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When lawyers talk about “standard” clauses and courts refer to publishing contracts as “standard agreements” it is not to suggest that there is a standard form such as we expect for certain real estate transactions. What we mean by “standard” is that the contract clauses address similar concepts of rights and duties expressed in language differently crafted by each publisher. We will comment on the standard clauses from the Author’s perspective. The reason to emphasize the Author’s perspective is that publishing contracts are not negotiated from the ground up. They are prepared by the Publisher and delivered to the Author as though ready for signature. And, many Authors (some to their regret) sign without understanding what the contracts contain or what rights they are giving up.
The first of the so-called “standard” clauses in traditional publishing contracts is the Grant of Rights. Depending on the business model the author will grant many of her rights for the term of copyright to a traditional publisher, fewer rights for a limited term to an ebook publisher, or retain all rights granted under the Copyright Act if she self publishes.
We start from the proposition that if a Publisher offers a contract to an author the rights it is bargaining for have significant economic value. Contracts signed without negotiation are drafted primarily with the publisher’s benefits in mind and only incidentally with the author’s. Publishers understand this and are generally amenable to making some contractual changes as long as the changes don’t undermine their economic interests.
U.S. copyright law and the Copyright Act are never far from publishing contracts. A logical beginning is to consider the following questions:
1. What rights does an Author have that a Publisher would want to license? And,
2. Where do the rights come from?
The answers are in the U.S. Copyright Act. Section 102 provides that “Copyright protection subsists … in original works of authorship fixed in any tangible medium of expression. “Literary works” is the first of 8 categories of “works of authorship.” Other “authors” include composers, dramatists, choreographers, artists, sculptors, and architects.
Section 106 of the Copyright Act lists the exclusive rights granted to Authors. The list is commonly referred to as a “basket of rights.” The Author has the exclusive rights to do and to authorize others to
reproduce the copyrighted work
prepare derivative works
distribute copies to the public
perform the work and
display the work publicly
This basket of rights is divisible, meaning that individual rights can be licensed separately. Authors should resist giving Publishers every right they have. There is no point, for example, in giving most Publishers “performance” rights, which they will not be able to exploit. Most authors do not want to give up their right to prepare derivative works, yet some publishing contracts contain language that does just that.
At a minimum Publishers ask for the rights to reproduce, publish, distribute and sell a book to the public. A “standard” Grant of Rights clause reads:
The Author grants to the Publisher the sole and exclusive right during the full term of copyright and any renewals or extensions thereof to exercise and license (i) the right to reproduce, publish, distribute and sell the full length Work in the English language in a product reproduced in print-on-paper or other physical media (“book form”); (ii) the right to use the full length content of the Work in the English language in electronic media; and (iii) the subsidiary rights to the Work specified below, in the following territories.
You will notice that the Grant of Rights clause contains six elements:
1. The “sole and exclusive right” to exploit the Work;
2. For the full term of copyright and any renewals or extensions;
3. To reproduce, publish, distribute and sell the Work;
4. HOW? In “book form” AND in “electronic media”;
5. The right to sublicense subsidiary rights; and
6. All rights are to be exercised in stipulated territories.
Under the 1976 Copyright Act the full term of copyright (if the contract is not terminated earlier) is the life of the author plus 70 years. Publishing contracts also enumerate the Subsidiary Rights granted in a separate clause. We will discuss subsidiary rights in another essay.
Whether money is the motive for writing – “[n]o man but a blockhead ever wrote, except for money” (Samuel Johnson) – or only one of the rewards for those lonely hours of composition, how does the author get paid? Before she reaches the “royalties” clause in her publishing contract she has to negotiate the “grant of rights”. What is she giving up for what she is getting? In exchange for granting rights that may extend beyond the grave, she earns royalties
Royalties were not an established convention in Samuel Johnson’s writing lifetime. What is the current practice? Royalties for trade books are typically based on list or catalog price, although some publishers pay on net receipts and net receipts are offered by traditional publishers for e-books. List price is better for the author. If royalties are based on net, it is crucial for the deducted expenses to be clearly defined. Thus, if the list price of a hardcover book is $36. and royalties (before escalations) are 10% the author’s account will be credited $3.60 per sale. Trade paperback and mass market paperbacks are similarly treated. It matters little to the author that the publisher discounts her books to a retailer because the discount does not affect royalties.
