From The Authors Guild:
On April 19, the Authors Guild submitted comments in support of a new rule proposed by the Federal Trade Commission (FTC) that would make non-compete clauses illegal. Our comments discussed how non-competes are used in writing agreements and underscored the negative impact they have not only on author incomes but also on the ability for authors to publish the works they want to write. The Authors Guild conducted a survey of authors to better understand the impact of non-competes on their careers. We thank all of the authors who took part in our survey and gave us further insight into the professional impact of non-competes.
The FTC’s proposed rule would deem clauses that prohibit workers (including independent contractors) from working with others after the conclusion of their current engagements to be a violation of Section 5 of the FTC Act. Clauses that prevent authors and journalists from publishing similar works with others, or from working with competitors, are common in writing agreements, including book, journalism, and freelance contracts. In most cases, courts have found these clauses to be invalid, but authors often lack the resources or desire to get into a legal battle with their publishers and are unlikely to sue. If the FTC’s rule is enacted, authors could simply reject such clauses as invalid, pointing to the FTC rule.
Why Non-Competes Harm Authors
The Authors Guild has long objected to non-compete clauses and advised their removal in our contract reviews. These clauses, which are purportedly designed to protect publishers’ investments by preventing authors from selling the same or substantially similar work to another publisher, are often too broad. Authors are routinely asked to agree not to publish other works that might “directly compete with” the book under contract or “be likely to injure its sale or the merchandising of other rights.” Even more broadly, they may be asked not to “publish or authorize the publication of any material based on the Work or any material in the Work or any other work of such a nature such that it is likely to compete with the Work.”
Such open-ended non-compete clauses can prevent authors from pursuing other writing opportunities. If a new project even arguably deals with the same “subject” as the book under contract, the non-compete can be invoked to prevent an author from publishing elsewhere. For writers specializing in a particular subject, this could be career-derailing.
Results from the AG’s Survey on Non-Competes
Our survey showed that authors generally feel hindered by the restrictive nature of non-compete clauses. Out of the 630 respondents, 19.2 percent (121 authors) reported that non-compete clauses had prevented them from publishing a similar or competing book; 38.6 percent (243 authors) stated that they were forced to take a new book to the publisher of their last book before offering it to another publisher that might have been a better fit; and 15.7 percent (99 authors) reported that non-compete clauses had prevented them from writing and publishing articles or stories for other outlets or media.
Authors also reported feeling trapped in their contracts, unable to pursue other writing opportunities, fearful of potential legal repercussions if they attempted to publish elsewhere, or worried about losing the contract if they insisted on removing the non-compete clause.
Link to the rest at The Authors Guild
When PG was still representing authors who were signing publishing contracts, he routinely banged heads with in-house counsel about their existence and their wording. For him, the idea of a publishing non-compete was ridiculous because, in a very real way, every book competes with every other book for a reader’s attention and money.
Every Regency Romance competes with every other Regency Romance. Every science fiction novel competes with every other science fiction novel.
The standard line given to authors by publishers (directly or via a literary agent) is, “You wouldn’t want to compete with yourself.”
Why not? If you’re competing with yourself in a particular reader’s mind, they’re going to buy one of your books or another.
As PG reads the FTC rule, which became final three days ago, it sounds like it’s broad enough to cover publishing agreements. However, the wording of the rule primarily deals with employment contracts.
Here’s a section of the FTC’s explanation of the three exceptions to its rule:
The Final Rule identifies three exclusions: (i) non-compete clauses entered into in connection with a “bona fide sale” of a business entity, of an individual’s ownership interests, or of all or substantially all of a business’s operating assets; (ii) enforcing or attempting to enforce a non-compete clause where the cause of action accrued prior to the Effective Date; and (iii) enforcing or attempting to enforce a non-compete clause “where a person has a good-faith basis to believe” that the Final Rule does not apply to such non-compete clause.
Link to FTC Rule and Discussions
A typical publishing contract is an exclusive license granted by the author to a publisher usually, “for the full term of the copyright,” which effectively is the remainder of the author’s life plus 70 years. The author still “owns” copyright to the book, manuscript, etc., but can do nothing with the book unlesss the publisher violates its publishing agreement in some egregious manner.
PG thinks that there is an argument that this type of license is, in effect, a sale of the book, because the publisher’s license expires only when the author’s copyright expires and the publisher or anyone else, has the right to publish the book without paying anything to the author.
If the licensing of a book to a publisher for the life of its copyright is deemed to be the equivalent of a “bona fide sale” of substantially all of an author’s ownership interest in a particular book, then the publisher might have an argument that the new FTC rule does not apply to a publishing contract.
PG was going to dive deeper into the weeds to discuss why a publishing license for a particular book or series of books is not equivalent to the sale of the “ownership” of the author’s future books, but is simply an option, but he will spare the long-suffering visitors to more of his legal soothsaying.
The general counsels of major publishers are in discussions with outside counsel considering how big a fix they’re in with their existing book contracts and what they should do with their future publishing agreements.
PG’s speculation during these early days is that publishers will not be able to enforce future contracts that include a non-compete provision. He’ll have to think more about how the new FTC rule may apply to current publishing contracts.
If any visitors to TPV hear or read anything about traditional publishing and the prohibition of non-compete agreements that seems serious, PG would appreciate that information be sent to him via the “Contact PG” link at the top of the blog.
PG, I wonder how that would affect the “exclusive publishing” of stories in KU…
Amazon says that to be in KU, an author can’t publish the work elsewhere. It appears, at least to me, that this is a non-compete clause as well.
Authors, what are your thoughts?
There’s a difference between exclusivity as to sale or licensing of a specific piece of property† and noncompetition (which relates to other sales or licensing of other specific pieces of property). KU prohibits only work A — provided to KU on an exclusive basis — from appearing elsewhere; it does not restrict the author from providing work B to other venues. The latter would be a covered noncompetition agreement; in more traditional law, the former is just “you can’t sell the same thing twice” and concerns the political-economic-property concept of “rivalrousness,” a distinctly different slice of bologna however thin.
Now whether the new rule will put pressure on KU to further limit its exclusivity, because the shape of the market will change, is another question entirely. For example, most states that presently allow noncompetition agreements have quite specific limitations on their duration (New York law, for example, ordinarily limits them to three years at most, and one year absent trade secret involvement — something that more than one NYC-based in-house counsel for publishers has proven blissfully unaware of, all the way up to the General Counsel whose own employment agreements included noncompetition clauses) and scope. This new rule may cause evolution in both marketplace assumptions‡ and specific regulations, let alone case law as it develops. But as to specific works, absent antitrust concerns — far from hypothetical — this rule is not applicable.
† This also includes nonproperty interests, such as “services,” but that’s even more complicated.
‡ The irony of commercial publishing having to actually pay attention to an evolving market will be amusing. The further irony that the worst actors in commercial publishing are owned by European entities subject to even greater restrictions (at home) on noncompetition agreements tends toward just sad.