From romance agent Scott Eagan:

I recently read an article about an author who was extremely upset with Harlequin and their contracts. Her whole post was a complaint about how she just couldn’t make a living off of the books she was selling at Harlequin in their series line. Needless to say, she is off to run and “self-publish” her books and be able to now essentially retire with the amount of money she will make on her own. This post was also a guest blog on an individual’s site that seems to be 100% against all established publishers and 100% behind only self-publishing. Hmmmm? This got me thinking.

. . . .

I found it interesting that these authors were implying that they were forced into the decision to contract with a publisher. That they were stuck with these advances and royalty rates. Along the same lines, they were adding in the fact that agents were just part of the whole scheme of things making their authors go along with these deals. Now, I am not sure what their relationship with their agent is like, but I honestly do not know of any agent out there that holds a gun to the head of their author and “make them” sign anything. The author-agent relationship is a teamwork affair and we all discuss with our clients where we are sending books. If the author doesn’t want their book at a particular house, we honor that request.

Secondly, if an author doesn’t have an agent and they are doing this on their own, which again is perfectly fine, they choose where to send the manuscript and they negotiate those details in the contract. If you don’t like the terms, then don’t sign the contract.

. . . .

When an author is not making money, it is NOT always the fault of the publisher. Maybe their writing has gone flat. Maybe they aren’t promoting enough. Maybe it is simply a matter of bad timing for when the book comes out. The point is, be careful blaming others for your lack of success in the business.

I for one am a firm believer in Harlequin. The editors work AMAZINGLY hard with the authors out there dedicated to their craft. The promotion departments do an amazing amount of work to get those books out to their readers. I would also add that all of the editors work amazingly well with me personally when I want to negotiate contracts. They are in it for the long haul with their writers and they don’t want to lose a great thing when they see it.

I would also add that there are far too many authors out there who are able to make a living with their writing and being able to publish with Harlequin. Why? Because they are great writers. They probably have a great team working with them including editors, agents and P.R. people.

Link to the rest at Babbles from Scott Eagan and thanks to Barbra for the tip.

The most frequent problem Passive Guy finds with publishing contracts negotiated by agents is that agents fail to inform their clients about contract clauses that have major negative effects on authors.

PG has lost count of the number of times he has analyzed a publishing contract for an author, pointed out one or more really nasty provisions and heard the response, “My agent never told me about that.”

Scott is correct that no one is forcing an author to sign a publishing contract. However, agents universally describe themselves as experts in the publishing business and one of their principle value-add activities is negotiating publishing contracts on behalf of the author.

When an agent presents a contract to an author, unless the agent explicitly warns the author about one or more aspects of the contract, the agent is implicitly recommending that the author sign the contract.

PG submits that representing an author involves explaining what the contract means or expressly advising the author to hire an attorney to tell them what the contract means before signing the contract. When an author says, “My agent never told me about that,” PG believes the agent has failed in one of his/her major responsibilities.

A reprise of a popular former post that was one of PG’s earliest on book contracts:

Kristine Kathryn Rush is writing some important essays about the publishing world (“blog post” is too lightweight to adequately describe her analyses).

In her latest, Kris discusses contracts with publishers and agents, dirty tricks in some contracts and a worrisome trend of agents becoming more concerned with the interests of publishers than the welfare of the authors they represent.

Excerpts:

We used to recommend agents, but we slowly stopped doing that. Some of it was simple: we didn’t want to endorse any one we weren’t intimately familiar with. But it became more complex than that. Some of our agenting friends had left the business. Others had moved to companies that had rather unseemly business practices, and still others had morphed their agenting business into something unrecognizable.

Rather than walk through the thicket of ethics, friendships, business partnerships, and individual monetary policy, we just stopped recommending any particular agent. Over time, we stopped recommending agents at all.

During that same period of time, we saw a lot of publishing contracts that were…dicey…at best. We figured that because the contracts were for newer writers, the contract itself was a lower level of contract.

. . . .

I was noticing a few other things at the time, but not putting them together because my own career had hit a crisis point. My agent and I would negotiate a contract. Then we’d get the contract, and we’d have to remind the publisher that we had changed certain terms. The terms would get changed back.

Or we’d negotiate a contract, then sell a second book six months later on the same terms. Only when the contract arrived, it would be a completely different document. While the terms we had explicitly discussed would be the same as the ones we negotiated, the other terms, from the warranties to the deep discounts, would be extremely different.

. . . .

I was thinking of getting a new agent (yet again) and I asked him what his super-famous really big agency could do for me that a smaller agent couldn’t. Maybe because he’d had a few drinks, maybe because he is a very savvy man who has a finger on the pulse of publishing’s future, maybe because we were friends, he told me that he couldn’t do as much for his writers as he could have ten years before.

Clout counted for less and less in this business, he said. And since his business was all about clout, he was quite morose about it.

Then he told me stories about canceled contracts and misfired deals, stories like the ones I just told you, only these had happened to big name writers—writers with more clout than I ever had, more clout than that poor textbook writer could ever hope to have had. And the agent said he could do nothing about it.