E-books are priced different. It makes a difference whether the publisher subscribes to the “agency” or “wholesale” model. This is so because under the agency model (which five of the big six publishers negotiated with Apple in 2010 and to which presently all six subscribe) the publisher rather than the distributor sets the price. The typical royalty provision for e-books reads “If published as an e-book edition, 25% of the net amount actually received from such sales.” If the distributor (Apple under the “agency” model) takes a “commission” of 30% the author will receive 25% of 70%. If the e-book price is fixed at $9.99 the publisher will credit the author’s account $1.75. (John Sargent, CEO of Macmillan in his letter to Staff following an unsuccessful meeting with Amazon on the “agency” model in January 2010, before Amazon acceded to it, stated that “[o]ur plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99. At first release, concurrent with a hardcover, most titles will be priced between $14.99 and $12.99. E books will almost always appear day on date with the physical edition. Pricing will be dynamic over time.”).
Independent e-book publishers subscribe to the “wholesale” model. A typical e-book contract may provide for
a royalty of fifty percent (50%) based upon Publisher’s Net Receipts for the first 2,500 units sold and sixty percent (60%) based upon Publisher’s Net Receipts thereafter. Net Receipts shall mean the amount actually received by the Publisher from the sale of the electronic editions of the Work, net of the following items: charges of third parties which sell the Work through websites or other distribution channels.
Assume an e-book has a list price of $9.99 and a discounted price of $4.99 and that the platform distributor (Amazon or Barnes & Noble) under the “wholesale” model) takes 30%, then publisher will credit author’s account $3.50 (at 50%) and $4.20 (at 60%). If the “agency” model survives an anticipated Justice Department lawsuit against the five publishers who crafted it, consumers will continue to lose on price and authors (at 25% of net) on royalties.
Section 106 of the Copyright Act reads:
[T]he owner of copyright under this title has the exclusive rights to do and to authorize any of the following(emphasis added):
(1) to reproduce the copyrighted work in copies …;
(2) to prepare derivative works based upon the copyrighted work;
(3) to distribute copies… of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly;
(5) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly….
As a rule of thumb an author should grant the publisher the rights necessary to successfully exploit her work in the medium in which they operate in consideration for which she will receive a fair return on her creative investment. Royalties are fairly uniform among publishers although it is possible to negotiate higher rates based on units sold and bonuses for weeks on bestseller lists. The rights that should be granted to publishers or through agents to specialized licensees depends on the nature of the work to be licensed. Terms that may be appropriate to genre inventions are not appropriate for textbooks productions.
A review of a number of recent publishing contracts from reputable mainstream publishers indicates an increasingly broader demand that the author transfer all of her discrete rights granted under the Copyright Law. Not only exclusive rights to “reproduce, publish, distribute and sell” the work which is “standard”, but exclusive rights to license the work for motion pictures, theatrical, dramatic, and radio and television broadcasting, digital and electronic media and adaptation, and merchandising and other rights for commercial use.
Should publishers get all that they request? If all these rights were granted and none retained the author would lose control of her property and potential economic benefits. Since many of these rights are ancillary to publishing they are more appropriately the province of licensees in the business of exploiting works in those different media. Rights typically transferred to a publisher include “subsidiary rights” – first serial (before) and second serial (after) publication – and translation rights. Income from subsidiary rights is typically divided between publisher and author. Merchandising and commercial rights are more logically granted to parties with expertise to exploit them. If these rights are granted they should be subject to reversion after a limited time and reverted if not exploited.
A troubling provision in contract from a major publisher deals with one of the author’s principal rights in a disguised way. It appears in a clause describing ownership of intellectual property. Under the Copyright Act an author has the exclusive right to “prepare derivative works based upon the copyrighted work.” One contract from a major publisher presumes to authorize the Publisher to “create or to authorize others to create [derivative works] … [that] will, at the Publisher’s option, be owned by the Publisher….” In agreeing to this provision the author would relinquish rights she could license for motion pictures, television and dramatic performances.
By all means be happy that a publisher is interested in your work, but be careful before you sign away more rights than a publisher or licensee can reasonably exploit or the author should reasonably be asked to give.
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:
COMPETITIVE WORKS
(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 [2012]”. 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.
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