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Stop Forcing Authors to Take Unlimited Financial Risks

19 December 2015

From The Authors Guild:

Warranty and indemnity clauses in standard publishing agreements tend to make authors’ eyes glaze over. But these clauses have the greatest potential to damage authors’ financial health. While other unfair terms give authors a raw deal when it comes to how much money they can receive for a book or how much control they can exert over it, far-reaching warranty and indemnity clauses are even more insidious. They can put an author’s entire net worth—or more—at risk.

When authors question these clauses, editors often contend that they’ve been admonished not to change so much as a word without clearance from the legal department. An editor may simply insist that such terms are “non-negotiable due to corporate policy”—an unhappy way to begin what’s supposed to be an amiable relationship.

Let’s look past the jargon to see what that editor is asking the author to sign. A warranty is a promise that something is true. Publishers ask authors to promise that the book under contract does not infringe anyone else’s copyright, does not invade another’s privacy, is not libelous, and, sometimes, does not contain “matter otherwise contrary to law.” If any of those statements turns out to be untrue, the author has breached the agreement.

The indemnity clause kicks in to give the warranties bite by making restitution a clear contractual obligation: if any claim is made for breach of the authors’ warranties, the author has to cover all related costs and liability—whether or not the claim is valid, and whether or not the author knew or should have known of the infringement, defamation, or invasion of privacy.

Sounds fair enough at first glance. But is the author really in a position to promise that her work doesn’t violate the law anywhere in the world? Why should an author absorb the entire monetary hit for all claims, no matter how unfounded, made against the book? And why doesn’t coverage for authors under media liability insurance policies protect authors from these problems?

. . . .

Publishers defend their standard warranty clauses on grounds that may initially not seem specious: It’s the author’s work, after all, so who better to know what the risks are than the author, right? While this may sound reasonable, it essentially makes the author an insurer against any claim that may happen to arise, whether well-founded or frivolous. It also unfairly asks the author to be an expert regarding all sorts of laws around the world; publishers would have to pay authors a lot more than they currently do for authors to be able to afford the legal fees for that sort of review.

. . . .

An easy way to solve this is available: warranties should carry clear limits. For instance, the author might merely warrant that the book isn’t violating any laws to “the best of [an author’s] knowledge.” And because editorial insertions may lead to their own violations, the publisher should offer a warranty regarding any changes it makes to the work. Why don’t publishers offer these very reasonable limits up front?

. . . .

Most publishers refuse attempts by authors or agents to change this language and often impose their own language allowing the publisher to withhold author payments indefinitely to make sure money is available just in case any expenses are incurred from an asserted claim. But withholding royalties for an indeterminable period can unfairly jeopardize an author’s livelihood, especially when a claim is asserted but never pursued.

. . . .

Publishers’ media liability insurance used to solve most of this problem. Roughly three decades ago, the major publishers began paying extra to extend their own coverage to cover their authors, quelling authors’ fears of financial ruin. (Though they did this as a matter of practice, not out of any contractual obligation.) In exchange for coverage, authors were asked to share the cost of the deductible, originally about $10,000 to $15,000. That could be viewed as fair: as we’ve said before, publishing is a partnership, financially and otherwise. Now, with deductibles often running upwards of $250,000, most authors are again placed in the dire position of facing financial ruin. And many publishers don’t include authors in their liability insurance coverage at all.

Link to the rest at The Authors Guild and thanks to Jackie for the tip.

PG has been ranting about warranties and indemnities in publishing contracts since he saw his first publishing contract. See this rant and this one as examples.

A couple of items the Authors Guild piece didn’t mention:

Media liability insurance is certainly very helpful in the case of the claim. As the article mentioned, big deductibles make such policies less protective for authors. However, no media liability insurance or inadequate coverage amounts are even worse.

Media liability language in publishing contracts often neglects to include a mandate for the publisher to continue to maintain such coverage. If the publisher has a bad year and decides to save money by allowing the media liability policy to lapse, there goes the protection. If, as has been happening for many years, the publisher merges with or is acquired by another publisher who doesn’t want to pay policy premiums, adios to insurance for the author.

PG hasn’t seen any publishing contract that mandates the amount of coverage the publisher is required to maintain and specifies the deductible amount.