Now, honestly, I’m not that shocked that publishers take advantage of writers. Writers and publishers enter into a business relationship, and business relationships can be adversarial. Personalities factor in, but so do the structure of companies. The smaller the company, the more likely it is to be on less solid ground financially, but the more likely it is to be a friendly place to work with.

Writers have always (usually?) been unarmed as they went into these business relationships with publishers. The writers would hire advocates to take care of them, to handle the adversarial part. Early on in my career, I hired an agent not just because I believed the agent knew more about publishing and publishing contracts than I did (and at the time, he did), but also to stand up for me when the time came, to fight for my needs and wants, to be my advocate.

Slowly, over time, agents stopped advocating for writers, and instead, started advocating for their agencies. Again, I noted the change, but believed it was only a few agencies, working on the Hollywood model. In fact, the agencies that pioneered this behavior came from Hollywood, and then branched into publishing as a side business.

I knew that many agents had forgotten who they worked for when the agent started refusing to mail books that “weren’t good enough” and refused to do things in their clients’ best interest because it “might hurt our other clients.” I always felt those were firing offenses, but a lot of writers put up with those things and more. And, it seemed, the behavior got worse, which I blamed mostly on the cutbacks in publishing. Those cutbacks forced a lot of laid-off editors into agenting, and editors didn’t know business nor did they know how to keep their hands off a perfectly fine manuscript.

But I was wrong.

I hadn’t realized until a few months ago that the adversarial relationship that sometimes existed between writer and publisher had moved into the agent/author relationship.

Link to the rest at Kristine Kathryn Rusch

What basic publisher and agent contract advice does PG have for you?

1. Read the contract, every word of it. This isn’t like a credit card agreement that is regulated up one side and down another. There are no consumer protection laws for publisher’s and agent’s contracts. What is on the paper is what you give. What is on the paper is what you get.

2. Every contract is negotiable, so negotiate what you don’t like. “This is our standard contract” is the oldest scam in the world. Standard contracts are for banks who print them by the million. Publishers and agents may want “standard contracts,” but they probably also want world peace. You don’t have to accept their standard contracts. If a publisher or agent is interested enough in your book to want a contract with you, they’ll be willing to change some things. Negotiation is the process by which each side to a potential contract discovers how much they want the contract.

Authors are in a terrible psychic spot in negotiating their first contract with an agent or publisher. They sent out a million queries before they got an agent. Ten publishers turned down their manuscript before one became interested. Authors are inclined to think, “I’ll sign anything. Just don’t tell me no again.” Don’t get into that mode. Your old buddy, Passive Guy, will guarantee that you’ll be in a worse psychic spot if you and your manuscript are treated like trash under the terms of a bad contract. You must be ready to walk away from a bad deal.

3. Make certain every contract ends at some time. In recent publishing contracts PG has examined (and some that Kris describes in her essay), the contract goes on forever. So long as a product page exists for your book on some online bookstore, the contract continues. If the publisher decides your book should sell for $5,000 per copy in ebook form and you last received a royalty check for $2.93 ten years ago, under the terms of some “standard contracts,” the contract continues forever.

Don’t fall for a “life of the copyright” clause. In the United States, the copyright for your book ends 70 years after you die. When you are finally free of your agent, he won’t have returned a phone call for more than 70 years.

With both publishers and agents, PG recommends a “minimum wage for authors” – a dollar (or Euro, etc.) amount that the author receives every six months or year for a book. If the author doesn’t receive that amount, all rights to the book revert to the author, free of any publisher’s or agent’s claim.

An example of a minimum wage clause would be if an author doesn’t receive at least $5,000 in royalties in any year for her magnum opus, Dogs and Cats Can Get Along Just Fine, she can send a letter to the publisher and/or agent notifying them that she is retrieving her rights and they don’t have a piece of the book any more. The publisher has a year to sell out any hard copies in stock, but can’t print any more.

Don’t go for “out of print” provisions, particularly those that will require someone to count how many books are in warehouses. “Out of print” is meaningless for an ebook listing on Amazon.

This is a business relationship, not a tree-house club. If the publisher isn’t producing dollars for the author, it’s over. If the agent isn’t producing dollars for the author, it’s over.

4. Don’t give either the publisher or agent any option on your future work unless you’re writing a series. In that case, give them an option for the rest of the books in the series, but nothing else. If you write a sequel to Dogs and Cats, it’s reasonable to allow the publisher and agent to have rights to it, perhaps on the same terms as the first book or perhaps not. However, they don’t have rights to your manuscript for War and Peace and Zombies.

If you’re happy with the way things are going with the publisher and/or agent, you will almost certainly want to give them first shot at W&P&Z, but if you’re not happy, you should be free to pursue other options. Is your publisher guaranteeing it will publish your Zombie book or whatever else you write in the future? Is your agent guaranteeing the same thing? If not, you’re just asking that obligations and freedom from obligations be be the same for you as they are for them.

Watch out for “rights of first refusal” in their many guises. PG never saw a ROFR that he couldn’t break, but you don’t want to have to hire a lawyer and sue somebody just to find the right home for your Zombie series.

There are other things to watch out for in publishers and agents contracts, but PG has rambled for way too long.

