PUBLISHING AGREEMENT FAQs (Part Two)

Photo by Patrick Tomasso on Unsplash

Photo by Patrick Tomasso on Unsplash

How are an author’s royalties calculated?

Publishing resembles a game:  the parties are aligned in some, but not all, respects. Both sides share the goal of enticing the public to purchase the book, but their interests diverge when it comes to the division of resulting revenues. Both sides want the greater share. An author’s share comes typically in the form of royalties and the basis of royalty computations, as well as the amount, deserves careful attention. A royalty based on a fixed percentage of a book’s cover price favors the author when it comes to certainty. A division of net revenues (that is, income after certain permissible deductions) may favor the publisher. Both bases are likely to permit the publisher to withhold a ppercentage ofan author’s earnings as a reserve against bookstore returns. That’s reasonable. Insist, however, on knowing each category of claimed deductibles. Resist those that are attributable to the publisher’s unpaid invoices (not the author’s fault) or reserves held for more than a single accounting period.

How often should royalties be paid?

The publishing agreement may call for royalties to be paid quarterly, semiannually or annually. Keep in mind that the longer the time between payments, the more the author steps into the shoes of the publisher’s banker.

What are termination provisions?

Termination provisions should identify each party’s exit strategy. Such provisions are typically aggregated near the end of the publishing agreement, but it is not unusual to find some scattered throughout. All should be expressly enumerated wherever the grounds for termination are discussed so that none is overlooked. An agreement may be terminated in whole or in part, and each whole or partial termination provision will likely have financial consequences that should also be explicit. By way of example, a publisher may reserve a right to terminate an agreement if an author fails to deliver an acceptable manuscript in a  timely manner. An author should be able to terminate an agreement if royalties are not timely paid or the publisher otherwise fails to perform its contractual obligations.

What does a publishing agreement have to say about an author’s next work?

Naturally, a publisher wants to reap the rewards of an author’s success. Typically publishers attempt to claim a right of first refusal with respect to an author’s next work in a similar genre. “Show it to me first,” the publisher seems to be saying, “and if I’m not interested, you may take it elsewhere.” In addition, the publisher might insist on a right to match or improve on a competitor’s offer. Meanwhile, the clock is ticking, and the competitor’s interest might wane. Demand if you can that the publisher make its best offer upon initial review and not reserve a right to piggyback on a competitor’s judgment of the value of your next work. Instead of a right of first refusal, bargain for a right of first negotiation and resist any effort on the publisher’s part to impose on your next book the same economic terms that exist in your current contract.

ABOUT MITCH TUCHMAN

Mitch Tuchman is of counsel to Morningstar Law Group. Before becoming an intellectual property attorney, Mitch Tuchman spent ten years as a freelance writer/ editor and fourteen years as publisher of exhibition and collection catalogs at the Los Angeles County Museum of Art. Having been both a publisher and writer, Mitch has a unique understanding of copyright matters and helps writers and other creatives optimize the value of their works, defend their rights, and develop mutually beneficial business relationships.

For more about Mitch and his practice, please visit morningstarlawgroup.com/mtuchman and www.ncpublaw.com.

PUBLISHING AGREEMENT FAQs (Part One)

Photo by Patrick Tomasso on Unsplash

Photo by Patrick Tomasso on Unsplash

In a world before self-publishing—and still today—authors with the ability to write but not the wherewithal or desire to print, promote and sell books in commercial quantities engage publishers to do so. Under grants of rights from authors, publishers promise to produce copies of books and offer them publicly. They look to resulting revenues to compensate for their costs and risks, sharing a portion of earnings with authors, who are in turn relieved of the burdensome business of bookselling.

This is the essence of the bargain known as a publishing agreement, though it commonly contemplates other rights, other products, other revenues. No one size fits all, but there are certain universals. Here are just a few. If you have questions or concerns, please contact me.

What rights does a publisher acquire from an author? What rights should an author grant?

A publisher typically wants the author to authorize an exclusive, worldwide license to exercise all of the author’s rights under copyright and the ability to authorize others to do so throughout the entire term and territory of the agreement. This might serve an author’s purposes but only if it doesn’t constitute “biting at air.” Know what your publisher has accomplished for writers who came before you with respect to each of the rights under discussion.

