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How to Read a Book Contract – Agency Coupled with an Interest

14 June 2011

In yesterday’s post about Agency Clauses, the sample clause included a claim by the agent that the 15% fee was “an agency coupled with an interest.”

This term has rightly caused concern among many authors. Done right, an agency coupled with an interest could well give an agent a piece of the copyright to the author’s book or books and could make the agency agreement irrevocable.

However, we have a recent opinion from the Supreme Court of New York County, New York, on this very topic based upon an agency clause that appears to be very similar to the one we reviewed yesterday. (A quick explanation about New York state courts – unlike almost every other state and the federal court system, the “Supreme Courts” in New York are the trial courts. This decision is currently being appealed to the New York State Court of Appeals, but if PG were a betting man, he would bet the appellate court will confirm the trial court’s decision.)

Here are the facts:

  1. Beginning in 1996, the Peter Lampack Agency (PLA) represented Martha Grimes, mystery novelist supreme.
  2. Ms. Grimes earned over $12 million during the 12 years PLA represented her.
  3. PG assumes that PLA never had an Agency Contract with Ms. Grimes because they didn’t talk about it in the lawsuit they filed later.
  4. In 2005, PLA negotiated a four-book agreement with Penguin.
  5. The 2005 Penguin contract included an Agency Clause very similar to the one we discussed yesterday.
  6. The Penguin agreement included an “option” – basically a right to negotiate – for Ms. Grimes’ next book.
  7. In 2007, Ms. Grimes fired PLA and hired another agent.
  8. In 2009, Ms. Grimes’ attorney sent Penguin the manuscript for The Black Cat and later signed a publishing contract for that book.
  9. PLA sued Ms. Grimes, Penguin and a bunch of Penguin subsidiaries, claiming it was owed agency fees on The Black Cat and other books of Ms. Grimes published by Penguin, based on the 2005 option clause and the fact that other books of Ms. Grimes were published under “extensions” of contracts PLA had negotiated before it was fired which contained standard agency clauses.

Here’s the version of the PLA agency clause the court included in its opinion:

The Author hereby appoints [PLA] irrevocably as the Agent in all matters pertaining to or arising from this Agreement . . . . Such Agent is hereby fully empowered to act on behalf of the Author in all matters in any way arising out of this Agreement . . . . All sums of money due the Author under this Agreement shall be paid to and in the name of said Agent . . . . The Author does also irrevocably assign and transfer to [PLA], as an agency coupled with an interest, and [PLA] shall retain a sum equal to fifteen percent (15%) of all gross monies due and payable to the account of the Author under this Agreement.

Ms. Grimes’ attorneys argued that she owed nothing because she terminated the agency relationship with PLA in 2007 and contended that PLA did not have an agency coupled with an interest.

The Court ruled on a Motion to Dismiss and Ms. Grimes was a big winner. Winning on a Motion to Dismiss is the trial attorney’s equivalent of a slam dunk right in the face of opposing counsel. Essentially, it means the judge concluded PLA had no case on most of its claims.

The Court’s opinion first stated the general rule that an agency for no definite term is revocable at will. The court then stated the second rule that when an agency authority is coupled with an interest, it becomes irrevocable. PG will spare you a lot of legalese, but the following is from the opinion:

An agency is coupled with an interest where, as a part of the arrangement with the principal, the agent receives title to all or part of the subject matter of the agency. . . .

[t]o make the power irrevocable, there must be an interest in the subject of the agency itself, and not a mere interest in the result of the execution of the authority . . . .]). Words alone are not enough to establish an agency coupled with an interest.

What does this mean?

In order to have an “interest,” the agent probably has to have a claim on the copyright to the book itself, not a claim against the stream of income generated by licensing a publisher to publish the book. The words in the agency clause stating that PLA had “an agency coupled with an interest” were insufficient to give it such an interest.

The words in the agency clause stating, “The Author hereby appoints [PLA] irrevocably as the Agent in all matters pertaining to or arising from this Agreement,” did not create an irrevocable agency agreement.

Since PLA did not have an agency coupled with an interest, its agency was revocable at will. PLA was not entitled to a commission from monies earned under publishing agreements made after its term as an agent had ended.

PLA argued that the language giving it the right to “fifteen percent (15%) of all gross monies due and payable to the account of the Author under this Agreement,” meant that, in addition to monies generated by the original four-book contract, it also had the right to monies generated under the option clause.

The Court found this language did not specify that PLA would receive a commission from the new publishing agreement made after the Agency’s termination. The option clause was not an agreement. The agreement for The Black Cat was separate from the original contract.

As to the claims that PLA was entitled to commission under other agreements that were “extensions” of those negotiated by PLA, the Court used the same reasoning to deny those claims.

PG will note that Penguin got dragged into this litigation because of the Agency Clause it permitted to be inserted into the publishing contract.

As mentioned, the case is under appeal and it will be awhile before the appellate court hands down its opinion.

We learn three things that one New York judge in one court believes about Agency Clauses:

  1. A contractual claim to commissions based on future publisher royalties is not the same as having an “interest” in the book, which is the subject matter of the agency.
  2. Stating an agency is “irrevocable” has no effect whatever in the absence of a specific interest in the book.
  3. Stating that the agent has an “agency coupled with an interest” does not prevent the author from terminating the agency at any time.
  4. Once the agency is terminated, the agent has no claim against royalties paid under later contracts absent a specific contractual clause to that effect.

Here’s a link to the court opinion.

Here’s a link to a more lengthy article about the case by Franklin, Weinrib, Rudell & Vassallo, P.C., an entertainment law firm.

 

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Agents, Contracts, PG's Thoughts (such as they are)

2 Comments to “How to Read a Book Contract – Agency Coupled with an Interest”

  1. So if I assert in a book contract that I own everything Michael Jackson ever performed in, and my publisher, who has no holdings in the MJ estate, signs it, I don’t really own the copyright to Thriller? Bummer.

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