One overriding principle to remember whenever you read a contract is to don’t assume that everything will go just fine. If the relationship with your publisher and agent is filled with bliss, nobody will ever look at the contract after it’s signed. The contract is for when something goes wrong.

Everybody loves one another when the contract is signed, but, as a student of human behavior, Passive Guy will assure you that love sometimes fades and dies. Love can even turn to hate. As a useful exercise, read your publisher/agent contract with this question in your mind: “How does this work if I hate my publisher and my agent has stopped speaking to me?”

Because all things change, also read your contract with this question in your mind: “How does this work if my publisher gets purchased by a Chinese steel company and my agent is fired and replaced with somebody who is six months out of Wellesley and believes anime is the next big thing?”

From Dear Author:

Copyrights, particularly lengthy ones, benefit the corporations that license and/or those copyrights.  The Copyright Extension Act of 1998 isn’t called the Mickey Mouse protection act because it is designed to protect individual creators.  It is designated as such because it benefits one of the largest owners of intellectual property, Disney.  As of 1998, the term of copyright extends from 50 years for an individual and 75 years for a corporation to life of an author plus 70 years and 120 years for a corporation or 95 years after publication, whichever occurs earlier.

The reason that this is problematic is that when authors sell or license their works to a publisher, it is ordinarily for the term of copyright.  When a new author or an author with little following enters into negotiation with a publisher, she rarely holds a position of power.  This has changed given the new options available to authors such as digital first or self publishing but the fact remains that an individual’s ability to negotiate differing terms from the boilerplate is challenging.

Even the Supreme Court acknowledged this in Fisher Music Co. v. Witmark, 318 U.S. 643, 656 (1943).  The Court said  “authors are congenitally irresponsible, [and] that frequently they are so sorely pressed for funds that they are willing to sell their work for a mere pittance.” Id.

. . . .

A shorter term of copyright, such as 14 years with several renewal periods of 14 years a piece would allow an author to renegotiate a contract every 14 years, taking advantage of the changing landscape in publishing.   It may be to the author’s benefit to sell every renewal period up front or she could preserve her renewal periods and take a lower offer initially.  However, a shorter copyright period with subsequent renewal periods would endow the author with additional bullets in her negotiating weapon.

Link to the rest at Dear Author

PG agrees that the term of copyright should be shorter, but not for the reasons described in the article.

A 14 year period with renewals which the article proposes has typically been dealt with in publishing contracts with a boilerplate term described as “the life of the copyright and any renewals thereof” or something similar. Absent statutory language prohibiting or voiding contracts extending for more than the current term of the copyright, the problem of contracts extending for the life of the author and longer wouldn’t be solved by a 14 year term unless there was some sort of limit on the number of renewals.

The better solution is simply to make a publishing contract for a set period of time – say 10 years – with renewals if both author and publisher agree. This is typical of foreign rights and translation publishing contracts.

Even 10 years is too long for an author if the publisher is ignoring the book or doing a terrible job of promoting it. That’s where PG’s Minimum Wage for Authors provision comes in. It was one of his most popular posts ever and he’ll repost it tomorrow morning.

Per an inquiry after an earlier post about Harlequin, Passive Guy is not aware of any laws designed to protect authors from deceptive or unfair publishing contracts.

In the US, many contracts consumers commonly sign, such as for mortgage or auto loans or to obtain a credit card, are subject to statutory requirements for fairness, clarity, etc.

In PG’s preternaturally humble opinion, if some of the clauses and drafting techniques commonly included in publishing contracts used by some publishers (and agency contracts used by some agents) were found in consumer contracts, those provisions would be deemed void and unenforceable. In some cases, they might constitute consumer fraud and subject publishers to fines and penalties.

However, in the absence of consumer-type protections, the laws governing business contracts assume that each party to such contracts will watch out for themselves. If both parties sign a contract, the strong presumption is that each party understood what the contract meant and voluntarily agreed to be bound by it. In extreme cases, if a lawsuit were filed, a contract might be deemed unconscionable and voided in whole or in part, but that is a high hurdle to clear.

So, what’s an author to do?

When you sign up for a new Mastercard with your bank, you are wearing your consumer hat and can assume you have some protections against unfair and deceptive contract practices. When you sign a publishing or agency agreement, you have no consumer hat on and you should not assume a “standard” contract will be fair or equitable for you. You should also not assume you will be able to easily get out of that contract if you later find it to be unfair.

A reprise of an earlier post:

An agency clause may be inserted into a publishing contract between an author and a publisher. In essence, a typical agency clause provides that the agent may receive royalty payments on behalf of the author and has authority to act in the name of the author with respect to the contract.

Here’s an example:

All sums of money due to the Author under this Agreement shall be paid to the Author’s agent, Annie Agent, of 321 Applesauce Avenue, New York, NY 10023, U.S.A. (hereinafter called “the Agent”) and receipt by the Agent shall be a good and valid discharge of all such indebtedness and the Agent is hereby empowered by the Author to act on the Author’s behalf in all matters arising in any way out of this Agreement.   For services rendered and to be rendered the Author does hereby irrevocably assign and transfer to the Agent the sum of 15% (fifteen percent) as an agency coupled with an interest out of all monies due and coming due to and for the account of the Author under this Agreement.

