublished play Everybody Comes to Rick’s, did in 1942 and, as a result, they were never able to write a sequel or any other work containing the characters that Humphrey Bogart, Ingrid Bergman and Paul Henreid portrayed in Casablanca (as it was retitled). If your publisher wants certain rights (derivative or not), it should specify what each one is, and provide clear definitions. You can then decide which rights to grant and, for those you do, what the appropriate royalties (if the publisher exercises the specified right directly) and subsidiary rights splits (if it intends to license them) should be. You can also decide whether you should have any approval rights for the new work and what the appropriate reversion period should be if the publisher doesn’t exercise them within an agreed-upon time.

Movie rights, dramatizations and translations are traditional examples of derivative rights and are even listed as examples in the term’s definition in the copyright law, viz. “a work based upon one or more preexisting works, such as a … dramatization, fictionalization, motion picture version … or any other form in which a work may be recast, transformed, or adapted.” The definition is broad enough to cover interactive video games, mobile phone “apps” and a host of other derivative works, including ones yet to be invented or even thought of. Just as parents shouldn’t send their children to camp without knowing what activities the camp provides, authors should not license their works without knowing what will happen to them when the rights leave their control.

(Originally published in the Summer 2010 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.

Do “Print-on-Demand” Editions Keep a Book in Print Forever?

Q. Is a book out of print if it is available only in a POD (print-on-demand) edition?

A. Unfortunately, the answer to your question in large part depends on how “out of print” or “in print” is defined in your contract (assuming it is defined at all). Some contracts, even from 20 years ago, specify that the book will not be considered in print simply because of the publisher’s ability to reproduce single copies of the book. Others state that copies only have to be “available” or “offered for sale” which, if the literal words of the contract are to be given a contemporary meaning, may well be satisfied by the mere availability of a POD edition. (Discussions about the proper way to interpret certain language in old contracts in light of subsequent technological changes can easily mirror those between followers of Supreme Court Justices Scalia and Ginsburg about how to properly interpret the United States Constitution.)

I believe authors should be able to argue successfully, at least for many contracts signed in pre-electronic days, that neither publisher nor author ever intended that a book be considered in print solely because future technology made it possible to intermittently print single copies upon a customer’s request and that “out-of-print” clauses in those contracts should be construed that way. The argument should be even stronger when the contract also contains a clause stating that “all rights not granted to the publisher are reserved to the author.” A court could well differ, however. Authors whose publishers assert that a book is in print solely because of the availability of a POD edition should contact the Authors Guild Legal Service Department.

If your publisher is taking that position, emphasize to it that the section in virtually all publishing contracts giving the publisher 6-12 months to put the book back in print would be meaningless if a book could simply and quickly be put into print at minimal cost (and no risk) via POD. Also investigate whether the publisher has separately notified booksellers that the traditional editions of the book are out of print. Virtually all publishers do this, frequently by publishing a notice in Publishers Weekly, to advise booksellers that they have a limited time to return unsold copies for credit. Publishers will find it difficult to legitimately assert that your book is still in print when it has sent a notice to the book trade that it is out of print. You can check on the status of a publisher’s editions of your book in R. R. Bowker’s Books in Print, available in many libraries.

Note that, increasingly, publishing contracts now avoid “in print” definitions that relate to a book’s availability. They focus instead either on (i) the amount of royalties paid to an author during the most recent royalty period or two, or (ii) the number of copies of the book (regardless of format) sold during the last one or two royalty periods, in each case setting a specific dollar amount or number as the sole criterion. Whichever criterion is used, make sure that it relates only to English-language editions of the book sold in the United States (or the United States and Canada). If using one of the older versions of the clause (relating to the book’s availability, e.g.) in a new contract, however, make sure to have a sentence specifically stating that the book will not be considered in print solely because of the availability of e-book editions or because of POD or other technology enabling single copies of the book to be produced.

(Originally published in the Summer 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 new book.