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How to Read a Book Contract – Defined Terms

11 May 2011

One comment to yesterday’s post discussed the term, “Net Revenue.” What does Net Revenue mean? What gets subtracted from Gross Revenue before it’s Net Revenue?

When a word or a phrase is subject to more than one possible interpretation, it should be defined. Defined Terms is what these are often called in a contract. In many contracts, either near the beginning or the end, a list of Defined Terms is set forth.

Defined Terms are a wonderful place to hide gotchas. Why? Because, regardless of how a term may be used in everyday conversation or in a particular industry, for purposes of the contract, the parties agree that the term will have the specific meaning set forth in the definition.

For example, when you see the term, “Gross Revenue from Ebook Sales” in a publisher’s contract for your book, you might think that term means the total of the checks the publisher receives from Amazon, Nook, etc.  However, if the contract defines “Gross Revenue from Ebook Sales” as “Sums received from the sale of ebooks less Publisher’s allocated overhead expenses,” you would be wrong.

One of the coolest ways to hide gotchas in a contract is through a combination of Defined Terms. Defined Term A is long and complicated and the definition includes two other Defined Terms. In order to understand Defined Term A, you need to understand and mentally insert the definitions from the other two Defined Terms.

Good contract drafting practice says that Defined Terms will be capitalized or bolded in the contract to alert a reader that a definition of the term exists. However, no law requires this. Imagine a 75-page single-spaced contract with no capitalized terms and, on page 74, a short sub-paragraph in a section titled, “Miscellaneous” defines a couple of terms.

Easy to overlook? Oh, yes. Intentionally so. As an alert author, you don’t overlook this paragraph, so you need to start reading the contract again and mark every instance of the defined term to make sure you understand what the contract provisions really mean.

Lawyers send contract drafts back and forth in word processing files. Occasionally, an attorney thought I might have just fallen off the turnip truck and sent me a PDF. My immediate response was to ask for the word processing file instead. This makes it easy to search for all the defined terms in the contract and see how they’re used. If the defined terms aren’t capitalized, you can search and replace to make them that way so you know not to relax and assume they mean what they sound like.

So, are Defined Terms always bad? Oh, no. Defined Terms can be your friend.

Every business or industry has a litany of terms that mean something special in that industry. The publishing industry is no different. One of the problems is that a term may mean one thing to a big New York publisher and another thing to a regional publisher in New Mexico.

Some publishers include vague provisions in their contracts, either intentionally or because they’re sloppy. When an author calls to ask what it means, someone at the publisher may give them a definition over the phone. When your New Mexico publisher is acquired by a German conglomerate, the acquirer will look at the contracts and decide what the vague provision means. “Jane told me on the phone . . .” is not where you want to be when that happens.

Warning bells should sound if you’re not sure what a term or contract provision means or you wonder, “How does this work?” Before you sign the contract, ask what it means and how it works. If you’re satisfied the explanation doesn’t make the contract unacceptable, say, “Let’s put that definition in the contract, so there’s no possibility of a misunderstanding in the future.”

Define everything that is vague or subject to more than one interpretation. Be particularly careful of any term that includes words like, “reasonable” or “usual” or “customary” because people can disagree on what is reasonable. Over the extended time period covered by a publishing contract, what is customary may radically change and you don’t want to have to hunt around for an ancient publishing executive to explain what customary meant forty years earlier.

An agent who has never been in contract litigation may not want to seem out-of-touch with the way things are done and try to persuade an author that everybody knows what a term means or how net revenues are calculated. Resist those persuasions. It is a trivial amount of work to put this all in writing.

Another reason for definitions is that, while everybody involved in negotiating a contract may be conversant with standard publishing terms and lingo, if a disagreement happens and you go to court, a judge who probably knows nothing about the publishing business will decide what the contract means. If you have a lawsuit about a publishing or agency contract, you don’t go to a publishing court. You go to a state or federal court and are assigned a trial judge who is very much a generalist. She heard a drug possession case before she hears your publishing contract case and will handle an auto accident case after she finishes with your dispute.

Yes, you can bring in witnesses to explain to the judge what these specialized terms mean, but I guarantee if a disagreement leads to a lawsuit, the publisher’s attorney will call witnesses who explains the contract terms a little differently and to your detriment. It’s much easier to get the terms defined properly in the first place.

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6 Comments to “How to Read a Book Contract – Defined Terms”

  1. Nice job with all of this contract stuff, Passive Guy. Thanks and keep it up, please.

  2. I love your posts. Question: If a term is not defined to give it special meaning for the contract, should we assume that normal usage applies?

  3. Steve – Normal usage does apply for undefined terms. Unfortunately, for anything related to accounting, e.g. expense, income, gross, net, or to a particular industry, disagreements concerning exactly what a term means can arise.

    I tend to define more terms than may be strictly necessary because of the potential for a fight down the road. Between an author and publisher, the publisher wins the fights on definitions unless the author is prepared to go to court.

  4. Excellent article. Thanks. I’m going to forward a link to other writers so they can read this.

    • Sorry for the slow reply, Russ. Thanks for forwarding a link to The Passive Voice.

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