The Business of Writing: RX for Contracts

by Daniel Steven (reproduced with permission of author)

Every mystery writer experiences a dual feeling of pleasure and unease when presented with a publishing agreement. Pleasure, of course, at the sale of a book or proposal; unease, however, about whether the deal is fair.

Publishing agreements are written by publishers’ attorneys and generally are heavily weighted in favor of the publisher (I know, I’ve written several). The typical contract is replete with “boilerplate” clauses used by all the major publishers and many of the smaller presses.

But won’t your agent protect you? Perhaps. Most literary agents, however, are former editors, proficient at brokering the major deal points such as advances, royalties, and subsidiary rights, but with only a cursory knowledge of the standard publishing clauses. In addition, most agents have surprisingly little understanding of legal terminology.

Whether you have an agent or not, it’s important that you understand some key contract provisions and their implications. Here are some of the common issues I see in my practice:

1. Rights. The standard publishing agreement will provide that the author licenses or assigns all “print” rights to the publisher, plus “subsidiary” rights: foreign, book club, electronic, film, audio, drama. This license generally will be for the term of the copyright (author’s life plus 70 years), but will revert to the author under the conditions set forth in the “out of print” clause of the agreement (see below). DANGER SIGN: watch for the magic words “work for hire.” If you see these words, it means you are giving up all rights to your work, forever. Novelists should never work for hire unless they are contracting with a book packager. If you don’t have an agent, you should know that all of these rights are negotiable, depending on your bargaining power. Always try to retain as many subsidiary rights as you can. Even first novelists should be able to retain film and foreign translation rights.

2. Royalties. Don’t fixate just on the royalty percentage; the key to royalties is not only the royalty percentage but what price the percentage is based upon. You must understand the implications of your formula before you can understand your proposed royalty rate. DANGER SIGN: watch for the words “invoice price” or “net receipts” or “net revenue” instead of “list price” or “cover price.” Invoice price differs from retail price or cover price by not including the “Freight Pass Through” to compensate the publisher for the cost of shipping, and thus the invoice price is less than the list price. “Net receipts,” of course, is the wholesale price; a novelist always should receive royalties based on list or cover price. (For subsidiary rights like foreign or audio rights retained by the publisher and sold to a third party, net receipts are okay, provided they are shared at least equally with the author.) Also be sure to check the “reserve against returns” language. DANGER SIGN: Many contracts allow the publisher a “reasonable” reserve against returns­-an intentionally vague provision. Try to get a “cap” on the reserve of between 10 and 25 percent, the lower the better; also try to limit the time that the publisher can hold the reserve to no more than one accounting period.

3. Warranties and Indemnifications. These are purely “legal” clauses often skimmed over by authors and not fully understood either by agents or editors. These paragraphs set forth the respective responsibilities of the parties in the event of claims by third parties against the book, such as for defamation, copyright infringement, or invasion of privacy. Drafted by the publisher’s lawyers, they often can be overbroad to a ludicrous degree. DANGER SIGN: the contract specifies that your indemnities take effect merely upon a claim being made, rather than upon a court decision. Instead, ask that your indemnities take effect upon a “finally sustained” judgment, so that you do not have to pay the cost of frivolous lawsuits. Also, try to get a “to the best of your knowledge” standard added to your warranties. Finally, require that the publisher must give you notice of any claim and consult with you before settling the claim.

4. Option Clauses. These clauses give the publisher the right to either buy or make an offer for the author’s next book. Best advice: don’t accept any option clause. Most publishers are willing to yield on this issue. If you can’t eliminate an option clause entirely, then make sure it imposes no real burden. DANGER SIGNS: any contract language requiring you to submit a completed manuscript, rather than a proposal; lengthy (more than 60 days) consideration periods for the publisher; and a requirement that you offer your next book to the publisher on the same terms as the current book. Ideally, you should aim at setting up a very limited period during which the publisher may bid on your next book (“right of first negotiation”), and per­mitting you to sell the book to other publishers if a higher offer can be obtained.

5. Out-of-Print Clauses. Your grant of rights to the publisher is generally limited only by this clause (in addition, since 1976, any author may terminate his or her grant of exclusive or nonexclusive rights after 35 years for post-1978 works). It therefore is critical that “out of print” be defined reasonably, especially now that digital and on-demand publishing can make the literal meaning of the clause obsolete. Ideally, the definition should be pegged to the publisher’s marketing efforts (when the book no longer is in the publisher’s catalog and/or available through major chains, it should be considered “out of print,” regardless of whether it can be bought online.

6. The Agency Clause. This is an almost universal clause requiring the publisher to send all royalties to your agent (if you have one), and to keep his/her commission before passing the money on to you. DANGER SIGN: Watch for the words “coupled with an interest” anywhere in this clause. Legally, this makes your agency relationship irrevocable; it should be deleted. You should have the right to direct the publisher to send royalty checks directly to you in the event you terminate your agency or in the event of the agent’s death or bankruptcy.

It bears repeating—if you are unsure about these clauses, ask a knowledgeable expert for help. It may save you from a great deal of grief.

Copyright 2004 Daniel Steven; Unauthorized Reproduction Prohibited. Daniel Steven is a lawyer practicing publishing, media, and information technology law in Rockville, MD (www.publishlawyer.com). He is the author of two novels published by HarperCollins, a nonfiction book, and a television sitcom pilot. He has worked as an editor, counsel, and executive at a major publishing house. He can be reached at dsteven@publishlawyer.com.