How to Read a Book

8 July 2013

How to Read a Book Contract – How Long Does It Last?

11 March 2013

Given the recent discussions the SWFA began about Hydra’s contract, including the fact that it lasts almost forever, here’s a reprise of a post PG wrote on the subject a couple of years ago:

One of the standard provisions in almost every type of business contract is one that is sometimes titled, “Term and Termination.”

The Term part says how long the contract will last. One year, three years, etc.

The Termination part provides for ways that one or both of the parties can end the contract before its term is complete. Termination can include provisions that allow a party to terminate if the other party violates a material provision of the contract or it may simply give one or both parties the option to end the contract after a notice of so many days.

In a typical business contract, these are ordinarily brief and very straightforward. Usually, there are no gotchas here.

When PG first started looking at publishing contracts, he was surprised at the absence of any short and sweet termination provisions and few had any set term. Often, the publisher could terminate the contract or simply let the book wither on the vine, but the idea that, if the book was published, an author could terminate a publishing contract after five or ten years was nowhere to be found.

A bit of internet research disclosed sample contracts or clauses or checklists on the websites of attorneys who regularly deal with publishing contracts that show the same thing – the author doesn’t get to terminate after a specific period of time. In fact, the author can never terminate unless the publisher goes bankrupt or allows the book to go out of print (lots of murkiness here).

Let’s remind everyone how long a copyright lasts in the United States. Generally speaking, a copyright lasts for the life of the author plus 70 years.

Passive Guy has dealt with many different types of contracts during his legal and business career, but never had one that lasted for 50 or 75 or 100 years or more. Real estate mortgages of 30 years were by far the longest contracts he saw.

PG would bet you could comb through the contracts files of most Fortune 500 companies without finding a 100 year contract. Why does a publisher need a 100 year contract for a book?

PG would also bet that if he spoke with an ancient publishing lawyer, that lawyer would tell him the tradition of life of the copyright terms for publishing contracts began before 1964, when the length of a copyright in the U.S. was 28 years. During that period, if anyone remembered to renew the copyright, it could be extended for another 28 years, otherwise it expired. 28 years is still a long time, but it’s not as weird as 100 years or longer.

100 years is not slavery, but it’s not right either. What the current publishing standard means is that a 21-year-old author who signs a book contract will have to live with that contract every day, every year, for the rest of her life. She may hate her publisher, but when she’s teetering about in her 90′s, she’ll still have that book contract strapped to her back.

The law provides statutes of limitations for nearly every sort of crime except murder. If I take a gun and rob a gas station when I’m 21, after 7 years or 10 years (statutes of limitations vary by state), I can’t be prosecuted for that crime even if I admit I’m the bad guy.

However, if I don’t commit a crime and instead sign a publishing contract, I’m never free of it again. There’s no statute of limitations on publishing contracts.

So, here’s Passive Guy’s modest proposal for upsetting the publishing apple cart – a maximum ten-year term for all publishing contracts.

If the publisher can’t cover its costs and make a reasonable profit within ten years, either the book or publisher are defective. The publisher and author can always come to an agreement to extend the publishing contract for longer if both parties really want to do so.

Oh, and ten years is probably more time than you would serve for armed robbery if it was your first offense.

PG would be remiss in his rabble-rousing if he ended his discussion with a frontal assault demanding a term for a publishing contract that was in the same universe as nearly every other class of business agreement.

PG has previously discussed a minimum wage for authors contract provision here and here.

It’s easy to focus on the dollar amount in such clauses and how they could guarantee a reliable stream of payments to an author. However, they also serve another important purpose. For 99.99% of books written, such a clause will cause a publishing contract to terminate well before the life of the author plus 70 years.

Virginia Woolf on How to Read a Book

10 March 2013

From Brain Pickings:

“Do not dictate to your author; try to become him. Be his fellow-worker and accomplice.”

. . . .

But how, exactly, does one read a book, and read it well? That’s precisely what Virginia Woolf addressed in a 1925 essay titled “How Should One Read a Book?”

. . . .

Woolf begins with the same disclaimer of subjectivity that John Steinbeck issued half a century later in his six timeless tips on writing. She writes:

The only advice … that one person can give another about reading is to take no advice, to follow your own instincts, to use your own reason, to come to your own conclusions. If this is agreed between us, then I feel at the liberty to put forward a few ideas and suggestions because you will not allow them to fetter that independence which is the most important quality that a reader can possess. After all, what laws can be laid down about books? The battle of Waterloo was certainly fought on a certain day; but is Hamlet a better play that Lear? Nobody can say. Each must decide that question for himself. To admit authorities, however heavily furred and gowned, into our libraries and let them tell us how to read, what to read, what value to place upon what we read, is to destroy the spirit of freedom which is the breath of those sanctuaries. Everywhere else we may be bound by laws and conventions — there we have none.

She cautions against bringing baggage and pre-conceived notions to your reading:

[F]ew people ask from books what books can give us. Most commonly we come to books with blurred and divided minds, asking of fiction that it shall be true, of poetry that it shall be false, of biography that it shall be flattering, of history that it shall enforce our own prejudices. If we could banish all such preconceptions when we read, that would be an admirable beginning. Do not dictate to your author; try to become him. Be his fellow-worker and accomplice. If you hang back, and reserve and criticize at first, you are preventing yourself from getting the fullest possible value from what you read. But if you open your mind as widely as possible, then signs and hints of almost imperceptible fineness, from the twist and turn of the first sentences, will bring you into the presence of a human being unlike any other. Steep yourself in this, acquaint yourself with this and soon you will find that your author is giving you, or attempting to give you, something far more definite.

. . . .

Woolf reminds us, gently yet assertively, of the value of the amateur in driving culture forward:

If behind the erratic gunfire of the press the author felt that there was another kind of criticism, the opinion of people reading for the love of reading, slowly and unprofessionally, and judging with great sympathy and yet with great severity, might this improve the quality of his work?

Link to the rest at Brain Pickings

How to Read a Book Contract – Audit Clause

21 March 2012

A reprise of an earlier post.

Most book contracts include a clause permitting the author to audit the records of the publisher respecting sales of the author’s book. This is also one of those clauses that is easy for an author to overlook if it is omitted.

Following is an example of a bad audit clause. It’s better than no audit clause, but not by a large margin.

Author may, with sixty (60) days’ written notice but not more than once a year, assign and designate a certified and independent public accountant to examine Publisher’s records as they relate to the Work. Such examination shall be at Author’s expense unless errors are found in excess of ten percent (10%) of royalties in Author’s favor, then Publisher shall pay amounts owing for the Work and the reasonable cost of the audit.

As a condition precedent to the exercise by Author of his/her right to examine the books and records of Publisher, Author’s duly authorized certified and independent public accountant shall execute an agreement to the effect that any information obtained as a result of such examination shall be held strictly confidential and shall not be revealed to any third party other than Author or her representative without written permission by Publisher. Author also hereby agrees to hold all information and statements provided to Author or her accountant in strictest confidence.

Passive Guy won’t do his color-highlighting thing because the issues here are pretty obvious.

Moving through the first paragraph, sixty days’ notice and a limitation of once per year don’t seem too unreasonable. Publisher will have to spend some time pulling records together in preparation for an audit and need to have someone available to answer questions (although this isn’t specified in the clause).

The clause providing for Author to pay expenses absent errors discovered is also a reasonable one. PG thinks modern computer accounting systems are quite accurate and would propose 5% as a trigger for Publisher to pay the audit costs. PG would also add a time when payment of both underpaid royalties and the audit costs is due. Sixty days after audit results are delivered should be a maximum.

Passive Guy’s bigger problem with both the first and second paragraphs is the requirement that the audit be performed by “a certified and independent public accountant.” A Certified Public Accountant gains CPA status by fulfilling his/her state’s requirements, usually a minimum number of college accounting classes plus taking an exam. Mandatory continuing education usually follows.

Under federal law, a CPA must audit and certify the annual report of every public company. Sometimes, state law will require annual audits of the records of towns, school districts, etc., and provide those audits must be conducted by CPA’s.

However, a great many skilled accountants and auditors either do not obtain their CPA designation or allow it to lapse. PG would bet few, if any, of the chief financial officers of the Big 6 publishers are currently CPA’s. Relatively few internal auditors for large corporations and federal government auditors maintain CPA status.

