The traditional publishing process begins with an editor’s enthusiastic response to an author’s outline, proposal, and sample chapter, followed by an offer and contract from the publisher. Once the contract is signed the focus shifts to the quality of the final manuscript. The publishing contract includes a “d & a” (abbreviation for delivery and acceptance) clause, which requires the author to deliver a manuscript that is complete and satisfactory to the publisher in form and content. If the manuscript is unacceptable to the publisher for any reason it can terminate the contract and demand return of the portion of the advance already paid.
Both Federal and state courts have interpreted the unsatisfactory manuscript clause to allow publishers wide discretion to terminate contracts provided that the termination is made in good faith. Determination of the publisher’s good or bad faith is tricky. In a federal lawsuit for return of a $350,000. advance paid by Random House the judge noted that “evaluations of editorial acceptability are based on the subjective judgment of the publisher” and “[what] in good faith may be acceptable to one publisher may be, in equal good faith, not acceptable to a different publisher.” (By paying a large advance Random House had taken a calculated risk that the author’s next work would be as commercially successful as his earlier books.). At the same time, to properly reject a manuscript the publisher must demonstrate that it did not “arbitrarily change its mind.” There must be good reason other than a change of market conditions for the publisher’s decision to terminate the contract.
Following guidelines set out in several important cases, “good faith” is arrived at by examining the publisher’s efforts to provide editorial assistance to the author to produce a book the publisher believes can be profitably sold. Even if the publisher has accepted and paid for portions of the manuscript it may only terminate a book contract on the basis that the completed manuscript is unsatisfactory if it has provided editorial assistance to the author and reasonable time for the author to make revisions.
New York courts have ruled that there is an implied good faith obligation in publishing contracts “for the publisher to engage in appropriate editorial work with the author of a book”. This means giving the author editorial suggestions and an opportunity to make revisions. In a lawsuit by the publisher Harcourt Brace Jovanovich against Senator Barry Goldwater [Harcourt Brace Jovanovich, Inc. v. Goldwater, 532 F. Supp. 619, 624 (S.D.N.Y. 1982)] for return of the advance after delivery of a memoir the publisher rejected as unsatisfactory, the judge concluded
It cannot be … that the publisher has absolutely unfettered license to act or not to act in any way it wishes and to accept or reject a book for any reason whatever. If this were the case, the publisher could simply make a contract and arbitrarily change its mind and that would be an illusory contract. It is no small thing for an author to enter into a contract with a publisher and be locked in with that publisher and prevented from marketing the book elsewhere..
In an action by Random House against the novelist Herbert Gold [HBJ, Random House, Inc. v. Gold, 464 F. Supp. 1306 (S.D.N.Y.), aff'd mem., 607 F.2d 998 (2d Cir. 1979)] another judge held that “allowing unfettered license to publishers to reject a manuscript submitted under contract would permit overreaching by publishers attempting to extricate themselves from bad deals.”
The major unsatisfactory manuscript cases have had varied outcomes: Senator Goldwater was permitted to keep his $65,000. advance. In that case the publisher simply rejected the manuscript and did not work with the author. In the Random House case the publisher terminated the contract after two rewrites and the author had to return $350,000. A fundamental rule emerges: the party that breaches the contract pays, either the publisher who fails to give the author editorial guidance or the author who fails to submit an acceptable final manuscript. Both parties have rights and obligations which should be clearly expressed and acknowledged in their contract.
The legal issues I discuss are the underpinning of the delivery and acceptance clauses in publishing contracts. If you or your lawyer or literary agent is negotiating a contract, try to include the following protective provisions:
1. All communications from the publisher relating to acceptance or rejection of the manuscript will be in writing.
2. The publisher is required to either accept the manuscript or direct the author to make editorial revisions by a specified time after delivery of the complete manuscript.
3. The editor’s suggestions for revisions will be reasonably detailed and specific.
4. The author will have a reasonable time to deliver a revised manuscript; and
5. The publisher is required to make a final decision about the revised manuscript within a specified time after delivery.