To understand this beast, you need a teensy bit of legal background info. (I promise this won’t hurt too much.)

Since the agent doesn’t usually sign the publishing contract, the agent is a Third Party Beneficiary of the contract.

The classic Third Party Beneficiary example is a life insurance policy. Grandpa George buys a life insurance policy for $100,000 from Cornpone Mutual when he’s only Pa George. He names his three chillun, Bo, Lucille and Little George, as the beneficiaries. (Hint)

Grandpa George pays all the premiums on time, but gets careless around the hay baler one day and goes to meet his Maker. In pieces. The chillun tell Cornpone Mutual it’s time to pay up, but Cornpone says its policies do not cover hay baler accidents.

The parties to the life insurance policy are Grandpa George and Cornpone Mutual. The chillun never signed anything. Indeed, if they were under 18 at the time the policy was purchased, they were legally unable to enter into contracts.

The usual rule is that only parties to a contract can sue for enforcement or damages. This raises a problem. Grandpa George was a good man, so there are very few lawyers in the place where he has gone. There is also no email and Fedex guys who take packages there never return.

The children were named in the insurance policy, however. Although they didn’t sign, they are Third Party Beneficiaries so they can sue Cornpone Mutual in their own names.

Outside of a few clearly-defined fields, Third Party Beneficiaries are quite rare in the business world. When Passive Guy was practicing law, he would negotiate dozens of contracts with nary a Third Party Beneficiary in sight. The standard practice was to have everybody sign the contract if they had any rights under the contract.

However, in the wild and wacky world of publishing, agents are Third-Party Beneficiaries to a lot of publishing contracts. As will become clear during our discussion, Passive Guy thinks Agency Clauses only benefit the agent and can cause problems for both the author (obviously) and the publisher (don’t know if they’ve thought much about this).

So, in general terms, what does the presence of an agent as third-party beneficiary to a publishing contract mean? This is a weird area of the law, filled with lovely Latin phrases, serving primarily to fill out the semester in a Contracts Law class (which is one reason to have everybody sign the contract). PG will boil it down into fundamentals as they relate to an Agency Clause.

1. If one or both of the parties to a contract violate the terms of the contract to the detriment of the Agent, the Agent can sue to enforce the contract.
2. The Agent’s rights are subject to the terms of the contract.
3. The Author and Publisher have obligations to the Agent to perform under the terms of the contract.

Isn’t this fun? Don’t you wish you could be a Third Party Beneficiary too?

Before we go further, let me make clear that Passive Guy is not anybody’s lawyer anymore. As much as he may love and admire you, PG is not your lawyer. Most publishing contracts will have a clause saying New York law applies to the interpretation of the contract. PG is not a New York lawyer either. Any legal discussions will be general in nature and New York or other state or federal laws may conflict with PG’s generalities. Hire your own lawyer if you want legal advice.

So, let’s start dissecting the Agency Clause so see where we have some wiggle room. Some agents just use an Agency Clause without a separate Agency Agreement between the Author and Agent. Our analysis will assume this is the case. If there’s a separate Agency Agreement, things can become much more complicated.

Passive Guy wants you to see this clause through PG’s magic contract vision glasses.

What does Passive Guy’s super-power vision see here?

1. Purple highlights – Unsurprisingly, the Agency Clause is about money only. Potential benefits or compensation other than money are not covered by this clause. Something that could be easily converted to money or is a money equivalent – a Visa gift card, for example – might be covered. PG is assuming “money” is not a defined term in the Publishing Contract. (For you persnickety types, super-power vision is not perfect. The purple “an” is a mistake.)

2. Blue highlights – Only money payable to the Author is covered. Money payable to other people or entities is not covered. The assignment clause, if any, in the Publishing Contract would make for interesting reading.

3. Yellow highlights – The Agent is authorized to act on Author’s behalf. In the oh-so-ever-humble opinion of PG, this gives rise to the classic obligations that an agent owes to a principal. These include always acting in the principal’s best interests, disclosing conflicts of interest, etc., etc.

Arising in any way out of the Agreement is broad.

For services rendered and to be rendered is interesting in light of the Ralph Vicinanza agency matter discussed previously. This implies an ongoing stream of services and is specifically worded as consideration for the ongoing 15% agency fee. If no more services will be rendered, there’s an argument no more agency fee should be paid.

4. Green highlights – PG never likes irrevocable agreements where one party is providing services to the other. The services may start out just fine, but if they go bad, you want to be able to stop paying for them.

If this is the only written description of the Agent’s agreement with the Author, then no term – time period – for the agency exists. It’s not one year or five years or a hundred years. Generally speaking, an agency agreement that doesn’t have a term is revocable at will by the principal.

Agency coupled with an interest is an agency in which the agent has an interest in the property regarding which he or she is acting on the principal’s behalf. PG has another post on this ominous-sounding term coming out tomorrow, but, for our discussion today, essentially, it means the same thing as irrevocable. It’s a belt-and-suspenders approach to try to keep the Author from revoking the agency agreement. Absent a separate document actually describing the interest of the agent, it probably doesn’t add much.