PG thinks the CPA requirement is overkill and will increase the cost of the audit to the Author. It’s the Author’s audit and the Author should be able to choose who the auditor is. If PG were looking for someone to audit his publisher, he would try to find a person who worked in a publisher’s accounting department for a long time regardless of CPA status.

The other requirement for the auditor is that he/she be “independent.”

What does that mean? “Independent” does not appear to be a defined term and is an invitation to an argument sometime in the future. What if Author is married to a CPA and wants her spouse to perform the audit? PG says if the Author is also an accountant or CPA, Author should be able to perform the audit herself and save the cost of paying someone else to do so. Getting warmed up, PG says if the Author can’t use Quicken, but wants to audit the financial records of her sales, she should be able to it herself.

Despite PG’s pro-author views, he can see some reasonable business purpose to having someone other than the Author perform the audit, but believes Author should not be further restricted in her choice of auditor.

Confidentiality

The second paragraph is where serious gnarliness appears. Since the paragraph begins with a run-on sentence, we’ll break that down and shorten it for comprehension.

As a condition precedent to the exercise by Author of his/her right to examine the books and records of Publisher,[the auditor] shall execute an agreement to the effect that

“As a condition precedent to the exercise” means if the auditor doesn’t sign an agreement for any reason, Author has no audit rights whatsoever.

What’s going to be in that agreement the auditor has to sign? The agreement isn’t set forth in the Publishing Contract and it’s a “to the effect” agreement which could mean almost anything. Is the agreement one page long or is it twenty pages long?

If the auditor finds the agreement objectionable and says, “No accountant in her right mind would sign something like this,” Author has no right to audit under the Publishing Contract.

Lawyers call something like this, an agreement to agree. It’s a classic unenforceable contract provision, but it’s also a “condition precedent” to any audit rights.

Who prepares this agreement for the auditor to sign? If PG were the Author, he would write up a very short agreement, have the auditor sign it, and hand it to the Publisher. As the audit clause is written, that agreement would satisfy the requirement. There’s nothing that says Publisher prepares the confidentiality agreement. (Look for the publisher who uses this clause to change it as soon as someone there reads PG’s analysis.)

Continuing with the language in the second paragraph describing the agreement the auditor is to sign:

. . . execute an agreement to the effect that any information obtained as a result of such examination shall be held strictly confidential and shall not be revealed to any third party other than Author or her representative without written permission by Publisher.

The auditor works for the Author and has an ethical obligation to maintain confidences of the Author. What’s the purpose of the Publisher putting a gag on the auditor? As the clause is written, if the auditor finds evidence Publisher has violated 57 federal and state laws during the audit, the auditor is prevented from telling federal or state authorities of Publisher’s unlawful behavior.

PG is definitely not an authority on an accountant’s legal obligation to disclose tax fraud, but does know if an accountant receives information from a client or employer about tax fraud, the accountant may have an obligation to disclose the fraud to the IRS. Under some circumstances, the IRS may even pay a whistleblower award to someone who does that.

Speaking of legal obligations, as the clause is written, the auditor would be prohibited from telling her own attorney of anything discovered during the audit, even if it was for the purpose of obtaining legal advice on whether disclosure to federal or state authorities was required under current law.

Setting aside the mysterious “to the effect” language, if Passive Guy were still practicing law and an auditor brought a contract to him that just contained the restrictions in this audit paragraph, PG would advise the auditor not to sign it as written.

This is a slick little audit clause, isn’t it? Author has the right to audit sales records of the Publisher if she can find an auditor stupid enough to sign a totally unreasonable confidentiality agreement. The audit clause would be clearer if it just read, “No audits are permitted. Ever.”

Let’s finish up with the confidentiality language.

[The auditor won’t reveal any information] to any third party other than Author or her representative, without written permission by Publisher. Author also hereby agrees to hold all information and statements provided to Author or her accountant in strictest confidence.

The auditor can’t say anything about the audit to anyone other than the Author or her representative. The Author can’t say anything about the audit to anybody. The Publisher is not, of course, limited in what it may say.

This Publisher doesn’t want any peons talking about what they discover during an audit. The audit proves Publisher short-changed Author by $10 million? You can’t tell a soul. The audit discloses that Publisher’s royalty-reporting system automatically reduces reported sales of ebooks by 75%? You can’t tell anyone. The audit reveals Publisher is controlled by the Russian mafia and owns a string of brothels in Bangkok?

You get the idea.

There is one interesting hole in this confidentiality paragraph that PG is going to point out (and which undoubtedly will be plugged by the Publisher pronto).

It’s a short walk. The auditor can reveal information to only two people, the Author or “her representative.” The Author can’t reveal anything to anyone. “Representative” doesn’t appear to be a defined term. PG assumes it’s intended to refer to the Author’s literary agent and expects “representative” is a term used elsewhere in the Publishing Agreement.

Since authors and agents sometimes part ways, PG expects nothing in the Publishing Agreement prohibits Author from designating a new “representative.” Nothing in the confidentiality paragraph requires the “representative” sign the same confidentiality agreement the auditor signs.

So, here’s the play:

  1. Author phones her agent and tells the agent to take the day off as Author’s representative.
  2. Author designates Passive Guy as her “representative” for the day.
  3. Author instructs her auditor to email the written audit report to her new “representative.”
  4. PG writes an informative blog post. The Russian mafia and Bangkok bordellos would generate a lot of visitors. Publishers Weekly might even notice.
  5. PG resigns as representative.
  6. Author phones her agent and reappoints the agent as “representative.”
  7. The agent receives an interesting phone call from Publisher.

Back to seriousness.

What’s Not Specified?

Where will the audit take place? Can the Author request that Publisher send copies of financial records so the auditor doesn’t have to fly from Alaska to New York?

Speaking of copies, does the auditor have the right to take copies of any documents – paper or electronic – necessary for the preparation of a proper audit report, to answer Author’s questions and for the auditor’s permanent professional records of the audit?

Will the auditor have a private office or conference room with a table and chair in which to conduct the audit? A stand-up audit might become uncomfortable after a while, particularly if it took place in a warehouse. Without air conditioning. In August – the worst month to have your air conditioning broken, according to www.cougarmechanical.com.

What happens if the auditor asks to see a document and Publisher refuses to provide it?

What happens if the auditor says there is an underpayment and Publisher disagrees?

The Bottom Line

The first paragraph of the sample audit clause is not horrible. A few tweaks, including the addition of a provision to cover the What’s Not Specified items would fix it.

The second paragraph effectively means Author won’t be able to have an audit unless the Publisher wants to give her one. Any attorney could write a confidentiality agreement that no accountant would ever sign.

How to Read a Book Contract – Agents and the Law

19 March 2012

A reprise of an earlier post.

Given all the recent uproar about agents getting into the publishing business plus the constant drumbeat about successful indie authors being solicited by agents for representation, it’s time to look at an Agency Contract.

Before diving into the details of this contract, let’s review some basic legal principles that govern the relationship of a principal – the author in this case – and an agent. These principles are old and universally applied in the United States and probably in the UK. Search for “duties of an agent” in Google and you’ll see a million different versions of the following items. PG will generally use “author” instead of “principal” for clarity.

The three pillars of agency law are Obedience, the obligation of the agent to use Reasonable Care, Skill and Diligence and the requirement that the agent act in the Best Interests of the Author.