6. A “first proceeds” provision. If the final manuscript is unsatisfactory the author is permitted to defer repayment of the advance until she resells the book and receives another advance. In the past some publishers would agree to limit repayment to the amount of the second advance, even if it was smaller. Most traditional publishers’ contracts now require the author to repay the entire first advance within a stipulated period after the contract is terminated, even if the author fails to resell the book.
A final point: By both industry custom and most literary agents’ agreements, if the contract is terminated the agent does not repay the 10% or 15% commission she received for making the sale to the publisher.
What better to start the New Year than with grimy tales about authors, literary agents and publishers?
It cannot truthfully be said that in the annuls of publishing there has not been deliberate misrepresentations, breaches of contract and “extraordinary” fraud. One such (you may remember because it reached the pinnacle of daytime entertainment with the author’s appearance on the Oprah Winfrey show) was the case of A Million Little Pieces, a class action composed of readers from at least five states who claimed to have been defrauded by Random House, Inc. and the author, James Frey for misrepresenting the author’s work as a memoir. The several cases around the country expressing readers’ outrage were ultimately consolidated and transferred to the Southern District of New York. The litigation outcome (settlement by the parties) benefitted some charities in an undisclosed amount listed in a Final Judgment and (very handsomely for plaintiffs’ counsels) awarded attorneys fees exceeding three-quarters of a million dollars. The social outcome exposed the author to public censure. In a subsequent interview, Frey reportedly said that he stood “by the book as being the essential truth of my life.” But, fiction is not memoir so after the knock about in federal court Random House repackaged the work to reflect its proper genre.
A more exciting case was litigated in Massachusetts, ultimately pitting one fraud doer (authors really shouldn’t make things up and pass them off!) against one even more voracious. In its first incarnation the author and her collaborator sued the publisher and literary agency for breach of contract and fiduciary duty. The book, a Holocaust memoir was not successful in the United States but was a best seller in several European countries. The jury awarded author $7.5 million and her collaborator $3.3 million. The judge found that Daniel and Mt. Ivy had wilfully and knowingly engaged in conduct designed to deprive Defonseca and Lee of royalties and other compensation and trebled the jury’s award, which the court affirmed on appeal. Lee v. Mt. Ivy Press, L.P., 63 Mass. App. Ct. 538 (2005).
In summarizing the experiences in the memoir as the author depicted them and the evidence that emerged at trial the court stated:
Shortly after the Nazis seized her parents, seven year old Misha Levy fled alone to the forests and villages of Europe, where she wandered for four years. Along the way, she witnessed atrocities, found herself trapped in the Warsaw Ghetto, and killed a Nazi soldier in self-defense. Miraculously, she survived her ordeal, thanks to her strong will and guile as well as, incredibly, the aid of a pack of wolves, who “adopted” and protected her, providing food, companionship, and affection. Needless to say, her story was compelling. Fifty years later, she would sell it to Mt. Ivy Press, L.P. (Mt. Ivy), and its sole employee, Jane Daniel, who also convinced soon-to-be former friend Vera Lee to help write the book (or “Work”). Turning to the final chapter of this sad legal tale, the actions of Daniel, her company, and her agent, Palmer & Dodge LLP, ultimately resulted in a judgment of $32.4 million against Daniel and Mt. Ivy, which forms the basis of this appeal.
The factual basis for the award in this “sad legal tale” was Daniel’s rapacious and fraudulent conduct. The “buzz” concerning the book had generated a significant amount of interest from foreign publishers. In July, 1996, well ahead of the book’s publication in English, Mt. Ivy sold the German rights, receiving a $135,000 advance. At this point Daniel “began plotting to remove [the collaborator] from the project, falsely complaining to [her] about the quality of the book and [her] writing ability. It then got worse:
Daniel had also begun rewriting the book even before she had received a final draft from Lee. To facilitate her fraudulent efforts to obtain a personal interest in the book, Daniel executed a work-for-hire agreement with Mt. Ivy in October, 1996. Neither the collaborator nor the author knew about this agreement. The trial judge found that the work-for-hire agreement — essentially a contract between Daniel and herself — ‘was a scam orchestrated by Daniel solely to withhold monies lawfully owed by Mt. Ivy to [the collaborator and author]‘.”
