Wednesday, December 31, 2014

Good Contracts Make Good Neighbors

The Importance of Contracts in
Book Publishing

Drafting and negotiating contracts is an unwelcome, but necessary, part of being a publisher. Common complaints include: “Attorneys cost too much money"; “My word is my bond"; or "What can possibly go wrong?" These are three common (and potentially devastating) justifications that independent owners of publishing companies give for not paying attention to their author agreements. Contracts govern the needs and expectations of the parties, and if you are a publisher, your author agreement -- not your equipment or inventory -- represents the core value of your company.   When the owner of a publishing company wishes to cash out, the first task is establishing the value of the business.    The value of the company will be based on cash flow and the publisher's most valuable asset, its author agreements and subsidiary rights licenses.  

Contract Drafting

Standardized contracts are also powerful negotiation tools.  If you draft the agreement, you are in the driving seat when it comets time negotiate.   Many authors will simply sign the contract presented to them.  However, whether an author or publisher, a “one size fits all” book contract may have unexpected and unfair consequences. Problems often arise when publishers borrow agreements found online, and fail to conform the “borrowed” agreement to their business model (or their author’s legitimate needs). Sometimes, lacking the necessary business acumen, a start-up publisher may delete important provisions that they do not fully understand. A common misstep shared by independent publishers is striking language they don't understand.   

To illustrate, Owen, a successful independent publisher, with a backlist of 75 books, decides to sell his company. In his mid-50s, with no children to take over the business, his exit strategy is to bankroll the sale of his growing company into an early retirement. As part of the due diligence process, he compiles all of the company’s author agreements, and other important documents, for a potential buyer to review. To his dismay, his professional adviser calls to say the deal may fall through because his agreement (which he filched off the Internet when money was tight) contains a non-assignment clause (“Neither this agreement nor any right or obligation hereunder may be assigned or delegated, in whole or part, by either party without the prior express written consent of the other”).

What could have been  quick, friendly and profitable business transaction, now requires the consent of all of the publisher’s authors, and in one instance, all of a deceased author's uncompromising heirs. Owen knows that the author of his bestselling backlist title (which accounts for 50% of his annual revenue), will use the sale as an opportunity to renegotiate her contract -- a contract she desperately wants to get out of.   

If you intend to sell your publishing company tomorrow, or twenty years from tomorrow, you need to pay attention to your author-publisher contract today. As Owen discovered, a well-drafted publishing agreement is a publisher’s most valuable asset.

Taking the boilerplate provisions for granted can also have serious consequences for authors.

Before signing a contract it is important to understand what the contract says (not what the publisher says it means). In his autobiography, Twain lamented on his lack of legal acumen in negotiating a publishing contract with an onerous non-compete clause: “I made my contract for The Innocents Abroad with American Publishing Company. Then after two or three months . . . it occurred to me that perhaps I was violating the contract, there being a clause forbidding me to publish books with any other firm during the term of a year or so. Of course that clause could not cover a book which had been published before the contract was made; anybody else would have known that. But I didn't know it, for I was not in the habit of knowing anything that was valuable and I was not in the habit of asking others for information.. It was my ignorant opinion that I was honor bound to suppress The Jumping Frog book and take it permanently out of print. [My publisher] as willing to accommodate me on these terms: that I should surrender to him, free of royalty, all bound and unbound copies which might be in New Company’s hands; also that I hand him eight hundred dollars cash; also that he supervise the breaking up the plates of the book…. One may perceive by these details that [my publisher] had some talent as a trader.” Had Twain been wiser, he would have hired a publishing attorney to help him navigate around the competitive books clause in his contract.

Most publishing contracts today still contain Twain-like non-competition clauses that can prevent an author from publishing other books during the term of the contract. While no non-fiction publisher will strike its non-compete clause, if asked politely, most will offer the author a more palatable version of the clause than the one originally presented. In the case of fiction, the non-compete clause should be deleted. The literary result being the fiction publisher has to rely on the next book or option clause to protect its legitimate interests.

There is nothing demeaning or unseemly about asking a publisher to modify certain contract terms. For example, if a book is tied to an existing brand or business, most publishers will tweak their boilerplate out of respect for the author's branding (or trademark) concerns. Book contracts typically give the publisher (not the author) the right to determine the title of the work. If the book is an extension or outgrowth of the author’s existing business (e.g., Chicken Soup for the Soul®), asking for approval and ownership of the title – which also functions as a trademark – becomes a critical issue. But don't assume a publisher will change anything -- despite their assurances -- once the ink on your signature is dry. That's not how the Game of Authors is played. As negotiations are winding down, make sure you straighten out misunderstandings and memorialize what has been agreed to. Once a contract has been signed, the parties are under no obligation to vary the terms.

Why formal agreements are necessary.

The key to a good contract is clarity and an understanding of the business (not just legal) issues endemic to the publishing industry. Ambiguity and inconsistency are the two key ingredients in litigation soup.

For authors, it is helpful to keep in mind that most contracts are not take-it-or-leave-it propositions. Be courteous. Be tactful. Knowing what to ask for is critical. Use an agent or attorney who understands the parameters of the typical publishing deal to negotiate your contract. Also, working through an agent or attorney allows an author to preserve her creative relationship with the editor or publishing house, while her representative hammers out the business issues.

For publishers, an overly author-friendly contract can be a frustrating contract, especially if it serves as a roadblock to the sale of a publishing company, or the licensing of rights. Perhaps, Michael Joseph, a UK publisher, said it best, “No publisher can afford to fall in love with literature.”

Keep in mind that that the duration of most publishing contracts today are for the life of the copyright. If the book is financially successful the publisher and the author (or author’s heirs) will be bound together for a very long time. As the above examples should make clear, getting stuck with a bad contract is a long term, perhaps, intractable problem.

Beyond the Blog (Resources)

Author Guild

Dramatists Guild

National Writers Union (NWU)

Romance Writers of America (RWA)

Science Fiction Writers of American (SFWA)

Society of Authors (UK)

Society of Children's Book Writers and Illustrators (SCBWI)

Text and Academic Authors Association (RWA)

Independent Book Publishers Association (IBPA)

Negotiating a Book Contract by Mark Levine