    1. Obedience. The agent is retained by the author to perform particular duties – find a publisher – and the agent is obligated to carry out the author’s reasonable instructions in doing so.
      • Some of the author’s instructions will be implied – the agent should use her skill, knowledge and experience in the publishing industry to locate a willing publisher and help negotiate a publishing contract. This is expected and assumed on both sides.
      • Other instructions from the author are likely a combination of what is written in the Agency Agreement and verbal instructions – “Let’s accept the $50,000 advance.”
      • To be clear, a principal/agent agreement isn’t master/slave or master/servant relationship. Obedience is just a way of saying the author is in charge and the agent is obligated to help the author accomplish the author’s objectives, not the agent’s.
    1. Use Reasonable Care, Skill and Diligence. As the agent carries out his responsibilities to the author, he is obligated to do a high quality job. The agent isn’t required to be superman, but he’s supposed to perform his duties at the skill level expected of professional agents. For example, if one of the express or implied duties of the agent is to check royalty statements for accuracy, the agent is obligated to be diligent and careful in doing so.
    1. Act in the Best Interests of the Author. The agent is acting in a trusted capacity to assist the author and is not permitted to do anything that will harm the interests of the author. The agent can and will use her business judgment in representing an author, but she must do so in a way that protects the author and is for the author’s short term and long-term benefit.
    • After the agent has had a detailed and honest consultation with the author, if the author makes a decision against the advice of the agent, the agent won’t be violating her obligation to act in the author’s best interests if she acts to carry out the author’s decision. In fact, she is honoring her obligation of Obedience.
    • An agent must not have any personal interests that conflict with the author’s best interests. For example, if an author were considering contract proposals from two publishers, and one of those publishers offered the agent a separate payment if she was successful in persuading the author to accept that publisher’s proposal, the agent would have a conflict of interest. The agent’s own financial interest might conflict with the author’s best interests. The bribe might influence how the agent advised the author respecting the two competing proposals.

I’ve described root principles. They split, branch and rebranch into more complex areas. As described in the short Best Interests vs. Obedience discussion, obligations can conflict with one another. Agency is worth a couple of classes in law school that teach enough so you can be a baby lawyer supervised by an experienced attorney and learn more.

These principles apply to all sorts of agents – attorneys, real estate agents, stockbrokers, etc. Special rules may govern particular types of agents, but such rules typically expand upon the basic duties of an agent or prescribe how the agent is to deal with specific situations unique to a particular profession. I can’t think of any that violate the core principles of agency described above.

Against this backdrop of duties, we overlay the law of contracts. Generally speaking, two competent adults are free to arrange their business affairs in any legal manner and memorialize those arrangements in a written contract.

If a contract specifically and directly contradicts some aspect of an agent’s general duties summarized above, the contract will probably govern that aspect of the agent/author relationship. However, in interpreting the contract as a whole, a judge will work to fit such non-conforming provisions within the general legal principles of agent duties to an author. If one person is acting on behalf of another, it will be hard to persuade a judge that agency law does not apply.

Some types of contractual terms will not be enforced. For example, if an attorney only represents a client after the client signs a contract that says the attorney will not be liable for legal malpractice under any circumstances, that portion of the contract will not be enforced regardless of how well-drafted. Courts and legislatures have decided such contract terms are unconscionable and/or a violation of public policy.

Why has PG spent time discussing these basic legal principles?

Many observers of the current publishing and indie publishing scene use wild west and frontier metaphors to describe the chaos caused by rapidly-changing technology and its impact on markets, sales channels, pricing and profitability.

One of Passive Guy’s purposes for discussing basic principles of agency law is to make clear that the wild west does not operate in this sphere. Agents may be living in a wild west business climate, but their fundamental obligations to authors have not changed between 1975 and today. Indeed, their obligations have not changed between 1875 and today.

Some parts of some of the literary agency agreements Passive Guy has read turn basic tenets of principal/agent relationships upside down.

In particular, the obligation of a literary agent to follow reasonable instructions of the author is substantially undercut to the point where, in some cases, the agency contract purportedly allows an agent to act contrary to the author’s instructions, violating the fundamental principle of Obedience.

Some agreements between author and agent make it possible, even likely, that the agent will act in ways that will harm the best interests of the author to the agent’s profit instead of protecting the best interests of the author.

During settlement negotiations between another attorney (who was also a friend) and PG several years ago, after PG cited some recent changes the state legislature had made in statutes governing our case, his friend said, “I always work under the philosophy that the old laws are the best laws.”

While PG can find reasons to dislike many old laws, in the case of author/agent relationships, the old laws are the best laws and the old laws are still in force.

The next installment of this series will begin an examination of some clauses in a particularly egregious agency contract.

How to Read a Book Contract – Contempt

18 March 2012

A reprise of an earlier post.

Passive Guy has so many other things on his plate, he should put his inner ranter on hold, but a rant’s got to do what a rant’s got to do.

As PG has read book contracts for his clients (Thank You!) and contracts contributed to his Contract Collection (Thank You!), one message keeps coming through loud and strong.

Contempt.

Contempt for authors.

Contempt from publishers for authors.

Contempt from agents for authors.

As PG has mentioned before, during his legal and business career, he has negotiated, written, revised and reviewed many, many contracts (Hundreds? Thousands? He never counted and it’s too late to start now).

Some of the contracts were tough – dividing lots of money and property to settle a bitter divorce, creating a make-or-break deal for a small tech start-up with a Fortune 50 giant.

Some of the contracts were devious with PG sometimes discovering deviousness and sometimes creating it.

Some of the contracts were enormously complex — not quite book-length, but stuffed with dozens and dozens of cross-references and pages of defined terms that meant something different than they seemed to mean at first glance, particularly when they were combined with each other.

One of the things an experienced negotiator tries to do is to discern what’s behind the contract’s language, what the intent of the other side is, what they’re really seeking, what’s important and not important to them.

PG recently reviewed a contract that was strangely schizophrenic – generous to PG’s client on one hand and parsimonious on the other. On his first read-through, PG felt a little whiplash. When he went through the contract a second time, underlining, circling, writing cryptic notes in the margins, PG realized what was going on.

Believe it or not, lawyers have writing styles. The contract included two different writing styles.

While it’s possible two different lawyers in the same firm contributed to writing the contract, PG is pretty certain opposing counsel did a cut-and-paste for the harsh portion of the contract, the part representing a subject counsel didn’t understand very well. Because he/she was insecure about his knowledge, counsel hunted up a tough contract from a colleague or friend or book, pulled part of it out and dropped it into the fairly-reasonable partial draft he/she had already prepared.

This discovery will affect how PG approaches the negotiation – a little low-key education instead of responding to a slap in the face.

Speaking of slaps in the face, that pretty much describes most of the publishing and agency contracts PG reads.

First, measured against other classes of business agreements, they tend to be pretty sloppy. Large publisher, small publisher, pretty sloppy.

Indicia of sloppiness are many and varied, but include paragraphs that conflict with one another, vague and undefined terms and, sometimes, places where it’s clear a non-lawyer rewrote a paragraph. Badly.

As a general proposition, when a contract is important to an organization, the contract is well-written. When a contract is between a publisher and an author, it doesn’t matter. Even if the author reads it, she won’t understand it and neither will her agent. At any rate, the publisher will bully the author into doing things the publisher’s way regardless of what the contract says.

Contempt.

Many publishers have their version of a clause designed to capture new book rights that will be invented one hundred years from now.

Publishers were blind-sided by ebooks and have had to brazenly claim their contracts included ebooks even when the contract never mentioned anything but hardcovers and paperbacks.

Publishers know that if an author takes them to court, a judge will ask a question something like, “Where does it talk about ebooks in this contract?” Publisher’s counsel will respond by talking about emanations and penumbras floating around paragraph 15 and subparagraph 21(d). The judge’s well-honed BS meter will quickly be pegged in the red zone.

A contract is supposed to reflect the intentions of the parties at the time it is signed. Copyright law includes a presumption that any right not expressly granted by an author is deemed reserved to the author. If an author requests a standard reservation of rights clause, even a publisher may feel embarrassed by refusing to include it.

So, in the tradition of fighting the last war, we see a Rights Clause whereby the author grants the publisher the sole and exclusive right to create or produce or cause to magically appear any book or book-like object or book idea and beam the result into the sky in any form which is now or may in the future be stumbled-upon or imagined or hallucinated by the mind of man and/or machine in any conceivable or inconceivable way and anywhere throughout the world and the universe, whether presently mapped or unmapped, including parallel universes.

In the reality-based business world, if PG received a contract including a clause like this, he would call opposing counsel and ask, “Sally, what are you smoking?”

In the traditional publishing world, the author is supposed to sign at the bottom of the page.

Contempt.

Finally (for this post), there are all the smarmy little attempts to put one over on an author. PG can appreciate well-crafted deviousness just for the art of it, but these are stupid deviousness.

How to choose between so many candidates for discussion?

