HOW TO READ A PUBLISHING AGREEMENT
Publishing Agreements tend to be lengthy and complex documents, and publishers and authors usually benefit from obtaining legal advice rather than simply forging ahead on their own. However, even a publisher or author who elects to obtain legal advice can and should have a basic understanding of the key provisions found in a typical publishing agreement. Some of those provisions are discussed below:
Grant of Rights
Every publishing agreement will contain a grant of rights clause, by which the author grants certain exclusive rights to the publisher. These rights typically are divided into primary rights (the right to publish the book in all formats, including print and electronic) and subsidiary rights (other rights, such as the right to create and publish audio books, foreign language editions of the book, and adapted or condensed editions of the book; the right to grant others permission to publish excerpts from the book; the right to produce and distribute motion pictures or tv programs based on the book; and the right to produce and distribute merchandise based on the book or characters in the book).
Historically, publishers exercised primary rights and licensed subsidiary rights to third parties. However, the current trend is for publishers to acquire the right to exercise and license both the primary rights and the subsidiary rights.
A more logical approach to subsidiary rights is to determine which party is in a better position to market those rights.Authors are usually advised to retain as many subsidiary rights as possible. However, a more logical approach is often to determine which party is in a better position to market the various subsidiary rights in a work, and then let each party control those rights which it is most likely to exercise or for which it is most likely to find licenses. For example, unless an author is represented by an agent with strong foreign rights connections, it is unlikely that the author will have much luck licensing foreign rights to a single book. However, publishers typically have established licensing relationships with foreign publishers, and have the ability to package the author's book with several other books to secure foreign rights deals. On the other side of the table, an author may have a special connection with a television producer, playwright or other potential licensee, and, in those cases, the author should retain control over the specific subsidiary rights which the author is well positioned to license.
The author needs to ensure that the date for delivery can be met.Authors by nature tend to be procrastinators, and thus the manuscript delivery clause of a publishing agreement can be critical. Most agreements will require the author to deliver a manuscript, acceptable to the publisher in content and form, by a specific date. The author needs to ensure that the date for delivery can be met. If there are any doubts in this regard, the author should ask that the date be extended prior to signing the agreement, as it can be difficult to get an extension after the agreement is in place.
The author should also get clarification from the publisher as to the required form for the manuscript, and as to the publisher’s expectations as to content. From the publisher’s perspective, courts have generally held that a publisher cannot reject a manuscript out of hand, and must work with the author to revise the manuscript to the publisher’s satisfaction. Thus if the publisher finds the initial manuscript to be unacceptable, the publisher should be required to notify the author of its objections, and to give the author at least one opportunity to revise and resubmit the manuscript.
A publisher will typically want the right to make changes in an author's work, particularly if the author has never been published before, and an author will usually want his or her work to be published as written, or at least to have a right of approval over any changes made by the publisher. There is no right or wrong answer to this dilemma. Rather, it is up to the parties to reach an understanding, and to include that understanding in the agreement. A publisher who wants the unlimited right to make editorial changes or to change the title of the work should obtain that right in the publishing agreement. Conversely, an author who wants to control the editing of his or her work or set the title for the work should insist that the agreement require the author's approval before any changes can be made.
In most cases, an author will want to see his or her book get to market sooner rather than later. This generally holds true for the publisher as well, although publishers sometimes end up delaying publication dates due to other more pressing projects, staffing problems, cash flow considerations or for other reasons. Because of this, it is usually a good idea for an author to set an outside date for publication, and to have an option to regain the rights in the book if publication does not occur by that date. Having a publication deadline is also in the best interest of the publisher, as the publisher can pair that deadline with a liquidated damages provision. If the publisher fails to meet the deadline, the agreement will usually state that the author’s only remedy for the publisher’s failure to publish is to get back the rights in the book and to keep any advances that have been paid. This shields the publisher from any lawsuit for loss of royalties or other losses by the author arising out of the publisher’s failure to publish.