5. Red highlights – Payments to the Author under other agreements, even other agreements with this particular Publisher, are not covered by the Agency clause.

So, putting all this together, what do we have?

Following are a few (but not nearly all) possibilities:

1. The Agent is empowered to act on the Author’s behalf respecting this Agreement, but nothing prohibits the Author or someone else – an attorney or agent – from also acting on behalf of the Author. The Agent doesn’t have an exclusive right.

2. All the Agent’s rights are tied to this specific Publishing Contract. New or separate agreements are not included. If the original agreement includes options for additional books in a series, PG thinks there is a good argument that if the Author insists on a separate agreement for subsequent books, the Agency Clause in the first agreement would not necessarily give the Agent a commission on subsequent books. (Again, we’re not dealing with situations in which there is a separate Agency Agreement.)

3. Since everybody is bound by the Publishing Contract, if that Contract has an out-of-print clause, the Publisher can declare the book out of print and enter into a separate agreement with the Author for something like an enhanced and revised version of the original book. There will likely be many other clauses in the Publishing Contract that allow the Publisher to effectively terminate the commercial life of a particular book.

4. If the Author receives an ebook amendment or rider to the original contract, and the Author no longer desires to use the Agent’s services, the Author might want to insist on a separate Publishing Contract for the ebook. Under the terms of the Agency Clause, the ebook contract might not be commissionable.

5. PG is sure the attorney who first came up with the for services rendered and to be rendered language thought he/she had done a cool thing in providing for future consideration from the agent for future commissions. However, if future services by the Agent are not satisfactory to the Author and the Author terminates the relationship for that reason, this contract language strengthens Author’s argument that the Agent’s commissions should end.

6. If the Author gives the Agent specific instructions, preferably in writing, about what the Author wants the Agent to do or not to do respecting the Publishing Contract, PG believes the Agent cannot act contrary to the Author’s instructions unless the Author asks the Agent to do something illegal or totally ridiculous.

7. If there is a fight between the Agent and the Author based on the Agency Clause, PG thinks it quite likely the Publisher would be dragged into ensuing litigation, particularly if the fight was about a separate contract between the Author and the Publisher for which no commissions were payable. PG wonders why a Publisher would open itself up to this possibility when the Agency Clause provides no discernable (at least to PG) benefit to the Publisher.

Passive Guy will close this very lengthy post by admitting puzzlement and worry.

When PG heard these Agency Clauses described before he saw one, he expected to find a serious lock-down legal provision. Instead, there appear to be lots of holes in the one used to illustrate this post. Others PG has received for his Contract Collection (Thank You!) are almost identical.

The reason PG worries is whenever it appears too easy to get out of what’s supposed to be a tight contract, PG fears he has missed something big or obvious.

Since we have a large number of informed publishing veterans visiting The Passive Voice, let me know if I’m really off-base in my analysis.

From Writer Beware:

I’ve used up a lot of column space on this blog warning about the risks of submitting to small presses, especially brand new small presses. In my opinion, this is currently the most dangerous area for writers–not so much because there are a lot of scams (though there are quite a few) but because so many small presses are undercapitalized, run by inexperienced people, have deluded goals and aspirations, or all three.

. . . .

Cathy Clamp takes an illuminating look at some of the things that can go wrong at a small press–not just for authors, but for staff–based on several real-life examples (the names of the publishers have been withheld, but Cathy has provided them to me and I’ll provide them to you if you email me). Cathy also explains why it’s so important to ask tough questions of new publishers, and why grilling them isn’t “mean” (an accusation often made at Absolute Write) but essential.

. . . .

Once you spend much time working with publishers, you realize that the business of publishing is counter-intuitive to the rest of the world. Normal business strategies used in other industries frequently won’t work in publishing, so experience in “running a successful business” seldom applies to becoming a successful publisher. Nor does being a published author automatically give a person experience in the behind-the-scenes business of publishing. It takes study and hands-on experience. Someone without both of those elements is going to struggle more in setting up shop.

I think it’s important to demonstrate just HOW wrong things can go by providing some real-life examples of situations that have happened to well-meaning and enthusiastic new publishers. To protect all parties, no names have been used (although in some cases, a gender may be given.)

. . . .

Scenario #1 — The publisher, a self-pubbed or aspiring author, opens a company with fellow authors as “co-owners.” Some of the co-owners become the editors for the publisher.

The co-owners don’t actually put up any cash to ensure that there’s capital to do things like form a legal entity, hire an attorney to prepare the contract, or design and host a website. They trust that the founder/publisher/primary co-owner has made all these arrangements. But the publisher doesn’t realize what needs to be done. So she never actually files the paperwork for the legal entity. Instead, she opens the publisher as a d/b/a (doing business as) of herself–meaning that it’s a sole proprietorship, not a partnership.

The publisher throws everything into the business. She racks up credit card debt, takes out second, third, and fourth mortgages, leases professional office equipment and . . . doesn’t sell enough books to pay the loans and cards and leases. But she doesn’t discuss this with her co-owners. She endures the worry and pain alone. Soon she doesn’t have the money to pay the editors anymore. Or the author royalties. Or the website host.