Passive Guy will return to last July for this one, an audit clause:

Author may, with sixty (60) days’ written notice but not more than once a year, assign and designate a certified and independent public accountant to examine Publisher’s records as they relate to the Work. Such examination shall be at Author’s expense unless errors are found in excess of ten percent (10%) of royalties in Author’s favor, then Publisher shall pay amounts owing for the Work and the reasonable cost of the audit.

As a condition precedent to the exercise by Author of his/her right to examine the books and records of Publisher, Author’s duly authorized certified and independent public accountant shall execute an agreement to the effect that any information obtained as a result of such examination shall be held strictly confidential and shall not be revealed to any third party other than Author or her representative without written permission by Publisher. Author also hereby agrees to hold all information and statements provided to Author or her accountant in strictest confidence.

Do you see the smarmy deviousness?

In order to perform an audit to determine if the publisher is stealing from the author, the accountant hired by the author will have to sign an agreement, an agreement the publisher will create.

How hard is it for the publisher to create an agreement no accountant will ever sign? Not very.

No signature, no audit. You’ll just have to be satisfied with the numbers we decide to put on your royalty report, dearie.

You say twenty of your friends each bought a copy of your book from Amazon in the middle of August and we showed no ebook sales on your royalty report for the second half of the year? Amazon makes mistakes all the time. Have your accountant sign our agreement and we’ll give you some numbers.

In the meantime, go write some blog posts and tweets to get your book sales back up. If you’re a good girl, we might give you a cookie with your next royalty report.

Contempt.

 

How to Read a Book Contract – Can I Ever Get Rid of My Agent?

15 March 2012

A reprise of an earlier post.

Passive Guy just hasn’t felt like himself for the last day or so. A little dull and listless. Not much of a sparkling party boy.

What could it be?

  1. Meds? Check. Haven’t cut any pills in half lately.
  2. Exercise? Some. Need to do more, but that’s not it.
  3. Sunshine? Barely a cloud in the sky. Fry your eyeballs if you glance up.

PG considered several more possible causes but discarded each.

Suddenly, the answer appeared. So obvious, he should have thought of it right away.

Passive Guy was suffering from screw-the-author contract withdrawal symptoms. Too much time had elapsed since he dived into some really nasty clauses.

Slimy contract provisions always boil PG’s blood and perk him right up. Way better than a 48 ounce Diet Coke or a double dose of Adderall. His eyes narrow, his ears go back and he’s on the hunt, sniffing the air for the slightest whiff of duplicity.

He didn’t have to look far.

There it was, on his desk, next to the post-it notes reminding him of things he always ignores. A great stinking carcass of an agency agreement. It’s a classic, grabbing for more things than a drunken frat boy.

When PG ran his fingers over the pages, he felt like a cheetah contemplating a limping gazelle.

OK, enough with the mixed metaphors.

Perceptive readers will recognize the inimitable drafting style of a contract we have discussed before. If you haven’t read PG’s previous post about this contract, take a quick look for some useful context underlying today’s dissection.

Today, we’ll examine two clauses that appear in separate parts of the original agreement, but relate to one another in tone and general subject matter.

The first clause talks about termination of the agreement:

This agreement may be terminated by either of us giving a 30 (thirty) day written notice to the other.

Notwithstanding termination, XYZ Agency will continue to be the agency of record and receive commissions on any contract negotiated by XYZ Agency or by its agents on your behalf pursuant to this agreement, and XYZ Agency will continue to be the agency of record and pursue and exploit all secondary rights derived from any and all literary material on which XYZ Agency sold primarily rights on your behalf for the life of that primary agreement.

The second clause talks about what happens if the agent dies or the agency dissolves:

All monies due XYZ Agency, including commissions on royalties and on all secondary sales arising from literary material for which XYZ Agency has sold primary rights, shall remain due and owing XYZ Agency’s heirs even upon the death or incapacitation of all principals of the agency or the dissolution of the agency.

Termination

Look at the top clause first. The first sentence of this clause sounds reasonable. Either party can terminate on 30 days notice. While it does not specifically mention “without cause,” the lack of any reference to “reasonable cause” or “just cause” means either the author or agent can terminate for any reason or no reason. Send a note or a fax or email and the contract is history.

So, it’s simple to terminate. Except it’s not.

Whether the author terminates the contract or the agency terminates the contract, the author is still stuck with the agency forever. PG hasn’t included the contract provision describing how long the agency contract lasts, but it mirrors the length of the publishing agreement, which is the life of the copyright.

For newly-arriving authors, the life of the U.S. copyright for anything you write is the rest of your life plus 70 years. Your grandchildren may die before your agency agreement does.

Hypothetically, how might this clause operate in the real world?

You, the author, suspect your agent is mainlining heroin before she reviews your contracts. You decide you would be better served by getting a new agent.

You may have a new agent, but you also have your old agent and you can’t get rid of the moldy oldie.

“Notwithstanding termination, XYZ Agency will continue to be the agency of record and receive commissions on any contract negotiated by XYZ Agency or by its agents on your behalf pursuant to this agreement.”

This says your fired agent will continue to receive all your royalty reports and all your royalties from the book contracts and every other contract your agent ever negotiated for you.

PG understands the agent’s side of this particular provision. The agent worked hard for the contract and received a piece of your advance. However, since you wouldn’t have the contract without him, the agent should also receive 15% of every dollar that contract produces. For 100 years, maybe 150 years.

Needless to say, PG doesn’t agree, but will concede that honest agents believe this is part of their reasonable compensation. PG says a reasonable time limit – say 3 years – ought to be the end of the agent’s compensation period for the original book sale if the agent is not providing ongoing services at the author’s request.

But Wait! There’s More!

After you fire your agent, “XYZ Agency will continue to be the agency of record and pursue and exploit all secondary rights derived from any and all literary material on which XYZ Agency sold primarily rights on your behalf for the life of that primary agreement.”

Secondary rights? There are a zillion of them – movies, TV shows, video games, board games, action figures, Halloween costumes, and on and on.

What can your fired agent do? Your fired agent can negotiate for secondary rights sales and receive commissions for any books your agent sold before you fired him. So you fire your agent in order to hire a new one who is not strung out on drugs to help you with a movie deal, but you’re not done with the old one. At a minimum, you’ll pay a double commission – one to your old agent plus one to your new agent. But your old agent still has negotiation rights so he might jump into the middle of your new agent’s negotiations with all sorts of proposals.

PG would guess, unless you’re JK or Grisham, no new agent would touch you for secondary rights with a clause like this lurking in the background.

How long does this part of your fired agent deal last? Your grandchildren may be dead before it’s done.

Death

Speaking of death, let’s move to the second of today’s nasties.

Here it is again so you don’t have to scroll up:

All monies due XYZ Agency, including commissions on royalties and on all secondary sales arising from literary material for which XYZ Agency has sold primary rights, shall remain due and owing XYZ Agency’s heirs even upon the death or incapacitation of all principals of the agency or the dissolution of the agency.

We’ve talked about problems for authors when an agent dies before, but this is worse.

Your old agent buys a bag of bad cocaine and snorts death right up into her inflamed sinuses shortly after signing you to the worst book deal your author friends have ever seen. Despite this, you decide it’s only right to send a modest bouquet to the funeral. After all, her family can’t be blamed for her problems.

Shortly after the funeral, you receive a letter:

Dear Author:

You probably know Mom died and to tell you the truth, I’m relieved. We had issues.

Mom never gave me a cent after I got out of prison, so I was stuck in a dead-end waitressing job which was so depressing, I quit going to Alcoholics Anonymous. Mom got a restraining order and my parole officer put me on house arrest with an ankle bracelet that wouldn’t let me get to a liquor store. I couldn’t even go to her funeral.

Anyway, you don’t care about this and why should you since you’re a rich author.

I’m Mom’s only heir, so I own the agency and I’ve decided to keep it going. Before I fired all the agents who worked for Mom, they said they were working on a deal for your movie rights. I don’t know what your book is about, but I met a guy in rehab who is this movie genius or he will be if he ever gets a break and stays sober. Anyway, he’s cute and says he can get me off house arrest if I help him out with his career. He read the first part of your book and thinks it will make a great movie.

So I made a deal with him on your book. I’m the executive producer and he’s going to make a really cool movie starring this grunge rock band he used to play with.

