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 I sue my publisher?

Q. My contract for a medical how-to book has a clause which grants me full cover approval. I designed the cover, which includes powerful back cover endorsements from prominent doctors. When it came out in paperback, a year after the first hardcover run, the publisher had changed all the cover endorsements to industry praise as opposed to those I had included. They did this without my permission or knowledge. Is there any recourse? Can I sue them?

This same publisher allowed a foreign language house that bought Spanish-language rights for Mexico and Central America to edit the book to within 1/4 of its original content, thereby making it dangerous to the public. While this hack job was underway, they deliberately did not let me know since they knew I would not agree.

The foreign language house was told to “tear covers.” They then reprinted the same butchered book two years later, with another title slapped on it. They have been selling it in the United States, not their territory, and I have not been getting proper royalties. I have been phoning, emailing and faxing my publisher about this for 10 years ….to no avail. Can I sue my publisher and the foreign one?

A. One of the first things law students learn in law school is that the proper question is not “Can I sue?” but “Can I win?” Virtually anyone can sue. Just have a lawyer draft the proper papers (or — not recommended — do it yourself) and pay the relatively low court filing fee.

Even though the proper question contains the same three words as yours and the law student’s, the answer is far from simple. And even if a columnist, friend or your lawyer says, “Yes, you can win,” it doesn’t mean that you will. Though people wanting to sue often refuse to believe it (I’m not saying that this is the case in your situation), there are frequently good factual or legal arguments on both sides of the issue and, even if you or your lawyer think you have the better case, a judge or jury could well side with your opponent in any dispute about the facts of the case (often depending on “he said/she said” testimony), the judge could find your opponent’s legal arguments more persuasive, or the lawyer for the other side could just do a better, more persuasive and effective job than the lawyer (s) you have hired. Even when you have citations to previous, analogous cases that appear to support your position, there may be one or two facts in your situation that differ somewhat from those in the case(s) you and your lawyer are relying on, or facts in that case that are missing from your situation or that exist in your situation but are not in the case you are relying on. These differing fact patterns could suffice from a legal viewpoint to distinguish your case from the ones you are relying on, enough to give a judge sufficient reason not to rely on the precedents you cite.

The cost of lawyers and related expenses, the amount of time it will take for the case to get to trial and through any possible appeals, the emotional toll and inconvenience of being involved in litigation, the possibility of the publisher filing counterclaims or related lawsuits against you in retaliation, and what you will win if victorious are all factors you need to consider in deciding whether to bring a lawsuit. You will also need to consider the effect that bringing a lawsuit will likely have on the publisher — its analysis for itself of the same factors listed above and such other factors as its reputation, the amount of management time the litigation will take up, the distraction the case might cause for the publisher, and the likelihood of it staunchly opposing the suit or deciding it’s better to settle and at what point in the process it might do so.

People often significantly underestimate the cost of litigation. To lawyers or sophisticated businesspeople, it is not surprising that lawsuits that non-lawyers think are “simple” can end up costing a plaintiff $100,000 or so in legal fees if the company being sued has its own lawyer (or can afford to hire one), decides to contest the suit vigorously, and the case goes to trial and is appealed. Even without realizing this, expense-conscious individuals considering a lawsuit often ask lawyers if they will represent them on a contingency basis. The reality is that virtually no knowledgeable lawyer who has a for-profit practice will take a publishing case or similar litigation on a contingency basis. The results in most of those cases are uncertain, the time and cost in properly preparing a case significant, and the amount on which the contingency percentage would be based likely much too small.

That being said, I would love it if someone with the funds, top-notch lawyers, perseverance, intelligence and emotional stamina would sue publishers like the ones you describe (and even some more reputable) who often ignore provisions in their author-publisher contracts because they assume that authors won’t have the money, lawyers or fortitude to sue and the amount apt to be won by the author not worth the investment involved.

(Originally published in the Winter 2008 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.