She files bankruptcy. Unfortunately, because the publishing company was a d/b/a, it’s a Chapter 7 bankruptcy–of a person, not a company. Author contracts become personal assets that the Bankruptcy Trustee seizes to pay debts. The royalties aren’t secured debts, and the editor salaries aren’t secured debts–but the mortgages are. The credit cards are. The equipment leases are. So everybody loses everything. The company closes. Authors don’t have their books back (because the bankruptcy trustee forbids the reversion of rights) and the editors never get paid.

. . . .

Scenario #5 — The publisher opens its doors and uses authors as editors on a contract basis, paying by the word or page. The publisher hires a cover artist, also on a contract basis.

A dozen books later, and the artist hasn’t been paid for his work because the books aren’t making a big profit. The publisher pays part of the artist’s bill, but then can’t afford to pay what royalties are owed. The publisher also can’t pay the editors. The editors stop working until they get paid. The cover artist refuses to allow any of the covers to be displayed on the site until he’s paid in full (which is what his contract stipulated) and contacts the web host to demand the covers be removed.

The authors, not realizing there’s any problem between the publisher and artist, continue to use their cover art to promote their books. The artist finds out and separately contacts the authors  to advise them they cannot use the art, and goes into long detail about why the publisher is a thief and cheat. The authors, panicked, contact their editors and demand to know what’s up. The editors don’t know and direct the authors to the publisher (but privately send their own emails asking what’s going on.)

The publisher, feeling picked on by both sides, refuses to talk to anyone and ignores calls for months on end. The publisher also makes snarky statements on the front page of the company website, and deletes private messages and emails on the company forum that speculate as to the problem. The publisher begins to privately contact authors to ask for “donations” to keep the company afloat.

Tempers rise. Multiple lawsuits follow, with nobody ever getting paid and the authors never getting back the rights to their books.

Link to the rest at Writer Beware and thanks to Scott for the tip.

There are several other scenarios plus a list of what the what kinds of things small publishers do wrong at the link.

Passive Guy recommends reading this post plus the discussion threads about publishers on Absolute Write before entering into any contract with a small publisher.

Additionally, ask yourself what this publisher can really bring to justify giving away most of the royalties your book generates.

Covers? You can buy those for not much money on several websites. If you don’t know how to put your title on a piece of cover art, one of your friends does. Look at a lot of covers in your genre for ideas.

Editing? You can also buy that from lots of different sources. Many small publishers outsource virtually all of their editing. Ask around and you may be able to find the names of one or more of those editors and contact him/her directly.

Also, do a crazy person check. Just as in any other small business, the owners of some publishers are crazy people. PG can often spot crazy personness in the contract. Do a lot of checking online, particularly in genre-specific discussion groups. Do some Google searches to see if the publisher has been sued by any authors or partners or former partners. Again, PG can look at court filings and often spot crazy personness there.

Almost certainly, your publishing contract will tie up your book for a very long time. You don’t want to be roped to a crazy or dishonest publisher for any amount of time.

A reprise of a post from last year.

Contract clauses beginning with the phrase, “For the avoidance of doubt” are a common feature of business contracts.

For example, Company A is negotiating a three-year contract with Company B to purchase twenty different products from Company B. The contract includes ten pages outlining minimum purchases, pricing and quantity discounts, price adjustments for changes in raw materials costs, methods of calculating credits for returns, etc., with variations for each product.

Company A carefully analyzes all the different combinations of prices, refunds, etc., but wants to make certain it doesn’t receive a big bill as a result of unanticipated future permutations.

Company A might insert a clause in the contract that says, “For the avoidance of doubt, Company A will never be required to pay Company B more than $2 million during any calendar month.” (PG has somewhat simplified the likely language.)

With this clause in place, as Company A’s CFO manages cash flow, she knows she will never have to write a monthly check for more than $2 million to Company B.

Last week, Passive Guy blogged about an important essay from Kristine Kathryn Rusch discussing borderline fraudulent contract practices of publishers in recent contracts with authors.

The practices Kris mentioned included embedding important contract provisions in difficult-to-decipher e-rights clauses or obscure clauses in the Warranties section of publishing contracts, traditionally the home of routine boilerplate. An example of one buried warranties restriction Kris identified would “warrant that the writer will not write anything until this particular book under this particular contract is published.”

So, how is an author to respond when the publisher or agent-turned-publisher offers up a shady contract?

An intelligent (and the recommended) response would be to hire a competent attorney to review the contract.

Now, to be completely truthful, is it possible for a clause to be hidden from a competent attorney? The answer is “Yes.” Not likely, but possible. Passive Guy would love to assure you that all attorneys sprinkle themselves with fairy dust each morning so they never make mistakes, but this is not the case. (Besides, fairy dust makes PG sneeze.)

In the absence of fairy dust, an approach to buried gotchas PG sometimes uses is to expand the familiar For Avoidance of Doubt clause into a Smoke ‘Em Out Clause.