All your royalties are still coming to Mom’s address and the new owners promised to hold her mail until get rid of my ankle bracelet. I’ll let you know if I need any help figuring out what to do with the royalties.

I don’t have a phone, but you can leave messages with my parole officer.

My official name is Sara, but my friends call me Goddess of the Underworld because I have that tattooed on my forehead.

Your primary rights were sold and the agency continues so, under the contract clause, not only does the new owner of the agency continue to collect royalties for your books and (hopefully) send the balance to you after deducting the agency’s 15% plus “expenses,” the agency also has the right to negotiate secondary rights sales and, whether sales are negotiated by them or someone else, receive secondary rights royalties.

And how long are you in business with Goddess of the Underworld and her offspring? You guessed it. Your grandchildren may be dead before your contract is finished.

Some of you may think Passive Guy is dealing with the wildest speculation and may, in fact, be off his medication. However, PG would refer you to the case of the Ralph Vicinanza Agency and how Ralph’sdaughter sister, who had no agency experience, took over the agency after Ralph died and informed the authors she would be handling their royalties thenceforth. PG has taken a peek at a Vicinanza agency agreement and it is much looser than the language he has quoted in this blog post.

Both of these provisions are terrible and unfair, but the second is worse than the first.

In order to clarify our analysis of this contract, let’s back up and look at it from a broader perspective.

Agents regard themselves as professionals. Why don’t we transfer this agency clause to another profession to see what happens?

When you have your next visit with your doctor, she asks you to sign an agreement with her that says she will continue to be your physician and you will pay her standard fees. The agreement also says that when your doctor dies, her heirs will become your doctors and receive the same fees their mother did.

Fortunately for you, despite such an agreement, if your doctor’s heirs weren’t licensed to practice medicine, they couldn’t be your doctor. Since no one needs a license to be a literary agent, anybody can become your agent under today’s contract.

Of course, contract or no contract, you can always fire your doctor or your lawyer or your accountant. You owe them money for services they’ve performed up to the day you fire them and not one cent more.

Passive Guy is of the opinion that the services provided by a literary agent are personal by their very nature, invariably tied to an individual or group of individuals, not to a corporation, partnership or LLC.

Why did you query your agent? Because he had the personal reputation of being an effective agent who obtained good contracts for his clients. Because you thought he would be a good working partner for you based upon what you heard about him. Because he had helped several successful authors build good careers. You might have had the option of querying another agent in the same agency, but you did not because the other agent didn’t have the same reputation.

Perhaps you queried an agent because of the general reputation of the agents in his agency, but your decision was still tied to specific individuals, their reputations and their relationships with authors and publishers. To some extent, junior agents trade on the reputation of senior agents because an author assumes the junior agents will be mentored and supervised by senior agents or, at a minimum, the junior agents will be able to walk down the hall and ask an experienced senior agent for help with a problem or question.

If all the agents left the agency and were replaced with new people, it wouldn’t have the same reputation. In reality, a literary agency, like a law firm or a medical practice is just a shell that gains virtually all its value from the reputation of the professionals who work there. For an author, all the useful assets of a literary agency walk out the door at sixish each day.

PG has said before he believes the current length of copyright protection – life plus 70 years – is too long and causes all sorts of weird distortions of reasonable contract principles.

Between 1909 and 1976, the term of a U.S. copyright was 28 years. The copyright holder had the right to file for an extension of the copyright for another 28 years for a maximum total of 56 years of protection. The underlying thinking was that most copyrights would expire after 28 years with only those of real value being extended. That length sounds reasonable to PG. If value can’t be extracted from a book within 56 years, let it go into the public domain.

As persuasive as Passive Guy’s arguments may be, however, 28×2 will never return.

What are a few PG contract principles we can derive from today’s clauses?

1. In the agency contract, provide that agency agreements may be terminated by either party at any time.

2. After an agreement is terminated, the agent has no further rights to act on behalf of the author.

3. If an agent is to receive commissions after termination, those commissions should have an end date that happens at a reasonable time. Five years after termination sounds like the longest reasonable time to PG. Three years would be better. If an agent would like a lifetime annuity, he/she can purchase one with their share of the advance. The agent earns ongoing commissions by providing ongoing services. If the services stop for any reason, the commissions stop.

4. In the publishing contract, provide that royalties will be split on an 85% – 15% basis with the author receiving a separate check and royalty statement directly from the publisher. Insert similar provisions in any contracts for secondary rights. If the author needs someone to help him/her with money matters, the author can request that the check be sent to an accountant or financial manager or nannie. If the agent has reimbursable expenses, the agent can send the author a bill.

5. The agent cannot assign the agency agreement to anyone else without the consent of the author.

PG could go on, but he won’t.

The cheetah has feasted on the gazelle and contentedly gazes across the Great Rift.

UPDATE: So PG doesn’t raise the righteous ire of honest agents, clauses worded like these aren’t found in every agency agreement. Some agents work the traditional way – the author or agent can terminate the relationship at any time with no ongoing entanglements.

How to Read a Book Contract – Nightmares and Daydreams in Warranty Clauses

22 February 2012

Digging into the Contract Collection (feel free to contribute yours), we find a nasty little number that (in Passive Guy’s experience) nobody on the author’s side ever seems to notice.

In virtually every publishing contract, the author makes certain warranties to the publisher. If any of those warranties are not true, the author is liable to the publisher, usually through an indemnities clause, for damages, attorneys fees, etc.

Some of these warranties are reasonable – the author promises he/she is the real author of the book and didn’t steal the manuscript from a college roommate or plagiarize it from a 19th century minister.

Some of these warranties are potential nightmares for an author.

Here’s a typical example:

The Work contains no matter that the publication or sale of which violates any law or regulation, nor is it in any other manner unlawful, and the Work will not violate any statutory or other copyright or any other right of any third party (including, without limitation, rights of privacy, rights of publicity or moral rights), or be libelous or obscene, or in any way illegal.

Are you asleep yet? You shouldn’t be. You’ll have nightmares.

Combine a warranty like this with the following:

–          The right to publish the Work anywhere in the world

–          The right to license others to publish the Work anywhere in the world

–          A contract that lasts for the life of the copyright – the author’s life plus 70 years

What have you, the author, promised?

Nothing in your book will violate any law or anybody’s rights under the laws of any nation anywhere in the world for the next 100 years or more. Among other things.

If you break this promise and your publisher has to pay any money, including New York and/or London and/or Riyadh legal fees, you will promptly reimburse your publisher for any expenses, million-dollar judgments, etc.

Nightmare

Here is a nightmare scenario to consider.

Several years ago, author Salman Rushdie wrote The Satanic Verses, published by Penguin in 1988. Muslims around the world were deeply offended at Rusdie’s depiction of the prophet Muhammad. The book was banned in many countries.

A fatwa was issued by Ayatollah Khomeini, the Supreme Leader of Iran, calling for the death of Rushdie and his publishers. Rushdie went into hiding under police protection. Riots over the book in several locations caused death, injury and extensive property damage. Bookstores in the United States and other locations around the world were firebombed. Penguin instituted special security measures for its staff worldwide including, according to one report, bullet-proof vests.

In 1991, a Japanese professor of literature and translator of The Satanic Verses was stabbed to death on the campus of Tsukuba University. That same month the Italian translator of the book was beaten up and stabbed in his Milan apartment. In 1993, the Norwegian publisher of the book was shot three times outside his home in Oslo.

The Rushdie book clearly violated the laws of many countries. It was banned in India, which, of course, is a democracy which operates a legal system based, in part, on Great Britain’s.

PG doesn’t know if anyone brought a civil suit against Penguin for damages arising from the publication of the book and is not familiar with the terms of the publishing contract between Rushdie and Penguin.

However, if Penguin’s publishing contract had included a warranty similar to the one set forth above, Penguin could have held Rushdie responsible for damages it suffered as a result of publishing his book.

To be clear, PG doesn’t have any knowledge that Penguin ever actually asked Rushdie for any such compensation. News reports at the time indicated that Penguin stood behind Rushdie and the book despite the protests and threats.

Daydreams

Why is a clause like this a daydream?

First, a publisher, particularly a large publisher, is much more of a lawsuit magnet than 99.99% of all authors.

