Literary agents are the filters to the publishing industry; the first readers; and mainly indispensable. Acquisition editors rely on their tastes and take their calls. In relation to authors they are like as adventurers to booty: they seek and sell. Their fee, a commission for placing an author’s work, is spread over the economic life of the publishing contracts their efforts bring into being. What exactly is promised and performed and the commission the literary agent is entitled to is set out in the parties’ agreement. A literary agent typically receives a commission of 15% of the publisher’s gross revenues from book sales or licenses of subsidiary and ancillary rights. Author/agent agreements are terminable, but an agent’s right to commissions for services performed survives.
Authors are not captive to their agents. We stress “not captive” and “services performed” because these issues arose in Lampack Agency v. Grimes, an unreported New York case decided in October 2010, and further reviewed in an appellate decision announced on March 1, 2012 (1st Dept.) The appellate division affirmed the trial court’s judgment dismissing the literary agent’s complaint that it was entitled to commissions from contracts negotiated after the author terminated the agency. The questions raised and the answers given in this case are significant markers as to an agent’s right to share in proceeds from subsequently created production after his connection with the author has ended.
Whether or not there is a written agent/author agreement, commissions are protected through a clause incorporated into the publishing agreement, an “Agency Clause.” The agent’s theory in Lampack rested on the inclusion in the publishing agreement negotiated by the Lampack agency of an option provision for the author’s next work of fiction. The publishing agreement for the “option” work was negotiated by the author’s new agent.
The Lampack Agency included the following “agency clause” in the publishing agreement:
The Author hereby appoints [PLA] irrevocably as the Agent in all matters pertaining to or arising from this Agreement. . . . Such Agent is hereby fully empowered to act on behalf of the Author in all matters in any way arising out of this Agreement. . . . All sums of money due the Author under this Agreement shall be paid to and in the name of said Agent. . . . The Author does also irrevocably assign and transfer to [PLA], as an agency coupled with an interest, and [PLA] shall retain a sum equal to fifteen percent (15%) of all gross monies due and payable to the account of the Author under this Agreement.
If a discharged agent has negotiated a publishing agreement that includes an option on the author’s next work, is he entitled to receive a commission on the publishing agreement for the option book? Both courts in the Lampack case made it clear that if such a right exists it would have to be expressly stated in the agreement between the author and the agent.
What does it mean for the author to have “irrevocably assign[ed] and transfer[ed] to [an agent] … an agency coupled with an interest”? What an author “irrevocably assign[s] and transfer[s]” is limited to commissions paid as a percentage of the author’s earnings. “An agency coupled with an interest” (the trial judge citing a case from 1896) “[means that] as a part of the arrangement with the principal, the agent received title to all or part of the subject matter of the agency.” The trial court stated:
In this case, the commission provision grants PLA a 15% commission in the proceeds from its sale of rights in Grimes’ literary works and not an interest in those literary works themselves…. (Emphasis added).
The appellate court went a step further:
It is not reasonable to interpret the phrase “this Agreement” to include either extensions of the 1999-2003 agreements or an agreement for the future work mentioned in the 2005 agreement …. If Grimes and Penguin had meant to give plaintiff commissions on such extensions and future agreement, they would have said so, especially since the 2005 agreement had a specific Option on Next Work clause.
Indeed, to interpret otherwise (in the Court’s words) would produce an “absurd result.” Rather,
Interpreting “this Agreement” to mean only the actual contract signed by the parties, not future agreements or extensions, is consistent with the doctrine that “[a]n at-will sales representative is entitled to post-discharge commissions only if the parties’ agreement expressly provided for such compensation.” (Emphasis added).
An agent engaged for an unfixed period is entitled to commissions on future contracts only for services performed during his agency. The appellate court in Lampack reached back to a 1900 case to explain why an agent is not entitled to commissions received for contracts entered into after discharge with customers he originally secured. In that earlier case the Court held:
He was to have his commission upon all such business, not merely because he had secured these original contracts, but because he was there to aid, if necessary, in securing renewals or additional contracts, and in keeping his customers in touch with the defendant …. contracts. He was consequently entitled to commissions upon renewals or additional contracts which came in during his period of employment…. The customers were … not his when they chose to contract directly with the defendant after his connection with the latter had ceased.
The legal principle is clear. An agent’s right to commissions is for services that result in one or more contracts. The “interest” agents have which survives termination of their agency accrues from their having completed services. The expectancy, if there is any, comes from fulfilling the purpose for which the agent is engaged. The phrase “an agency coupled with an interest”, which refers to ownership of a literary property, does not belong in an Agency Clause because that is not what the agent has. In Lampack the phrase served only to invigorate a dispute. And, who wants that?
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.
The U.S. Supreme Court has described fair use as “a privilege in others than the owner of the copyright to use the copyrighted material in a reasonable manner without his consent.” The question often put is, How much can the taker use without violating an author’s copyright? The answer is, No more than is considered fair. The fair use defense “permits courts to avoid rigid application of the copyright statute when, on occasion, it would stifle the very creativity which that law is designed to foster,” Iowa State Univ. Research Found., Inc. v. American Broadcasting Cos., 621 F.2d 57, 60 (2d Cir. 1980). What is considered fair is measured in part by the taker’s status (a journalist, teacher, citizen) and his or her purpose in using another’s expressive content.
The Copyright Act identifies six examples of purpose for taking (the statute uses the phrase “such as”), namely “criticism, comment, news reporting, teaching, scholarship, or research.” If any such be the purpose, then the taking is assessed by considering
(1) the … character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted word as a whole; and
(4) the effect of the use upon the potential market for or value of the copyrighted work.
Takings for criticism and comment which may also raise First Amendment issues include creating “new ideas out of the old,” effectively transforming the old into something new. Parody would be an example that qualifies as fair use under a transformative use defense as may combinatory or reimagined works, although they would not be “presumptively fair.” In other words, the taking would still have to be judged on a “case by case” basis, Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 581 (1994), but parody “has an obvious claim to transformative value” and can therefore constitute fair use. The Court continued that it “would not be fair use if the purpose of the borrowing were to avoid the drudgery in working up something fresh.” In lay language we would call this plagiarism and when noted publicly has resulted in works being withdrawn from the market and pulped.
Other cases have established that copying verbatim from a copyrighted work weighs heavily against a finding of fair use. A recent case in New York pitted the publisher and author against a blogger who posted 21 pages of a book that it claimed were “leaked excerpts.” The U.S. Supreme Court held in Harper & Row Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 565 (1985) that reproducing portions of a copyrighted work verbatim is evidence of the qualitative value of the copied material and works against a finding of fair use. These cases generally involve significant takings of which a recent example is Salinger V. Colting, 641 F. Supp.2d 250, 256 (S.D.N.Y. 2009), affirmed 607 F.3d 68, 80 (2d Cir. 2010) .
The above cases, though, are in the magna category, sufficient to justify the cost of commencing an infringement of copyright action. They are large takings. Not surprisingly, there are few cases of small takings that hover on the boundary of fair use so there is no guidance on quantity of taking to be fair. There is no mathematical formula only a rule of thumb. For this reason, an author may expect that if her work is being considered for publication by a publisher and not self-published the editor will insist on her obtaining permission for lengthy quotations (“lengthy” in relation to the whole) that may cross the boundary of fair to unfair use.