A media liability policy with a limit of $100,000 for any claim won’t do much good for an author. If the policy includes a $50,000 deductible, it does even less good for the author.

Another problem with most media liability policies with which PG is familiar is that their coverage limits apply to the total claims made against the publisher each year. For example, policy limits may be $1 million for any claim up to a maximum of $2 million total for any year. If your claim arises in the same year the $2 million policy limit has been used for other claims, you may be out of luck. (This is a simplification because some liability policy limits are based on when the claim originates, others on when claims are paid or a combination of the two.)

Setting aside the issues arising under liability policies, if there is an uninsured loss, every publishing contract PG has seen makes the author pay 100% of any losses. The AG article discusses the failure to consider whether a publisher’s editorial process contributed to the liability. That is one way in which a publisher may contribute to an author’s liability.

PG suggests that the mere fact that an author has published a book with a large corporation substantially increases the likelihood of a suit if anyone is upset by the contents of a book.

Why? Because a big publisher is a big target for attorneys who take cases on a contingency fee basis.

Contingency fees are permitted for many types of damage claims in the US, but not permitted in some other countries. Under a typical contingency fee arrangement, the attorney receives a percentage of the total recovery as the attorney’s fee. If there is no recovery, the client doesn’t owe the attorney any fee.

Rule #1 for contingency attorneys is to never take a case where you can’t clearly see someone with the ability to pay a big judgment or a big settlement. A big publisher, with or without a big insurance company, will have the ability to pay a big judgment. A little author who self-published will only attract very stupid contingency fee attorneys (who exist, but don’t stay in business for very long).

A book published by Randy Penguin? Let’s head for the courthouse. A book published by Jane Doe? Forget it.

The increased chance of an author being sued is an additional risk associated with traditional publishing that PG hasn’t seen anyone mention.

Here’s a humble proposal that might balance the risks for an author: The author and the publisher share liability in proportion to the amount of money each receives from the sale of a book.

If the author receives royalties of 25% of the amount a publisher receives from the sale of a book, the author is responsible for 25% of uninsured claims and the publisher is responsible for 75%. (Adequate insurance is almost always the best solution for liability claims.)

Since royalties for different types of books vary, a blended percentage based upon sales-weighted money earned from hardcover, softcover, ebooks, etc., could be calculated to divide claims between the author and the publisher.

If the publisher has 80% of the upside, the publisher should pay 80% of the downside.

Yes, the publisher has made a substantial investment in editing, printing, distributing, etc., each book. The author has also made a substantial investment in each book unless the publisher regards the author’s time as absolutely worthless.

But what does PG know? He’ll look forward to comments on this post.

Big Publishing, Contracts, Legal Stuff, PG's Thoughts (such as they are)

15 Comments to “Stop Forcing Authors to Take Unlimited Financial Risks”

  1. “Publishers defend their standard warranty clauses on grounds that may initially not seem specious: It’s the author’s work, after all, so who better to know what the risks are than the author, right? While this may sound reasonable, it essentially makes the author an insurer against any claim that may happen to arise, whether well-founded or frivolous.”

    And after the publisher’s editor gets done with it it can sometimes read differently than what the writer intended — oh wait, the publisher doesn’t waste money on things like editing any more — do they?

    “Rule #1 for contingency attorneys is to never take a case where you can’t clearly see someone with the ability to pay a big judgment or a big settlement.”

    So unless a indie writer hit the ‘really’ big time, they should be safe enough.

    At PG

    “A big publisher, without or without a big insurance company,”

    Might should be one less ‘out’ in there?

  2. PG, I like your idea re shared liability. Of course, you’d have to hold a gun to the head of Big Publishing to get that into a contract.

  3. I spent my career in software companies. I never accepted a contract where we were held liable for more than we were actually paid.

    Since our customers were the largest corporations in America, who were used to dealing with small vendors, we all understood how this dance worked. We would maintain liability insurance, primarily to cover things like personal injury suits if we visited their premises, and D&O insurance (Directors & Officers) in case of outright fraud, and otherwise we fought for reasonable caps and limits and shared liabilities. Always.

    The customers could have gone somewhere else, but they also understood and accepted the concept of reasonability. They knew they were the 800-pd gorilla, but they weren’t pigs about it.