Why?

Two words – Deep Pockets.

If someone sues Random House, they know there is money at the end of the trail if they have a decent case. If it’s a better-than-decent case, Random House is going to settle, probably long before they reach the end of the litigation trail.

Can’t Random House point to their warranty clause and redirect the lawsuit to the author?

No.

For most of the types of claims the warranty covers — violations of laws, regulations or the rights of individuals — Random House as the publisher is going to be just as liable to a third party as the author is, perhaps even more liable. Random House’s publishing contract can’t force someone injured by an action in which Random House participated to ignore Random House and only sue the author. The plaintiff will collect damages from the easiest place to get the money and let the publisher and author duke it out between themselves over who pays.

Part of the lawsuit magnet aspect of this situation lies in the American legal system’s adoption of contingency fees as one way to pay for legal services. Other legal systems don’t permit contingency fees or regulate them more than is the case in the US, but someone from Albania could hire a US attorney and sue Random House in the United States.

Under a typical contingency fee agreement, if the claimant’s attorney is successful in generating cash via settlement or trial, the attorney receives a percentage of the cash as his/her fee. If there is no recovery, the client owes no legal fees.

The rationale behind the system is that it permits people who would not be able to afford to pay legal fees out of their pockets to obtain counsel and sue to be compensated for their losses, injuries, etc.

One of the realities of contingent fee cases is that very few attorneys will take a case on contingency unless one or more of the defendants will reliably pay up if the court rules in favor of the claimant. This is why the first thing an attorney investigates in an auto accident claim is whether there’s an insurance company on the other side.

That’s why a big publisher is a lawsuit magnet while a starving author is not. If a claimant gets a $1 million judgment against a starving author, the chances of client or lawyer ever collecting any money are slim to none. If a claimant gets a $1 million judgment against Random House, a large check will be forthcoming.

One of the ironies for an author in 2012 is that a self-pubbed book which may violate all sorts of laws and rights is much less likely to generate a serious lawsuit than the same book published by a large publisher with a contract that includes the nasty warranty clause mentioned earlier.

Back to the daydreams.

When asked to modify a warranty clause requiring the author to bear all liability for violating a law or personal right anywhere in the world, the response of a typical publisher is something like, “We would never accept that liability.”

PG’s response, spoken or unspoken, is, “You already have that liability and in the world below the 26th floor, unless JK Rowling signs your contract, you’re unlikely to ever collect a big money loss from one of your authors.”

One thing any litigator learns is that, if you win a big lawsuit for a client, defendants who are insurance companies or large corporations or wealthy individuals will usually pay up. Defendants who are mom & pop companies or regular people usually don’t pay up.

There are a million excuses for not paying, some good, some bogus, but they’re all reasons why people won’t write a check. The bigger the judgment, the less likely the loser will pay. There is no better reason for refusing to pay than, “I don’t have that kind of money.”

PG will not bore you with the ins-and-outs of trying to collect judgments from people who don’t have a lot of money or property, but it’s not easy and any smart lawyer doesn’t do it for free. Although they’re not supposed to, desperate and angry people will move money all over the place to avoid a judgment. They’ll switch jobs to avoid garnishment of wages and drive a car that’s titled in the name of their 18-year-old slacker son.

The IRS has all sorts of tools it can use to break through such pretenses to grab unpaid taxes. Ditto for a bankruptcy trustee grabbing property. An individual trying to collect a judgment does not. A big publisher trying to collect an indemnity claim does not. If it is not careful, a judgment creditor can spend $1,000 in legal fees to collect $100 in damages.

If worse comes to worse, a great many authors could file for bankruptcy protection, keep much or all of what they own and stiff the publisher who is trying to collect on an indemnity claim.

So the publisher’s daydream is that, if the publisher gets sued, it will be able to collect big legal fees and a big judgment from an author who is already feeling ripped off because of the tiny royalty checks he/she has been receiving. Certainly, the publisher will never pay another royalty check to that author, but how long will it take for those checks to cover a $1 million legal bill and a $2 million judgment? Probably longer than the life of the author plus 70 years.

Reality

Setting aside nightmares and daydreams, how does an author have any knowledge of the rights “of any third party (including, without limitation, rights of privacy, rights of publicity or moral rights)” in Arkansas or Alaska or Albania? The simple fact is the author doesn’t have a clue what those laws or rights are. The publisher’s attorney would probably fail to describe those rights accurately on a pop quiz.

As mentioned, the language of the warranty applies to laws around the world. If the publisher decides to license the book in India, who is in a better position to do a check on the legality of the book under present-day Indian law, the publisher or the author who signed the contract five years ago and has no idea the publisher is taking the book into India?

If the publisher wants this type of warranty, will the publisher give the author the right to tell the publisher to stop selling a book because it might violate the rights of someone somewhere? If the publisher releases the book into India and the author sends a letter saying, “I think the book might violate Indian law,” is the author still liable when the publisher keeps selling and gets sued in India?

One thought that crossed PG’s mind is that publishing liability insurers may require a warranty of this nature in publishing agreements, but no one has ever mentioned that this is the case. PG doubts it.

Where is the reality here?

These types of mandatory warranty clauses that publishers refuse to negotiate will be difficult to sustain or defend in court. They’re yet another reflection of the scornful attitude of publishers toward the people who provide them with the new products they need to survive.

Typical attorneys who draft this sort of agreement have not litigated contracts in front of a judge or jury. They hold a subconscious belief that if they draft an air-tight clause, a judge will automatically enforce it regardless of its fundamental unfairness.

They’re wrong.

PG has litigated contracts, including air-tight contracts drafted by very large banks, very large insurance companies and the federal government, among others. He represented the little guys in many of these cases.

When judges go home at night, they want to feel like they dispensed justice during the day. If they believe a contract, particularly a contract written by a large and powerful organization and enforced against an individual, is fundamentally unfair or overreaching, they will look for a way to avoid enforcing that contract. Unconscionability is a difficult thing to prove going through the front door, but it’s possible to use a sense that a contract is unconscionable to open up some escape hatches. One of the ways PG sometimes won his contract trials was to show the judge a way to avoid doing something the judge felt was unjust.

Another thing that office lawyers don’t understand is that, just like a big boulder on the side of a hill, once a judge starts chopping up a contract he/she doesn’t like, you never know exactly how far the judge will go or where he/she will stop. In more than one contract case, PG’s client ended up getting much more than was requested because the judge became fed up with overreaching on the part of a large organization.

The answer of office lawyers to this scenario will be something like, “Well, if you get a renegade trial judge, the decision will be overturned on appeal.”

PG will respond by quoting something a trial judge once said to him in chambers. “I know how to write an opinion that will never be overturned by the appeals court.” Plus the appeals judges don’t like to feel they’ve been cornered into a fundamentally unfair decision either.

PG’s bottom line is that warranty provisions like the one mentioned are likely to be struck down at least in part if an author ever goes to court to dispute them. However, like a poker game, the author has to be willing and able to lay down table stakes to see if PG is right or not.

How to Read a Book Contract – Where Are We Gonna Fight?

12 October 2011

Somewhere toward the back of most publishing contracts you will find a clause that sounds something like this:

This agreement shall be deemed to have been entered into in the State of New York and shall be interpreted and construed in accordance with the laws of the State of New York applicable to agreements executed and to be performed therein by each party. Each party hereby agrees to submit to the sole and exclusive jurisdiction of the state or federal courts of New York, in New York County and/or the Southern District of New York.

This clause is often referred to as a “Choice of Law” provision. The purpose of a clause like this is to designate the place where litigation between an author and a publisher will take place and to specify the laws that will apply.

Most of these clauses, including the example clause above, relate to two specific legal concepts:

1. Choice of Venue – where litigation will take place.

2. Choice of Law – what law will be applied to any litigation.

In the example above, the choice of venue is either the state or federal courts located in New York City. The choice of law is New York law.

Why do you care?

If you live in Arizona and decide to sue your publisher or your publisher sues you, you will be making a number of trips to New York City in order to fight your battle. You will be taking airplanes to court. Your publisher will be taking cabs to court.

