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.

Do the bankruptcy laws abuse authors’ rights?

Q. The bankruptcy of Triskelion Enterprises, LLC, to which I had sold a romance, has brought to light an outrageous abuse of authors’ rights by federal bankruptcy judges. Many publishing contracts—I’ve sold eighty novels, so I’m very familiar with these– include a clause stating that, in the event of the publisher’s bankruptcy, all rights in the contracted work revert to the author. I discovered that bankruptcy judges routinely void this clause and allow the trustee to sell our contracts, en masse, to the highest bidder. Their rationale is that bankruptcies are adjudicated under federal law, whereas contracts are governed by state law, and federal bankruptcy law takes precedence. Thus, in addition to losing the money due us from royalties, authors are stripped of creative control over our books. This could happen to any author, with any publisher, as well as to composers, lyricists and illustrators. We get no say over who buys these contracts, and there is no guarantee this will even be a legitimate publisher. One can easily imagine situations in which our work would be distorted and our reputations harmed. This is a situation that can only be rectified by an act of Congress, and I urge everyone to write his or her senators and congressperson urging that they sponsor a bill barring bankruptcy judges from voiding these contract clauses.

A. Although I understand your annoyance and share your dismay that the termination clause is unenforceable as a matter of law, I disagree with several of the underlying assumptions of your letter.

  1. Judges are not negating the provision of their own accord but are applying basic constitutional principles. Bankruptcy, like the First Amendment, is a right that is guaranteed by the United States Constitution (Article 1, Section 8). There are many examples where federal law trumps state law (civil rights, New Deal legislation, gun control, abortion, auto gas emission limits). To argue against this requires an argument based on some other constitutional principle rather than a dislike of the result. I don’t see that other constitutional principle here.
  2. Courts are not discriminating against authors or other creative individuals when they rule that the typical termination clause in publishing agreements is unenforceable in a bankruptcy proceeding. Similar clauses exist in many contracts that do not involve publishing companies or creative individuals and, with limited exceptions, those contracts are not permitted to automatically terminate either. Lacking this discrimination or another appropriate reason (see point 5 below), I see no valid reason why we as authors should seek special treatment.
  3. Your concern that authors have no say over who buys their contracts ignores the fact that authors do have the right to present their views to the bankruptcy court in the same manner as others who have contracts with the bankrupt company, even though it is a right that few avail themselves of. Your concern that authors’ works could be distorted by the acquiring company overlooks the fact that it is legally bound by your contract’s provisions in the same way that the original publisher was; thus you have the same rights against the new company as you had against the old in the event it distorts your work or otherwise breaches your contract.
  4. I fail to understand how you lose creative control over your books. Your book has either been published already or not. If it has been, there is no creative control left to be had. And if it hasn’t been, you have two options: you can return your advance and not deliver the final manuscript (if you don’t like the new publisher) or you can hold the new publisher to the provisions all authors should have in their contracts that prohibit the publisher from making changes in your manuscript (with certain limited, specified exceptions) without your consent.
  5. I’m not unsympathetic to the difficulty that the ordinary author has in obtaining proper legal representation in a legal proceeding and being able to afford top-notch (or any other) counsel. But these are problems that most citizens have every day in legal proceedings of virtually every type and is not peculiar to our situation as authors. For us to argue for a special privilege simply because we are writers is without doubt appropriate in certain situations (such as censorship, journalist “shield” laws and the like), but I don’t consider our losing money or property because we entered into a business transaction with a company that ended up in financial difficulty to be among them.

Thanks to Gayle Ehrlich of Sullivan & Worcester LLP, Boston, Massachusetts, for her advice concerning federal bankruptcy law. Please note the more detailed discussion of bankruptcy law and author-publisher contracts in my column in the Summer 2006 issue of the Bulletin.

(Originally published in the Fall 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 someone else revise my book?

Q. The contract for my new nonfiction book has a revision clause that says that if I don’t revise the book, the publisher can choose the reviser and pay the person from amounts that would otherwise be paid to me under my contract. This seems pretty broad since it means the reviser can get everything and I could get nothing. What changes do you suggest I ask for in this section?

A. The best thing to do is substitute language saying that the book can’t be revised unless both you and the publisher agree. That way, you don’t have to worry about the issue or spend time negotiating the clause until the situation arises.