Fast forward to the reincarnation of the case, featuring this time round the publisher as plaintiff suing the author and collaborator to set aside the damages award from the first case on the grounds that the author’s memoir was a fabrication. The court noted that “[a]t all material times during the prior trial and appeal, Defonseca held out her story as a true and authentic account of her childhood in Europe during World War II,” but “when confronted with evidence unearthed by Daniel and others, Defonseca admitted that her Holocaust memoir was a hoax.” Mt. Ivy Press, L.P. v. Defonseca, 78 Mass. App. Ct. 340 (2010), further appellate review denied, 459 Mass. 1103 (2011). A Boston Globe article of February 28, 2008 reported that Defonseca candidly “acknowledged” that “every essential element of her autobiography [was] false, that her trial testimony was perjured and that every document she filed with the [Superior] Court when acting as her own counsel, was intended to mislead the Court and the jury.”
The court agreed with the corporate publisher and its president as to the author and set aside the award, but the fraud doer president didn’t get off scot free. It let stand the award to the collaborator because “[t]he plaintiffs have not alleged that Lee has committed any fraud or misconduct, let alone the kind of extraordinary fraud that could justify setting aside an eight year old judgment.”
Agency agreements are not forever. Not like publishing agreements in which authors grant licenses “for the term of copyright.” Nevertheless, for the term of of agreement the agent has an exclusive right to place an author’s work and if the author retains another agent before termination of the first and is successfull the author is exposed to a double commission. It would therefore be prudent for the author to calendar the date for termination of the agency agreement and terminate according to the terms if she has lost confidence in the agent. There is no early termination without an agreement in writing.
Some provisions in agency agreements are unacceptable and should be questioned. There is a difference, for example, between a literary agent and an agent who manages an author’s career. A literary agent’s rights extend only to offering the work. More importantly, if the agent is successful in placing the work it is he who collects advances and royalties on the author’s behalf. Publishers and licensees pay agents who then distribute to their principals. This calls for a degree of trust in strangers. How those funds are accounted for (whether segrated in a subaccount and not comingled) and when distributed are important elements in the agreement. Breach of contract and fiduciary duty is not unknown. Payments due author are terms that have to be taken into account in reviewing and negotiating an agency agreement. In an unpublished decision from a New York trial court from 2006, Fay v. Yost co-authors charged their literary agent with failing to provide account statements in a timely manner and remit royalties earned from foreign sales. The court denied agent’s application to dismiss the complaint as against her on the theory that her agency was a corporation.
Authors should turn around the “know your customer” rule under securities laws to “know your agent” before signing an agreement. (Not all literary agents use written representation agreements; rather the author’s obligation to pay commission is drafted into the agency clause in the publishing or licensing agreement). Agency commissions are typically deducted upon the agent’s receipt of income before distribution to the author.
Aside from compensation and distribution of royalties — in Yost, the authors were unaware of foreign placements of their work — authors should also pay attention to the scope of agency. The larger the scope the more important to have a clearly spelled out early exit right. Literary, management, and licensing agreements are essentially performance based. Agents are only paid for success. However, as the market has tightened for print books some agents demand more than simply the right of placing an author’s work. The scope of services term should not be uncritically accepted. (Some non-traditional “publishers” have also expanded their services to include agency representation for subsidiary and ancillary rights. Watch out!).
Scope of services should be no greater than the agent is capable of performing. Question whether the agent should, for example, include in his provence any of the exclusive rights under the copyright law that the author would ordinarily retain in negotiating a publishing or licensing agreement. Dramatic, performance and movie rights should be granted to specialized agents (but not necessarily literary agents) who have the expertise to exploit them. Whatever terms are offered and ultimately accepted should be clear and precise. This applies not only to the handling of funds, but also to the scope of services and separation provisions.
Scope of services was the subject of one recent agency agreement. The agent’s services included “development” of “your literary career.” This gives the agent the opportunity to throw in every right the author owns. This particular agreement read
Such representation shall include, without limitation, all rights to the Work, including, but not limited to, exploitation of the following: hardcover, paperback, serialization, condensation, translation, anthology, periodicals, electronic (including electronic books and electronic multimedia versions), motion picture, television, radio, dramatic, audio, video, commercial, and merchandising rights.