Representations, Warranties and Indemnification
A publisher will always require the author to represent and warrant that the manuscript is original and has not been copied from another source.The publishing business is not without risks. For example, a person other than the author of a book may claim that he or she is the real author of the book, or a person identified in the book may claim that he or she has been defamed by statements made in the book. In order to protect against these risks, publishers typically require authors to make certain representations as to the material included in their books, and to shield the publisher against any losses in the event those representations prove to be untrue. An author is in the best position to know if the material included in that author's manuscript has been copied from another source, has been previously published, is subject to any other contract or claim, or was told to the author in confidence. Also, an author who is an expert on the subject addressed in the book should know if the information contained in the book is accurate and correct. Accordingly, a publisher will always require the author to represent and warrant that the manuscript is original and has not been copied from another source, that the author is the sole author of the manuscript, that the manuscript is not already under contract to another publisher or subject to any claims of creditors, former spouses or others, and that the publication of the book will not breach any obligation of confidentiality of the author. A publisher will also require the author to represent and warrant that the information contained in the manuscript is accurate or is based upon reasonable research.
In addition to requiring the author to verify information which the author should know, most publishers also require the author to make representations and warranties as to issues which are not as clear cut. For example, an author will usually be required to represent and warrant that the material in the manuscript will not defame any person or infringe on that person's right of privacy or publicity, will not be obscene, and will not result in injury to any reader. In many cases, the question of whether material is defamatory, obscene or infringes on any right of privacy or publicity is a legal question that can only be resolved by a court. Accordingly, an author may ask that the representations and warranties on these matters be only "to the best of the author's knowledge."
In all cases, an author should ensure that his or her representations and warranties apply only to the material provided by the author, and not extend to any material that was added by or changed at the request of the publisher.
Indemnification essentially means that the author agrees to become an insurance company for the publisher. The most significant part of the representations and warranties section of a publishing agreement is the author's promise of indemnification. Indemnification essentially means that the author agrees to become an insurance company for the publisher should any person sue the publisher based on a claim that the author's book infringes that person's copyright, defames that person, violates that person's right of privacy or publicity, or causes any other injury covered by the author's representations and warranties. The publisher typically has the right to hire its own attorneys (at the author's expense) to defend against these claims.
The indemnification clause in a publishing agreement obviously exposes the author to a great deal of risk, and should, at a minimum, cause the author to review carefully all material that he or she plans to include in the book. In addition, in some cases an author may be able to limit the potential liability under an indemnification clause by adding one or more of the following provisions to the agreement:
- The author and the publisher will split all defense costs equally if any claim covered by the author's representations and warranties is abandoned, or if a court dismisses the claim or rules in favor of the author and the publisher.
- The author's indemnification obligations will apply only to an actual breach of any of the author's representations and warranties, as determined by a court. In other words, the author will not be obligated to pay for the cost of defending against claims that are found to be without merit.
- The author will have the right to approve all settlements made by the publisher.
- The author will be added as an additional insured under the publisher's media perils insurance policy. Until recently, large publishers were generally willing to add an author under their insurance policies. However, this has become less and less common as insurance costs have risen. Many small publishers do not carry media perils insurance, and thus will react with total befuddlement if asked to add an author as an additional insured under their (nonexistent) policy. However, even if a publisher has insurance coverage and is willing to add an author under the policy, the author should not assume that he or she is home free. Most policies have large deductibles, and the author will usually remain liable on the author's indemnification promise up to the amount of the deductible. In addition, many policies do not cover all of the possible claims that can arise out of the author's representations and warranties, and the author will remain liable for any claims not covered under the policy. Finally, a policy will provide coverage only up to the policy limits. If another book published by the publisher results in a multi-million dollar libel judgment, there may not be any coverage remaining for a subsequent claim arising out of the author's book.
The Money – Advances, Royalties, Payment and Accounting
Whether a publisher will or will not pay an advance for a book may depend on several factors, including the size of the publisher, the market into which the book will be sold, and the reputation of the author. If an advance is paid, it will usually be paid in two or three installments, with the first installment to be paid upon the signing of the publishing agreement, and subsequent installments to be paid upon delivery of a satisfactory manuscript and upon first publication. The advance should be nonrefundable, unless the author fails to deliver an acceptable manuscript by the due date in the agreement or any of the author’s representations and warranties turn out to be untrue. Under some agreements, if the publisher rejects the manuscript as unsatisfactory, the author will only be obligated to repay the advance from the proceeds received under any other contract that the author enters into for the work.