While you may have a very good attorney in Tucson, a legal fight in New York City will require that you locate and hire a competent attorney who practices there. Your New York publisher already has established relationships with one or more law firms and may give them enough business to bargain for lower fees than someone walking in the door would pay.

Competent New York City attorneys charge among the highest fees you will find anywhere in the United States. To be fair, attorneys in other large cities also charge high fees. Fighting your case in New York City will cost you more in attorneys fees than fighting your case in a city the size of Tucson. Again, to be fair, New York City attorneys pay more money for office rents and higher salaries for office staff than attorneys in Tucson do, but fairness will not make your attorneys fees smaller.

Passive Guy is not an expert on the laws of New York. Neither is your Tucson attorney, so you be dealing with a new attorney you do not know and relying upon his or her judgment and advice.

Your litigation will take a long time. While this is a statement that can be made about litigation in many different courts, typical big-city court dockets are very backed up and it may take several years to go to trial.

It is not in the nature of most attorneys to sit around doing nothing while waiting for a trial date.

One of the most time-consuming aspect of many civil cases is pretrial discovery, including depositions, production of documents and interrogatories (written questions requiring written answers). Pretrial discovery often involves lots of fights which result in trips to court for resolution.

During the time before a trial, attorneys will also file a variety of pretrial motions. Some of these may be completely legitimate and necessary, while others may simply be dilatory. Each pretrial motion is likely to require another trip to court.

Attorneys never go to court without charging fees to do so.

When PG was a young whippersnapper attorney in Los Angeles, he had a conversation with another attorney in the office who had been a litigation specialist for 10 years. PG was very surprised to learn the litigation attorney had never actually gone to trial. His entire practice over 10 years consisted of pretrial trial discovery and pretrial motions.

Most lawsuits are settled before they go to trial. Sometimes this is because the pretrial process discloses facts that make it clear to one or both parties that either the plaintiff or defendant has a weak case. Sometimes settlements happen because one side becomes tired of paying attorneys fees and a trial date is a long way in the future.

What is an author to do?

Arbitration is a form of alternative dispute resolution providing a way to have a fight without going through the legal system. Typically, arbitration is much faster and much less expensive than a trial. Start to finish for many commercial disputes is less than 120 days. Unlike most civil litigation, arbitration can also be private.

In order to require that both parties waive their rights to litigate disputes in court and submit to arbitration, you will need an Arbitration Clause in your publishing contract. Arbitration clauses are not exotic or strange and are a common feature of many business contracts.

A potential downside of arbitration is that it may be difficult to appeal a bad decision by an arbitrator.

PG has seen arbitration clauses in agency contracts, but, so far, has not seen them in publishing contracts from large publishers. The simple fact is that a publisher’s financial resources give it a significant advantage over most authors in litigation that does not exist in arbitration.

Another approach is to simply ignore the choice of venue provision and sue your publisher in the state where you live. You will want to have an extensive discussion with your local attorney before doing so. As a general proposition, most state courts will enforce choice of venue provisions. You would probably prefer not to pay for litigation in Tucson before you pay for litigation in New York.

Despite the general rule that choice of law and choice of venue contract provisions will be enforced, under some circumstances, a state may not honor them if some aspect of that contract is contrary to an important state law.

One example of such a law would be California’s law that covenants not to compete are void as applied to employees and others under California Business and Professions Code section 16600.

While non-compete agreements are enforceable in many other states, other than under specific, limited circumstances, they are invalid in California.

In some cases, even an employee agreement that include a choice of law provision designating the law of a state other than California will not prevent a California court from applying California law to a California resident.

In the case PG is thinking of, an employee non-compete agreement was signed by a Maryland employer and an employee who was living in Maryland at the time. The agreement specified Maryland laws would govern enforcement and disputes arising under the agreement.

The employee quit and moved to California where he started work for a competitor of his former employer. When the Maryland employer sued its former employee in California, the California court would not enforce the covenant not to compete because it violated California law.

PG will not speculate about the potential applicability of California Business and Professions Code 16600 for California authors in the face of the non-compete provisions included in many Big Publishing agreements.

While other exceptions to choice of law and choice of venue provisions in publishing contracts undoubtedly exist in various states, an author should not assume that he or she will be able to avoid having a fight with a New York publisher in New York City if a clause similar to the one shown earlier in this post is included in their publishing contract. The very best time to think about this is before you sign the contract.

If any readers of The Passive Voice have experience with either persuading publishers to drop the New York provisions or avoid their applicability, PG would love to hear about it.

Obligatory Disclaimer: Although PG is an attorney, this blog post is not legal advice. What he says may not apply to you or your publishing contract. If you need legal advice, you will need to contact your own attorney.

All of PG’s discussions are based upon US law. While choice of law and choice of venue provisions are often included in international contracts, enforceability of those provisions is one of the many things PG knows next to nothing about.

How to Read a Book Contract – Can I Ever Get Rid of My Agent?

18 August 2011

Passive Guy just hasn’t felt like himself for the last day or so. A little dull and listless. Not much of a sparkling party boy.

What could it be?

  1. Meds? Check. Haven’t cut any pills in half lately.
  2. Exercise? Some. Need to do more, but that’s not it.
  3. Sunshine? Barely a cloud in the sky. Fry your eyeballs if you glance up.

PG considered several more possible causes but discarded each.

Suddenly, the answer appeared. So obvious, he should have thought of it right away.

Passive Guy was suffering from screw-the-author contract withdrawal symptoms. Too much time had elapsed since he dived into some really nasty clauses.

Slimy contract provisions always boil PG’s blood and perk him right up. Way better than a 48 ounce Diet Coke or a double dose of Adderall. His eyes narrow, his ears go back and he’s on the hunt, sniffing the air for the slightest whiff of duplicity.

He didn’t have to look far.

There it was, on his desk, next to the post-it notes reminding him of things he always ignores. A great stinking carcass of an agency agreement. It’s a classic, grabbing for more things than a drunken frat boy.

When PG ran his fingers over the pages, he felt like a cheetah contemplating a limping gazelle.

OK, enough with the mixed metaphors.

Perceptive readers will recognize the inimitable drafting style of a contract we have discussed before. If you haven’t read PG’s previous post about this contract, take a quick look for some useful context underlying today’s dissection.

Today, we’ll examine two clauses that appear in separate parts of the original agreement, but relate to one another in tone and general subject matter.

The first clause talks about termination of the agreement:

This agreement may be terminated by either of us giving a 30 (thirty) day written notice to the other.

Notwithstanding termination, XYZ Agency will continue to be the agency of record and receive commissions on any contract negotiated by XYZ Agency or by its agents on your behalf pursuant to this agreement, and XYZ Agency will continue to be the agency of record and pursue and exploit all secondary rights derived from any and all literary material on which XYZ Agency sold primarily rights on your behalf for the life of that primary agreement.

The second clause talks about what happens if the agent dies or the agency dissolves:

All monies due XYZ Agency, including commissions on royalties and on all secondary sales arising from literary material for which XYZ Agency has sold primary rights, shall remain due and owing XYZ Agency’s heirs even upon the death or incapacitation of all principals of the agency or the dissolution of the agency.

Termination

Look at the top clause first. The first sentence of this clause sounds reasonable. Either party can terminate on 30 days notice. While it does not specifically mention “without cause,” the lack of any reference to “reasonable cause” or “just cause” means either the author or agent can terminate for any reason or no reason. Send a note or a fax or email and the contract is history.

So, it’s simple to terminate. Except it’s not.

Whether the author terminates the contract or the agency terminates the contract, the author is still stuck with the agency forever. PG hasn’t included the contract provision describing how long the agency contract lasts, but it mirrors the length of the publishing agreement, which is the life of the copyright.

For newly-arriving authors, the life of the U.S. copyright for anything you write is the rest of your life plus 70 years. Your grandchildren may die before your agency agreement does.

Hypothetically, how might this clause operate in the real world?

You, the author, suspect your agent is mainlining heroin before she reviews your contracts. You decide you would be better served by getting a new agent.

You may have a new agent, but you also have your old agent and you can’t get rid of the moldy oldie.

“Notwithstanding termination, XYZ Agency will continue to be the agency of record and receive commissions on any contract negotiated by XYZ Agency or by its agents on your behalf pursuant to this agreement.”