The purpose of the Smoke ‘Em Out Clause is to:

1. Reveal where the gotchas are buried, and/or
2. Provide a reasonably good method for avoiding the effects of buried gotchas

Here’s an example, based in part on Kris’ essay, of what a Smoke ‘Em Out Clause might look like (simplified to keep you from falling asleep). The term, “Work” is a defined term identifying the book that is the subject of the publishing contract. Reservation of rights would be handled in a separate clause.

For the avoidance of doubt, no provision of this contract shall:

1. Give Publisher any rights to any present or future work of Author other than new books with the same characters and settings as the Work.
2. Prevent Author from publishing any of Author’s present or future books with another publisher or self-publishing such books except for books with the same characters and settings as described in Paragraph 1 above.
3. Give Publisher any rights to electronic versions of the Work except for an ebook version of the Work with features substantially identical to those ebooks being sold at retail by Publisher on the date of this contract.
4. Give Publisher any rights to versions of the Work in electronic or other formats that are not being sold commercially at retail by one or more major book publishers on the date of this contract.
5. Give Publisher any rights to past, present or future creations of Author that are not books, including adaptations by Author or others of the Work into a form that is not a book or ebook.
6. Give Publisher any rights to modify the content of the Work as initially accepted for publication by Publisher without Author’s express written consent in a document separate from this contract.

Passive Guy could go on, but the purpose of the sample clause is to demonstrate what a Smoke ‘Em Out Clause might look like, not provide a comprehensive cut-and-paste example of everything that might be listed in one.

This clause probably doesn’t replace any other clause in a standard publishing contract. It’s added to the contract. What the author is doing is making a list of things that he/she is worried about and negating the publisher’s right to do those things.

The fundamental purpose of this clause is to conflict with hidden clauses that say something different. If you’re sure you’ve found all the gotchas, you may choose a different negotiating tactic to deal with them. However, it still may be a useful approach to set forth some clear and reasonable items in a For Avoidance of Doubt paragraph and make the publisher justify something much more restrictive.

The style of this clause should be simple and straightforward, both for clarity for the author and for clarity for a judge. I’ll talk more about the judge later.

What are some possible responses of a publisher to a clause like this?

Response 1: This is our standard contract and we’re not making any changes.

What you’ve learned from this response is that the publisher’s contract has at least one provision and probably more than one provision that conflicts with the Smoke ‘Em Out Clause. If the Smoke ‘Em Out Clause doesn’t make any changes in the standard contract, there is no cost to the publisher in accepting it.

By virtue of the blanket refusal to discuss changes in the contract, you’ve also learned that, as the author, you are not a respected partner for this publisher. Instead, you are an indentured servant. The only reason you’re not a slave is that slavery is prohibited by the 13^th Amendment to the United States Constitution (and similar laws in another countries), so the publisher will have to be satisfied with indentured servitude.

A variation on this response is, We have dozens of contracts and the administrative issues involved in modifying our standard form for an author would be overwhelming.

Bogus. Hundreds of large companies have thousands of contracts that are completely different from one another and they manage to deal with them.

Response 2: We can agree to paragraphs 1 and 3, but can’t accept the rest.

Now you know where to look for gotchas. The ones you talked about in your paragraphs 1 and 3 are probably not in this contract, but you need to hunt through the contract for the rest.

Response 3: We can’t agree to your proposed addition because it conflicts with other parts of the contract.

Bingo! Your immediate response is, “Which parts of the contract do my proposed language conflict with?” You will then receive a nice little map to a flock of gotchas. If the publisher refuses to tell you where the conflicts are, see Indentured Servitude above.

Response 4: We can agree to your proposed addition with some minor changes to your language.

Watch the changes like a hawk. Analyze the contract until you are certain you know which contract provisions the changes leave in place. Once you think you know what contract provisions are involved and if they don’t bother you, generate another Smoke ‘Em Out Clause that just skirts around those provisions. If the publisher says OK to the new clause, you’ve probably found all the gotchas. If the publisher wants more changes to your language, analyze those carefully or, alternately, ask why the changes are necessary and which contract provisions are conflicting.

Response 5: Your addition is acceptable to us.

This may mean you have a clean contract. This may also mean your Smoke ‘Em Out Clause missed the hidden landmines. This may also mean the publisher will be relying on its standard contract language to override the Smoke ‘Em Out Clause. This reliance is, I believe, risky for the publisher.

As mentioned earlier, the Smoke ‘Em Out Clause is designed to conflict with objectionable provisions hidden in the contract. If your language does conflict and both remain in the contract, you’re looking at a fight somewhere down the road. The Smoke ‘Em Out Clause is not a guarantee of victory, but it should help you out.

When a judge is presented with a contract that includes unclear or conflicting language, the judge will first try to find an interpretation of the contract that honors all the language. One of the reasons for simple and clear statements in the For Avoidance of Doubt (FAOD) clause is to make it difficult for a judge to construe the contract in a way contrary to this clause.

The language of the FAOD clause (“For the avoidance of doubt, no provision of this contract shall”) is designed to tell the judge that if something else is floating around the contract that conflicts with it, the FAOD provision will govern.