Royalties may be calculated as percentage of the retail list price of each copy of the book sold, or as a percentage of the actual amount that the publisher receives from each copy sold. The former is more common with larger publishers, and the latter is more common with smaller publishers, and for books in certain markets, such as textbooks and children’s books. The royalty rate, and, in some cases, the royalty base, will change depending on the type of sale. For example, the royalty for regular trade sales, at a discount of less than 55%, may be 10% of the retail price, but the royalty for sales at discounts of 55% or higher may be 10% of the net amounts received by the publisher.
In addition to royalties, an author will usually receive a share of the net amounts received by the publisher from licenses of any of the subsidiary rights in the book. For example, if the publisher grants a foreign language translation license to a German publisher and receives an advance of $5,000, the publisher will be obligated to share that advance with the author based on the formula in the publishing agreement. As a general rule, the publisher and the author share equally in proceeds from subsidiary rights licenses, but in some cases, either the author or the publisher may be entitled to a larger share.
Payments of royalties and shares of subsidiary rights licenses are usually made twice per year, although some publishers still adhere to a once per year payment schedule. Payments are usually made anywhere from 60 days to 120 days after the close of each accounting period. While a publisher’s payment terms may seem somewhat slow from the perspective of an author, the publisher is not likely to change its terms for an individual author, and each author under contract with that publisher will be paid in accordance with the same terms.
Although it is rare for an author to audit a publisher’s books, every publishing agreement should give the author the right to do so. Even if the author and the publisher have a relationship of complete trust, there is always the possibility that the publisher will later sell its business to another publisher with less honorable accounting practices. From a publisher’s perspective, an audit clause can be useful in that it allows the publisher to define, and perhaps limit, the scope of an audit.
Textbooks and other nonfiction works often need to be revised on a regular basis in order to remain saleable, and thus the publishing agreements for these books should provide for revisions. The author will typically have a right of first refusal to prepare any revised edition, although the author may lose this right if he or she declines to participate in a revision. Even if the author does not participate in a revision, the publisher will usually want the right to continue to use the author’s name with any revised edition (although the author may want to retain the right to remove his or her name from a revised edition).
The royalty to be paid to a nonparticipating author for the first revised edition will usually be the same as the royalty for the first edition of the book, less any costs incurred by the publisher in retaining another author to prepare the revised edition, but that royalty will most likely be reduced for any subsequent revised editions in which the author does not participate. For example, the author may get the full royalty, less any amounts paid by the publisher to another author to prepare the revision, for the first revised edition, and may get 50% of that amount for the second revised edition, with no royalty payable after the second revised edition.
Option for Next Work
Most publishing agreements contain an option clause which gives the publisher the first right to publish the author's next book. Under a typical option clause, the author must submit the manuscript for the author’s next work to the publisher before submitting it to any other publisher. If the publisher is interested in acquiring the book, the agreement specifies a time period during which the author and the publisher must negotiate as to the terms for publication. If the author and the publisher cannot agree on terms within the specified time period, the author is free to submit the manuscript to other publishers. Under some agreements, if the author and the publisher fail to agree on terms but the author receives an offer from another publisher, the author must bring that offer to the first publisher, and the first publisher will have the right to match or exceed the offer and acquire the book.
The Out of Print Clause
Most publishing agreements contain an "out-of-print" clause that allows the author to regain rights after the publisher has ceased publishing the book. The out-of-print clause should define “out-of-print,” and should outline the procedures for the reversion of rights to the author. For example:
- When will a book be deemed to be out-of-print? Possible definitions include: (1) if the book is no longer listed in the publisher's catalog; (2) if there are no copies or less than a specified number of copies available in the publisher's stock; or (3) if no copies or less than a specified number of copies have been sold in the past year.
- Should a book that is available only in electronic or print-on-demand format be deemed to be out-of-print?
- If a book is out-of-print, does the publishing agreement automatically terminate, or is the author required to give the publisher a notice of termination? If the author is required to give a notice, does the agreement terminate upon the giving of that notice, or is the publisher allowed a grace period in which to put the book back in print or to license reprint rights to another publisher?