Even if it were appropriate to expand an agent’s role to television and movie rights they should never be given wholesale. Such a scope presupposes that the agent is qualified to negotiate and market to licensees the rights he is supposedly representing. If an author is tempted to do this, she should insist on a termination clause if no substantive negotiations commence within a stipulated time. The agent in the above grant of rights clause who would assist in the development of the author’s career wanted 2 years to exploit the work from receipt of an acceptable manuscript (rather than from execution of the agreement). Other agents ask for one year with notice. (Note: All agencies terminate automatically on the death of the principal, although accrued commissions continue to be earned under active contracts and survive an author’s death).
A typical termination provision reads: “This agreement shall remain in full force and effect until either of us gives the other written notice terminating the agency” following a stipulated period of time, which should not be unreasonably long. There are three possibilities at the time author exercises her right to terminate: the agent has performed and earned his commission for the life of the contract; agent is in negotiations; or, agent has exhausted all opportunities to sell or license the work. If the middle circumstance and the negotiations are unsuccessful, agreements typically provide that the author cannot (within a stipulated period) conclude an agreement with any contractor found by the agent without having to pay the commission set forth in the terminated agreement.
Some agency agreements, in fact the one mentioned above provide what could be considered a penalty, namely a provision that breathes the agency agreement back to life if the author subsequently succeeds where the agent could not in negotiating with a contractor originally identified by the agent. A back to life provision is less questionable if the author terminated the agent with the intention of avoiding paying the commission. Otherwise, if a back to life clause cannot be resisted it should be limited to provide an appropriate exit within a further stipulated period of time.
A reader has asked for some clarification on contract terms. Authors should not fixate on the myth of “standard” terms, but there are terms that publishers tare adamant about that may have to be adjusted to accommodate particular circumstances. One such term is the non-competition clause. It means what the publisher says it means when the term is dusted off and invoked. Here is a sample provision from a “big-6 ” publisher:
(a) The Author will not authorize or arrange for the publication, distribution or sale in the Exclusive Territory, otherwise than by the Publisher, of any work by the Author (or anyone who receives an author’s credit on the Work) that will directly compete with the work or diminish the value of any rights granted to the Publisher by this Agreement where such publication, distribution or sale will take place at any time during the term of this Agreement.
This provision has been in the news and is worth reflecting on. The New York Times reported recently that “Amazon Signs Up Authors, Writing Publishers Out of Deal” (David Streitfeld). This is what Mr. Streitfeld noted:
For a sense of how rattled publishers are by Amazon’s foray into their business, consider the case of Kiana Davenport, a Hawaiian writer whose career abruptly derailed last month.
In 2010 Ms. Davenport signed with Riverhead Books, a division of Penguin, for “The Chinese Soldier’s Daughter, a Civil War love story. She received a $20,000 advance for the book, which was supposed to come out next summer ”. Ms. Davenport picks up the story in her Blog of August 26, 2011:
Recently [the] publisher discovered I had self-published two of my story collections as electronic books…. The editor shouted at me repeatedly on the phone. I was accused of breaching my contract … [and] of blatantly betraying them with Amazon….
Upshot? Based on the non-compete provision, Riverhead terminated the contract and demanded return of the advance. The standard no-competition term contains no objective standards for measuring what is meant by “competitive.” For a publisher to assert that story collections would “diminish the value” of the Work is totally subjective, of course and perhaps unreasonable. There are several points of interest in the case if it were to proceed to a lawsuit.
One question is, Is it reasonable for the publisher to believe that short story collections would be competitive with a novel (after all, it could argued contra that the collections would enhance rather than diminish value by giving additional weight to the brand). The subjective element of the provision creates ambiguity. What standard is to be applied? If ambiguous, contracts are read against the draftsman and in favor of the other party. Further, if termination and demand for return of the advance were found to be out of pique with the author for having the gumption to package the collections with Amazon for self e-publication it would not sit well with the jury.
Terms are not set in stone, however. They can be negotiated, or if refused a business decision would then have to be made to go along or look elsewhere. Authors having published works they want to return to market should negotiate for the publisher’s approval.