Ascertain whether your publisher has arranged for such things as foreign-language editions or the sale of motion picture rights, and if not, grant such rights sparingly if at all. Negotiate a reversion of any right not exploited by the publisher within a reasonable period.

What is the duration of a publishing agreement

The typical book publishing agreement recites its duration as the full term of copyright and applicable extensions and renewals, if any. Under current US law, the full term of copyright is the life of the author (or surviving joint author) plus  70 years. Say, an author writes a book at age 30 and lives till age 80. The duration of copyright is 50 (the difference between 30 and 80) + 70 = 120 years. As a practical matter, the duration of the publishing agreement is likely to be much shorter. The majority of books have a brief shelf life, certainly compared with the full term of copyright. Make sure that the agreement is terminable when the publisher declares the hard copy edition or softbound original out of print. Don’t let rights linger where they are unappreciated.

What geographical territories should a publishing agreement comprise?

Some agreement templates stipulate that the publisher’s rights extend “throughout the universe.” Simply put, the stipulated territory should be the territory where your publisher has a reasonable expectation of sales to customers or licenses to third parties and, better yet, a documented track record of having done so. Worldwide is too wide if the publisher does not serve overseas territories itself or through foreign associates. Ascertain the territories your publisher can serve effectively and negotiate a reversion with respect to any territory not actually served within a reasonable period.

Who owns the copyright in a published book?

The nature of most book publishing agreements is not a transfer of copyright ownership but a license under copyright granted by an author to a publisher for a reasonable length of time and breadth of territory. As an author you may wish, by way of example, to withhold dramatic rights. Before doing so, however, consider whether assisted by your agent or working alone you are any more likely to consummate a sale of such rights than your publisher is. Publishers frequently offer to register copyright in a book in the author’s name. If this not accomplished in a reasonably prompt manner, there can be unfavorable consequences for the author. You might wish to rely on yourself to ensure that an application to register copyright in your name is accomplished in a timely manner: no more than three months after first publication or one month after an infringement is discovered.

What are representations and warranties?

In agreements of many kinds each party seeks to shift liability to the other should adverse events occur. Representations by either party describe mutual declarations as the parties approach the starting line. Warranties are the representing party’s guarantees to stand behind those representations. With an eye to protecting its own interests in the context of a third-party claim of infringement, for instance, a publisher will insist that an author represent that he or she is the sole author (or joint author, as the case may be) of the work; the work is original, not copied from any preexisting work; the work does not violate any third-party right; no payment is due to any non-party on account of the publisher’s publication of the work; and so forth. A publisher’s insistence on an author’s carefully tailored representations is reasonable. Representations should not include covenants (that is, promises to perform future obligations) or survive the expiration or earlier termination of the agreement. Somewhat illogically, however, they often do.

ABOUT MITCH TUCHMAN

Mitch Tuchman is of counsel to Morningstar Law Group. Before becoming an intellectual property attorney, Mitch Tuchman spent ten years as a freelance writer/ editor and fourteen years as publisher of exhibition and collection catalogs at the Los Angeles County Museum of Art. Having been both a publisher and writer, Mitch has a unique understanding of copyright matters and helps writers and other creatives optimize the value of their works, defend their rights, and develop mutually beneficial business relationships.

For more about Mitch and his practice, please visit morningstarlawgroup.com/mtuchman and www.ncpublaw.com.

Monetary Recovery in Copyright Disputes

In a copyright infringement dispute in which the accused was indisputably liable, the plaintiff demanded $25,000 to settle the matter; the defendant countered with $12. You read that correctly.  Yet the parties settled. More about that later.

The Copyright Act of 1976, 17 U.S.C. §§ 101 et seq. (the “Act”), grants certain exclusive rights to copyright owners, among them the rights to reproduce protected works (that is, the right to make copies, hence “copyright”) and to distribute those copies.  Owners may exercise their rights or authorize others to do so, commonly in the form of a license. The exercise of those exclusive rights without authorization (absent an express exemption provided by law) is infringement, which at its simplest takes the form of an unlicensed use.

A copyright owner who prevails in an infringement action is entitled to monetary recovery.  Under the Act, the sources of recovery are (a) the owner’s actual damages and (b) any additional profits of the infringer or, alternatively, (c) statutory damages.  17 U.S.C. § 504(a). This deceptively simple formula reveals its complexity in practice.