This says your fired agent will continue to receive all your royalty reports and all your royalties from the book contracts and every other contract your agent ever negotiated for you.

PG understands the agent’s side of this particular provision. The agent worked hard for the contract and received a piece of your advance. However, since you wouldn’t have the contract without him, the agent should also receive 15% of every dollar that contract produces. For 100 years, maybe 150 years.

Needless to say, PG doesn’t agree, but will concede that honest agents believe this is part of their reasonable compensation. PG says a reasonable time limit – say 3 years – ought to be the end of the agent’s compensation period for the original book sale if the agent is not providing ongoing services at the author’s request.

But Wait! There’s More!

After you fire your agent, “XYZ Agency will continue to be the agency of record and pursue and exploit all secondary rights derived from any and all literary material on which XYZ Agency sold primarily rights on your behalf for the life of that primary agreement.”

Secondary rights? There are a zillion of them – movies, TV shows, video games, board games, action figures, Halloween costumes, and on and on.

What can your fired agent do? Your fired agent can negotiate for secondary rights sales and receive commissions for any books your agent sold before you fired him. So you fire your agent in order to hire a new one who is not strung out on drugs to help you with a movie deal, but you’re not done with the old one. At a minimum, you’ll pay a double commission – one to your old agent plus one to your new agent. But your old agent still has negotiation rights so he might jump into the middle of your new agent’s negotiations with all sorts of proposals.

PG would guess, unless you’re JK or Grisham, no new agent would touch you for secondary rights with a clause like this lurking in the background.

How long does this part of your fired agent deal last? Your grandchildren may be dead before it’s done.

Death

Speaking of death, let’s move to the second of today’s nasties.

Here it is again so you don’t have to scroll up:

All monies due XYZ Agency, including commissions on royalties and on all secondary sales arising from literary material for which XYZ Agency has sold primary rights, shall remain due and owing XYZ Agency’s heirs even upon the death or incapacitation of all principals of the agency or the dissolution of the agency.

We’ve talked about problems for authors when an agent dies before, but this is worse.

Your old agent buys a bag of bad cocaine and snorts death right up into her inflamed sinuses shortly after signing you to the worst book deal your author friends have ever seen. Despite this, you decide it’s only right to send a modest bouquet to the funeral. After all, her family can’t be blamed for her problems.

Shortly after the funeral, you receive a letter:

Dear Author:

You probably know Mom died and to tell you the truth, I’m relieved. We had issues.

Mom never gave me a cent after I got out of prison, so I was stuck in a dead-end waitressing job which was so depressing, I quit going to Alcoholics Anonymous. Mom got a restraining order and my parole officer put me on house arrest with an ankle bracelet that wouldn’t let me get to a liquor store. I couldn’t even go to her funeral.

Anyway, you don’t care about this and why should you since you’re a rich author.

I’m Mom’s only heir, so I own the agency and I’ve decided to keep it going. Before I fired all the agents who worked for Mom, they said they were working on a deal for your movie rights. I don’t know what your book is about, but I met a guy in rehab who is this movie genius or he will be if he ever gets a break and stays sober. Anyway, he’s cute and says he can get me off house arrest if I help him out with his career. He read the first part of your book and thinks it will make a great movie.

So I made a deal with him on your book. I’m the executive producer and he’s going to make a really cool movie starring this grunge rock band he used to play with.

All your royalties are still coming to Mom’s address and the new owners promised to hold her mail until get rid of my ankle bracelet. I’ll let you know if I need any help figuring out what to do with the royalties.

I don’t have a phone, but you can leave messages with my parole officer.

My official name is Sara, but my friends call me Goddess of the Underworld because I have that tattooed on my forehead.

Your primary rights were sold and the agency continues so, under the contract clause, not only does the new owner of the agency continue to collect royalties for your books and (hopefully) send the balance to you after deducting the agency’s 15% plus “expenses,” the agency also has the right to negotiate secondary rights sales and, whether sales are negotiated by them or someone else, receive secondary rights royalties.

And how long are you in business with Goddess of the Underworld and her offspring? You guessed it. Your grandchildren may be dead before your contract is finished.

Some of you may think Passive Guy is dealing with the wildest speculation and may, in fact, be off his medication. However, PG would refer you to the case of the Ralph Vicinanza Agency and how Ralph’s daughter sister, who had no agency experience, took over the agency after Ralph died and informed the authors she would be handling their royalties thenceforth. PG has taken a peek at a Vicinanza agency agreement and it is much looser than the language he has quoted in this blog post.

Both of these provisions are terrible and unfair, but the second is worse than the first.

In order to clarify our analysis of this contract, let’s back up and look at it from a broader perspective.

Agents regard themselves as professionals. Why don’t we transfer this agency clause to another profession to see what happens?

When you have your next visit with your doctor, she asks you to sign an agreement with her that says she will continue to be your physician and you will pay her standard fees. The agreement also says that when your doctor dies, her heirs will become your doctors and receive the same fees their mother did.

Fortunately for you, despite such an agreement, if your doctor’s heirs weren’t licensed to practice medicine, they couldn’t be your doctor. Since no one needs a license to be a literary agent, anybody can become your agent under today’s contract.

Of course, contract or no contract, you can always fire your doctor or your lawyer or your accountant. You owe them money for services they’ve performed up to the day you fire them and not one cent more.

Passive Guy is of the opinion that the services provided by a literary agent are personal by their very nature, invariably tied to an individual or group of individuals, not to a corporation, partnership or LLC.

Why did you query your agent? Because he had the personal reputation of being an effective agent who obtained good contracts for his clients. Because you thought he would be a good working partner for you based upon what you heard about him. Because he had helped several successful authors build good careers. You might have had the option of querying another agent in the same agency, but you did not because the other agent didn’t have the same reputation.

Perhaps you queried an agent because of the general reputation of the agents in his agency, but your decision was still tied to specific individuals, their reputations and their relationships with authors and publishers. To some extent, junior agents trade on the reputation of senior agents because an author assumes the junior agents will be mentored and supervised by senior agents or, at a minimum, the junior agents will be able to walk down the hall and ask an experienced senior agent for help with a problem or question.

If all the agents left the agency and were replaced with new people, it wouldn’t have the same reputation. In reality, a literary agency, like a law firm or a medical practice is just a shell that gains virtually all its value from the reputation of the professionals who work there. For an author, all the useful assets of a literary agency walk out the door at sixish each day.

PG has said before he believes the current length of copyright protection – life plus 70 years – is too long and causes all sorts of weird distortions of reasonable contract principles.

Between 1909 and 1976, the term of a U.S. copyright was 28 years. The copyright holder had the right to file for an extension of the copyright for another 28 years for a maximum total of 56 years of protection. The underlying thinking was that most copyrights would expire after 28 years with only those of real value being extended. That length sounds reasonable to PG. If value can’t be extracted from a book within 56 years, let it go into the public domain.

As persuasive as Passive Guy’s arguments may be, however, 28×2 will never return.

What are a few PG contract principles we can derive from today’s clauses?

1. In the agency contract, provide that agency agreements may be terminated by either party at any time.

2. After an agreement is terminated, the agent has no further rights to act on behalf of the author.

3. If an agent is to receive commissions after termination, those commissions should have an end date that happens at a reasonable time. Five years after termination sounds like the longest reasonable time to PG. Three years would be better. If an agent would like a lifetime annuity, he/she can purchase one with their share of the advance. The agent earns ongoing commissions by providing ongoing services. If the services stop for any reason, the commissions stop.

4. In the publishing contract, provide that royalties will be split on an 85% – 15% basis with the author receiving a separate check and royalty statement directly from the publisher. Insert similar provisions in any contracts for secondary rights. If the author needs someone to help him/her with money matters, the author can request that the check be sent to an accountant or financial manager or nannie. If the agent has reimbursable expenses, the agent can send the author a bill.

5. The agent cannot assign the agency agreement to anyone else without the consent of the author.

PG could go on, but he won’t.

The cheetah has feasted on the gazelle and contentedly gazes across the Great Rift.

UPDATE: So PG doesn’t raise the righteous ire of honest agents, clauses worded like these aren’t found in every agency agreement. Some agents work the traditional way – the author or agent can terminate the relationship at any time with no ongoing entanglements.

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