Another reason for simple and clear statements is that, comparing those with the complex and roundabout wording necessary to conceal a good gotcha, the judge has more opportunities to construe the gotcha language in a way that preserves the fundamental intent of the FAOD language.

A general rule of copyright law is that an author is presumed to retain all rights not expressly granted to a publisher. Some of the FAOD provisions sound like retained rights.

Finally, a judge will understand the publisher was trying to distract or deceive with a hidden gotcha and will be aware of the great disparity in resources between a big publisher and an individual author. If the FAOD language gives the judge something to hang his/her hat on, he/she will come down on the side of simple, clear and fairer to the author 9 times out of 10.

An FAOD clause is not a replacement for carefully reading and understanding a publishing or agency contract. An FAOD clause is not a replacement for a competent attorney.

An FAOD clause is not many things, but it is a lovely way to set a cat among the pigeons in a negotiation.

Since Passive Guy has been more specific about clauses, language, etc., than he is in most of his contract posts, he will remind you that nothing in this blog is legal advice. People who want PG’s legal advice need to hire him or be a very close relative.

From the Guardian:

Penniless novelists may not weep for Susan Hill. The author of The Woman in Black claims she is “broke” despite the Daniel Radcliffe-led adaptation of her 1983 novel taking more than $US50m in the US and £20m in the UK. Hill’s stage play of the same story has run in the West End for 23 years and the 69-year-old author of acclaimed novels such as A Bit of Singing and Dancing lives on a 50-acre farm in Gloucestershire and even has her own publishing imprint.

But she has a good point. “Films always make everyone else rich save the author,” she tweeted to one of her followers. “Film accounting”, she told another, is “very weird”.

. . . .

Big studios might be struggling without the imagination of Jonathan Safran Foer, Michael Morpurgo, Brian Selznick, Kathryn Stockett and Kaui Hart Hemmings but they do not seem to want to pay much for this precious commodity.

. . . .

Winston Groom never received a penny despite reportedly agreeing to a 3% share of net profits for the hugely successful Forrest Gump; the novelist was so upset by this dispute he refused to sell film rights to the novel’s sequel. JRR Tolkien’s family accused New Line Cinema of  insatiable greed and sued it for a reported £133m over its failure to distribute profits from the £1.8bn-grossing Lord of the Rings trilogy.

Link to the rest at the Guardian and thanks to Pat for the tip.

Victoria Strauss provides a lot of links to good lists of industry terms and publishing contract resources.

From Writer Beware:

Most of the above resources assume that you are dealing with a professional trade publisher–which may be large or small, but is run by people who know how to acquire, edit, produce, distribute, and market books. Of course, no matter how reputable the publisher is or seems, you always need to watch your butt.

. . . .

But there are also enormous numbers of not-necessarily-very-professionalsmall presses out there, whose staff may not be terribly experienced or knowledgeable–and with these, you REALLY have to be careful, since they may not have a good understanding of contract terms, or even be aware of what a publishing contract ought to include.

I often see small presses using a contract template they’ve picked up from somewhere, which may employ outdated terminology (such as referring to plates or unbound sheets) or contain unnecessary language (such as including a revised editions clause in a fiction contract) or make inappropriate claims on subsidiary rights (a larger publisher may be able to do something with translation rights, for instance, but there’s no reason in the world for a cash-strapped, contactless small press to claim them).

. . . .

Small presses, unfortunately, may be less willing to negotiate their contracts than bigger, more professional publishers. However, if you receive a contract that’s full of omissions and/or bad clauses, negotiation probably isn’t the answer anyway. A publisher’s contract says a lot about its attitude toward authors and the business of publishing. Even if you could get the publisher to remove the termination fee and the temporary copyright transfer, and option only your next work in the same genre, do you really want to go with a publisher for which such demands are the default position?

Link to the rest at Writer Beware and thanks to Jenny for the tip.

Passive Guy will say that both large and small publishers can have some miserable contract clauses. The general attitude in the trade toward large publisher contracts is that you pretty much have to grin and bear them. PG respectfully disagrees with that attitude.

The difference PG most commonly notes between bad big publishing contracts and bad small press contracts is the big publishing contracts are often better at hiding the gotchas.

As Victoria mentions, it’s not unusual to see contracts from small presses that may have originated with a lawyer at some time, but have been tweaked and hacked by non-lawyers through the years until they are goofily bad.

Some alternate between the third person (“author shall deliver”) and second person (“you should not expect a response”). Others include various versions of the same clause in several different locations and the clauses do not agree with each other. Still others include some strange paragraph that obviously originated in a big fight with an author over something or other.

The bottom line is that it is extremely unwise to just sign a publishing contract because it is a “standard contract” or the publisher or your agent “know how these things are done.”

Do not assume you can sign the contract and work out the difficulties later. A publisher (or agent) is never more anxious to make compromises in the contract than before it is signed. If you can’t get the changes then, you’ll absolutely never get them later.

These are not your grandmother’s publishing contracts. Once in a great while, PG is able to tell a client that the proposed contract is a pretty good one, but that is becoming rarer by the month. “Writer Beware” is developing into a more serious warning all the time.

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.

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.