To prevail on an infringement claim, the plaintiff must prove an ownership interest in a valid copyright and unauthorized copying of original elements of the protected work.  Lyons P’ship, Ltd. v. Morris Costumes, Inc., 243 F.3d 789, 801 (4th Cir. 2001).  Validity and copying are likely to be contentious issues, but as in any mediation the parties might be willing to compromise to avoid the cost and inconvenience of trial, not to mention the uncertainty created by the factual circumstances that affect trial outcomes, the deceptive simplicity of the statutory language—the term “damages,” for instance, is not defined in the Act—and the multiple rationales courts have articulated with respect to computations.

Plaintiff’s Actual Damages

“Damages are awarded to compensate the copyright owner for losses from the infringement.”  4 Nimmer on Copyright, § 14.03[A] (2017) (“Nimmer”).  Damages claimed by plaintiffs are at times more imaginative than the copyrightable creations at issue, and it is good to recall Judge Posner’s trenchant axiom: “Damages must be proved, and not just dreamed….”  MindGames, Inc. v. Western Pub. Co., 218 F.3d 652, 658 (7th Cir. 2000), cert. denied, 531 U.S. 1126 (2001), quoted in Nimmer, op. cit.  Defendants will attempt to identify and refute speculative claims.

There are numerous benchmarks for plaintiffs’ computations of damages, the most common of which appears to be the hypothetical fees the infringer might have paid to acquire rights legitimately.  Nimmer at § 14.02[B].  Other benchmarks have included, among others: lost customers, Univ. of Minn. v. Applied Innovations, Inc., 876 F.2d 626 (8th Cir. 1989); impairment of owner’s ability to authorize derivative works, Abend v. MCA, 863 F.2d 1465 (9th Cir. 1988), aff’d, 495 U.S. 207 (1990); and loss of market value, Faulkner v. Nat’l Geographic Soc., 576 F. Supp.2d (S.D.N.Y. 2008).

Defendant’s Profits Attributable to the Infringement

“The purpose of the award of defendant’s profits is ‘to prevent the infringer from unfairly benefitting from a wrongful act.’”  Nimmer at § 14.03.  The Act expresses the parties’ burdens straightforwardly:

In establishing the infringer’s profits, the copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.

17 U.S.C. § 504(b).  Questions will arise, however, with respect to what is “deductible” and what is “attributable.”  The Fourth Circuit has played a leading role here. See Universal Furniture Int’l, Inc. v. Collezione Europa USA. Inc., 618 F.3d 417 (4th Cir. 2010) (awarding plaintiff the entirety of defendant’s profits when, after repeated opportunities to do so, defendant failed to articulate its deductibles); and Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514 (4th Cir. 2003) (excluding from the computation defendant’s revenues (1) with no conceivable connection to the infringement or (2) where, despite such a connection, only speculation was offered to show a causal link between the revenue source and the infringement).

Statutory Damages

At the instigation of the plaintiff “at any time before final judgment is rendered,” a court may award statutory damages rather than actual damages and infringer’s profits in “a sum of not less than $750 or more than $30,000 as the court considers just.”  17 U.S.C. § 504(c)(1). Such award may be increased to as much as $150,000 or diminished to as little as $200 for each act of infringement depending on the court’s finding regarding the willfulness of the infringer’s act. 17 U.S.C. § 504(c)(2).

A plaintiff may elect statutory damages irrespective of evidence of actual damages and infringer’s profits, Nimmer at § 14.04[A], though lack of such evidence might motivate the election.  While an award of statutory damages is a creature of litigation, the possibility of an election and award has its place in mediation.

Settlement

In the case mentioned in the opening paragraph, plaintiff was the author of a book published two decades before the dispute arose.  Defendant was the author of a book on an identical subject who copied from the earlier book without permission or attribution. Assuming plaintiff’s sales decades after first publication were minuscule, defendant reasoned that the diminished income from sales reported by plaintiff to the IRS in the years immediately preceding and following publication of the accused book would be indicative of plaintiff’s damages.  Further, defendant’s own profits from book sales were negligible. With neither appreciable damages to one nor profits to the other, the parties settled in the low hundreds.

Mitch Tuchman, a superior court certified mediator, is of counsel to Morningstar Law Group.

(This piece was originally published in the February 2018 issue of “The Peacemaker,” the quarterly newsletter of the Dispute Resolution Section of the North Carolina Bar Association.)