Some publishers of certain nonfiction books, especially textbooks, won’t agree to this. In that case, there are at least four changes you should make in the clause (and which most publishers are amenable to):

  1. Provide that if you are unable to do the revision (or simply don’t want to), you will have the right to choose the reviser (subject to the publisher’s consent, not to be unreasonably withheld) and determine the amount to be paid to that person. Also provide that if you are dead, your estate will have that right. This should ensure that the monies paid to the person doing the revision are reasonable and commensurate with the amount of work the person is required to do.
  2. Provide that if neither you nor the estate exercises this right, the fee paid to the reviser has to be negotiated on an arms-length basis. This could lessen the possibility that particularly favorable terms are given to a friend of the editor or publisher or to a company employee. It will also help, if you can get it, to add that the compensation paid to the reviser won’t exceed what is traditional and customary for the type of book involved and the type of revisions to be done (both, admittedly, fuzzy concepts but you get the idea).
  3. Provide that the reviser’s work will be done on a work for hire basis, with the copyright in that work to be in your name. This will facilitate your republishing your book (with another publisher or as an ebook) if the revised edition goes out of print and the rights revert to you. It is particularly appropriate since, even if the publisher pays that person an advance, that amount will ultimately be deducted from royalties and subsidiary rights income otherwise payable to you.
  4. In situations where neither you nor your estate select the reviser, limit the amount paid to that person that can be deducted from amounts otherwise payable to you, especially if the amount payable is stated as a percentage of what you would otherwise get. In particular, if the reviser will be getting royalties, limit the percentage of your royalties that can be paid. It’s okay for the percentage to increase each time a new revision is done without you, but it should never reach 100 percent or even get close to it. Remember, the book became successful enough for the publisher to want to revise and republish it because of your work on the book at the start (whether because of how it was structured, what you wrote or because of your reputation). You and your heirs should always be entitled to a percentage of every revised edition — no matter how much it changes — because of that. In my opinion, that percentage should never go below 25 percent no matter how often the book has been revised, though you may think it should be higher or lower and should use your own judgment in negotiating that.

(Originally published in the Summer 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.

Are e-books sold or licensed when bought online?

Q. My publisher wants to include this sentence in my new contract: ”Sales of e-books, whether by Publisher or by a licensee, shall be considered sales by Publisher for purposes of the royalty provisions of this Agreement.” It’s not in my earlier contract. Is it okay to include?

A. While I am sympathetic to a publisher wanting to include this or similar language in new contracts and would likely recommend to a client that, as a business matter, he or she accept it, I would definitely not recommend that you or anyone else amend any previous contracts to include the provision.

But before you agree to include the requested language in your new contract, be sure the contract requires your publisher, whenever it increases its standard e-book royalty rate, to automatically increase your e-book royalty rate to that higher rate. This is important because the so-called “standard” rate that most of the major publishers are paying now is half of what most author advocates believe it should be.

The reason your publisher wants to include the new language is likely because of a September 2010 California case. In F.B.T. Productions v Aftermath Records, a federal appeals court ruled that the rap artist Eminem should have received royalties on iTunes downloads of his songs equal to 50 percent of what his music company received from iTunes rather than the far smaller “per recording” royalty payable on sales of his recordings (e.g., as CDs).

The court ruled this way on the grounds that the arrangement between his music company and iTunes was a license of the right to duplicate and distribute his songs (which it was) and that, accordingly, the subsidiary rights provisions of his contract – which provided for a 50/50 split of all licensing revenue — applied. It said that the “per copy” royalty based on the price of the song applied only when the song was sold by the publisher, not by a licensee.

Although the application of this case to any particular contract (book or music) is uncertain—much depends on the exact language in several different sections of that contract and how those provisions interrelate—the reasoning clearly applies to book publishing contracts and e-books.

Unlike print-on-paper books, e-books are not individually sold by publishers to online booksellers which in turn sell the book to their own customers. The transaction is essentially accomplished through a license between the publisher and the online seller whereby the online bookseller gets a master copy of the e-book and duplicates it for transmission to its customer. As a license by the book publisher, it should be treated the way other licenses are treated under your earlier contracts (assuming they even have the right to publish and license e-books), which is a division of the proceeds received by the publisher between author and publisher. Except for movies and foreign translations, this split is generally 50/50. Many contracts even have a clause in the subsidiary rights section, “For all other rights: 50 percent to author and 50 percent to publisher.” No wonder your publisher wants to put the clause you mention into its new contracts.

