Sunday, August 19, 2018

How to Draft a Bad Publishing Contract (Indie Publisher Interest)

The author-publisher agreement is a publisher's most valuable asset.  The purpose of  this article is to illustrate one potential danger in using form contracts. While it may feel comforting to have a written agreement, a poorly drafted assignment clause can be a financial disaster when you wish to sell your publishing company. 

Avoid the Non-Assignment Clause

When the owner of a publishing company wishes to sell their company, they will need to establish the value of the business they have built. The sale price will be based on the discounted cash flow of the company, the goodwill associated with the company's trademarks, and the soundness of its author agreements.

Typically, a well-drafted publishing agreement allows for the sub-licensing of rights and the assignment of the contract itself.  Unfortunately, independent publishers often rely on  contracts found online, or slavishly copy ones found in form books.  The problem with form contracts is years later they may may discover that the right to sell their publishing company is prevented by a non-assignment clause.   

Avoid the Non-Assignment Clause in Book Contractse

The biggest mistake start up publishers make is not paying attention to contracts.  A properly drafted assignment clause allows a publisher to assign their rights to a third party.  

Experience is a hard school. To illustrate: Owen, a successful independent publisher, with a backlist of 65 books, decides to sell the assets of his company. In his late-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 his company’s author agreements, foreign translation licenses, copyright and trademark registration certificates, financials and other important documents for the prospective buyer to review. To his dismay, his attorney and broker call to say the deal has gone south because the publishing agreement he filched off the Internet when money was tight, contains a non-assignment clause. The clause reads, “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 a smooth business transaction, requires all of Owen's authors to consent to the sale, and, in one instance, all of a deceased author's uncompromising heirs. Plus, the author of the crown jewel of Owen's backlist (which generates 50% of the company's gross annual revenue) planned to use the pending sale to renegotiate their contract.  Was there a way around the discretionary power Owen inadvertently invested in his authors?  Perhaps.  

Typically, the sale of business is structured in one of two ways; as a stock sale of the entire company, or an asset sale of individual assets.  In certain states the acquisition of stock in the target company will not violate an anti-assignment clause. However, buyers prefer assets sales.  
 
In addition to resisting non-assignment clauses, the burden is on the publisher to include language in their publishing agreement that allows them the right to assign the agreement or sub-license rights.
 
Publishers should think twice when agents and author ask to insert an non-assignment clause in your contract. Be mindful that altering boilerplate provisions,  including warranty and indemnity clauses, can have profound real world consequences.
 
When a non-assignment clause is imposed upon you by a agent or attorney, try to mediate its impact by carving out an exception for the sale of substantially all of your company's assets, or the sale of the company to a related company. If you  agree to a non-assignment clause for a particular transaction, be careful not to use that version of the agreement as a template for future deals, unless, of course, that is the intent.
 

Aside from creating a unique brand, protecting your intellectual property, and insuring against media perils, the best way to add value to your company is investing in a well-drafted publishing agreement. Not only will it protect you against unnecessary legal risks, but it will allow you to reap what you have sown.   


Lloyd J. Jassin is a publishing attorney and entertainment lawyer.  He counsels clients on contract, licensing, copyright, trademark, unfair competition, defamation, right of privacy and general corporate law matters. His practice includes drafting and negotiating publishing and entertainment industry contracts, intellectual property due diligence, trademark prosecution, dispute resolution and litigation. A graduate of Benjamin N. Cardozo Law School, he is co-author of The Copyright Permission and Libel Handbook (John Wiley & Sons).  He can be reached at 212-354-4442 or via email at Jassin@copylaw.com.


Related Blog Post

A Helpful Checklist for Book Contract Negotiations

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