    I’ve never heard of the contracts like the ones people keep telling me about from publishers. I keep wanting to shout “Don’t do it! Lincoln freed the slaves!”

  4. PG,
    Thanks as always for the clarity and care of your analysis, and to you and Jackie for curating this article in the first place.

    We’re all familiar with the concept of situational ethics. This is situational risk management and the need for it is often completely overlooked, as you point out.

    I would agree that there are situations wherein, for this reason along, the independent author in pursuit of success in business and in art, should walk away from a commercial publishing contract.

    We have to play the long game as well as the short, and ask “what’s the worst that could happen” as well as the best.

    In some cases, probably rare and highly-leveraged, I wonder if the author and the publisher might thoughtfully share the cost of an assessment of legal liability….

  5. Asking an author to take on unlimited liability, as well as to guarantee that their work doesn’t break any laws at any time in the past or future anywhere in the world is stupid. I’m very grateful for the energy that informed people are putting into spreading the word that this is exactly what is happening, and what it means.

    What I wish I knew was how often it comes up. Since my understanding is that Amazon has the same clauses in their ToS (and presumably the other distributors do, too), anyone who publishes anything, ever, is taking risks of this magnitude. There are two big metrics of risk: severity and frequency. This is a severe risk (again, thank you for the consistent explanation and exposure, PG) but I have no sense of frequency. I remember an article a while back that PG posted about India going after authors who had written things that were insulting to Hinduism (I think), but that’s the only example I have in mind of this lack-of-liability for the publishers coming up. Is it really just a once-on-the-planet kind of event, or is this an everyday occurrence that’s so common and so routine that it never makes headlines? Is it something that really isn’t common until you’re in the big leagues for income, or is this the next easy route for pestering and abusing unpopular indie authors out of writing through self-filed lawsuits a la DMCA?

    • Exactly what I was wondering. Are there any real life examples of authors being sued under a clause like this? Or of publishers being sued with the author forced to pay for it all?

  6. I’m one of those indie-from-the-beginning folks. The one time a publisher offered me a deal and we got far enough along for me to see the contract, I took one look at the indemnity clauses and ran in the other direction. There’s no way I’m indemnifying a company for anything ever.

    If something an author did or didn’t do ever cost a publisher, there are ways for the publisher to go after the author. Trussing myself up as a sacrificial lamb ahead of time didn’t strike me as smart. The publishers have legal departments. I have me and some relatively small assets that make my life livable.

  7. Thanks for posting this and for the great analysis, PG. Being a self-published minnow in a vast sea of stories, I had never considered this aspect of trad-pub contracts before. Food for thought if such a contract ever crosses my path.

  8. As an interesting (scary) note, I once had an editor insist I change a book, already written as per contract, to make a fictional town into a real one. This would have potentially libeled prominent individuals in the city’s police department.

    As a former AP reporter, I’m very sensitive to libel issues and there’s no way I was going to do this. In this case, I’m sure the publisher had no idea what the editor was demanding. When she refused to back down, I went over her head (by two levels–fortunately, I knew the supervising editor) and got this changed. Ticked her off and I had to be switched to a different editor, but it was well worth it.

    I shudder to think what might have happened had I been less assertive, less knowledgeable and/or less experienced.

  9. As an interesting (scary) note, I once had an editor insist I change a book, already written as per contract, to make a fictional town into a real one. This would have potentially libeled prominent individuals in the city’s police department.

    As a former AP reporter, I’m very sensitive to libel issues and there’s no way I was going to do this. In this case, I’m sure the publisher had no idea what the editor was demanding. When she refused to back down, I went over her head (by two levels–fortunately, I knew the supervising editor) and got this changed. Ticked her off and I had to be switched to a different editor, but it was well worth it.

    I shudder to think what might have happened had I been less assertive, less knowledgeable and/or less experienced.

  10. “Warranty and indemnity clauses in standard publishing agreements tend to make authors’ eyes glaze over.”

    If such contract clauses — or any clauses or conditions, for that matter — make one’s eyes glaze over, that a sure sign that they need to be thoroughly examined and vetted by an experienced IP lawyer… And declared a deal killer if they won’t be cut from the final contract.

    Caveat emptor still applies, long after the demise of the Roman Empire.

  11. Sorry about the repeated message. It didn’t look as if it had gone through.

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