For new contracts, where you and the publisher are agreeing in advance that sales by third-parties under e-book licenses will be treated as sales of individual copies by the publisher for royalty purposes, that reflects the current commercial reality in book publishing; most authors wishing to sign with traditional publishers have little leeway here. That said, there is no reason to let the publisher off the hook on prior contracts. For one thing, there may well be a question of whether the publisher has e-book rights at all. For another, the e-book royalty offered by most major publishers today is half what author advocates believe it should be. Third, the publisher drew up the original contract and, under a general rule of contract law, ambiguities in a contract are resolved against the drafter. So don’t agree to any suggestion from your publisher to amend earlier contracts and make sure that it doesn’t sneak a clause to that effect into your new contract, amending the prior ones without you even being aware of it. You’re entitled to a 50 percent royalty on e-book contracts, and if the law will give it to you on existing contracts despite publishers’ obstinacy, you shouldn’t sign that right away.

(Interestingly, the “agency model” for e-book sales being used by Apple with major publishers could undercut this argument on sales made through Apple since that business structure treats the publisher as the seller and Apple merely as its agent. Whether a court would look through that arrangement and say that, in practice, it is nonetheless a license is a separate issue, and not for today or this column.)

(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.

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.

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.

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.

Should My Royalties Be Reduced When E-Books are Sold at Large Discounts?

Q. Should the typical provisions about reduced royalties on copies sold at high discounts apply to e-books?

Answer: No. Unlike print-on-paper books, where each copy sold at a deep discount represents significant expenses incurred by the publisher which pertain specifically to the copy sold (paper, printing and binding costs and, sometimes, shipping and warehouse charges), the cost of creating and transmitting additional copies of e-books sold at a deep discount is negligible or non-existent.

One way to handle this easily in your contract is to simply add the following at the end of the section dealing with reduced royalties if the point was not covered in the section:

“None of the reduced royalty provisions in this section will apply to any e-book or other electronic editions of the Work.”

(Originally published in the Winter 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.

How Often Should Royalties Be Paid?

Q. Is there a commonly accepted schedule of royalty accounting and corresponding royalty payments? My publisher does its accounting only two times a year and sends that accounting and royalties to the author five months after the end of the reporting period.

A. Most trade publishers prepare author royalty statements twice yearly, for the January-June and July-December periods. Most academic publishers generally do their accounting only once a year, which is something that authors of those books should always seek to change to twice yearly when negotiating their contracts. A handful of very small publishers do accountings (and pay royalties) more frequently, some even monthly.

A twice a year accounting and payment schedule is generally considered fair by most publishers and authors. Similarly, sending the royalty statements and paying the required amounts three months after the end of each royalty period is relatively standard and considered reasonable by most publishers and authors. Not paying royalties until the fifth month after the end of the reporting period is outrageous and unfair to authors (and, disappointingly, standard practice for at least one major publisher). Holding an author’s money that long is simply a crass way for a publisher to, in effect, borrow money from an author at zero interest. Publishers that refuse to make royalty payments until 120 days or longer following the end of a reporting period should be embarrassed by the practice and pressured by adverse publicity to change that policy.

(Originally published in the Fall 2006 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.

Can My Publisher Hold Back Hardcover Royalties for Possible Paperback Returns?

Q. My book, which was published in hardcover about a year ago, earned out its advance by about $500 but the publisher has told me that it might hold back part of that money as a reserve against returns of the trade paperback edition that it is about to publish. Can the publisher do that?

A. A reserve against returns of a paperback edition should be withheld only from royalties payable to you on copies of the paperback that have actually been shipped to booksellers and wholesalers. If the paperback has not been published or shipped yet, there are no royalties payable to you on those copies against which a reserve can be established. Money received from other income, whether sales of the hardcover or the licensing of subsidiary rights, cannot properly be held back in anticipation.

All or part of the $500 can be kept by the publisher, however, if the amount it had held as reserves for the hardcover edition proved to be insufficient because the publisher got back more returns of that edition than anticipated. But if that were the case, it would mean that your advance had not earned out even though you and the publisher thought it had.

As with all questions answered in this series, of course, there could be specific language in your particular contract that would require a different result. The answers given here are based on language typically found in most contracts.

(Originally published in the Fall 2006 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.