Tag Archives: business

Option and Right of Refusal Clauses in Book Contracts

Business Guest Posts Publishing The Writing Life 7 Comments

A guest post by Scott Boone.

In Nancy DiMauro’s excellent post on reversion clauses from a week or so back, she mentioned the four critical clauses in your book contract: the granting clause, the payment clause, the indemnification clause and the reversion clause. This is the fifth critical clause with which you need to be extremely careful. Nancy knows all about option-type clauses, but she was nice enough not to steal the thunder from my post today.

Option-type clauses are the clauses in your publishing contract that refer not to the work being published, but to the work or works you create after the one being sold in that contract. Essentially, what rights does the publisher have in your next work or works? I’m going to talk about three main types: options, rights of first refusal, and rights of last refusal.

Publishers believe that they will not make any money off your first book. That is the received conventional wisdom. So in publishing you, they are investing in you as an author as much as or more than they are investing in that particular book. If they are going to take that risk and make that investment, they have a legitimate reason for wanting some sort of rights in the works you create after that first book. However, too often, these clauses put all the risk on the author without any risk on the publisher.

There is a question of how enforceable these types of clauses are in court. One that is unlimited in time and scope might stand a good chance of not being enforceable. The more limited in terms of time and scope, the more likely it is to be enforceable. However, you don’t want to put your eggs in that basket. None of them. If you end up in court fighting one of these, then in the big picture you’ve pretty much lost even if the court finds in your favor. Get it right on the front end during the contract negotiation.

So here are the three main types and how you need to think about with each one.

Options

Option clauses give the publisher the right to purchase a later work at already set terms. They do not give the publisher the right to look at them first and make the first offer; instead, the publisher just has the right to purchase your next work on already specified terms. You’ve already agreed to it by giving them an option.

In their worst (and perhaps too common) incarnation, they specify that the publisher has the right to buy your next work on the same terms as the first. This is bad for you for at least two reasons. First, it means you cannot get any better terms, including royalty rates and advances, in your next contract. Remember that with a true option clause, the publisher can exercise it without any need to negotiate with you on terms. Those are already set. Second, if the option clause states that they can purchase the next work on the same terms as the first, those same terms include the option clause. The option propagates forward with each book, with no escape for the author. This can be incredibly insidious, and if you dig deeply enough, you can find horror stories of new authors stuck in these sorts of traps.

Look, it is not uncommon for a new author to get a relatively bad contract as their first contract. But an option clause that locks in future terms means that every contract after that will be a bad contract. Avoid these at all costs.

To make it clear, let’s look at them from another angle. An option clause obligates you but not the publisher. Therefore, you bear all of the risk and the publisher bears none. Let’s say your first book bombs. The publisher is not obligated by an option clause to buy your second book. On the other hand, if your first book is a big success, the publisher can buy the second book without having to give better terms. That’s a risk you bear. So you bear that risk while the publisher bears none.

If a publisher wants to lock in the right to your next work or works at set terms, then make them buy them with a multi-book contract. That way both parties bear some risk and it’s not all on you the author.

So what do you do if the contract you’re offered has an option clause? First, get rid of it. Get them to switch it to a right of first refusal or get them to make it a multi-book contract (if you are happy with the terms). If you can’t get rid of it, then either walk away or try to get the terms for the second work that are much better than the first and make sure an option clause will not be included in the contract for second work.

Further, make sure the clause is more limited than simply “your next work” or “future work.” That would include short stories, books in different series or even in different genres. If you are going to sign one, make sure it is limited to a certain form (long vs. short) and to that genre (or even better that series).

Finally, as with any clause conditioned upon the publisher doing anything, make sure the publisher has an objectively defined timeframe in which to exercise the right before losing that right.

The final word on options: Be very wary. Don’t even think of signing a contract with one unless the terms are good, do not include another option, and improve with the next work.

Right of Last Refusal

The right of last refusal is a clause that gives the publisher the right to match any offer for your future work made by another publisher. It’s a bit deceptive in how bad these are for the author. On first glance, they might seem to be not as bad as a straight option clause, but once we dig into how they work, we’ll see how they can actually be worse.

The right to last refusal basically gives the publisher the right to match any other offer. That means they have the right to buy the book at terms that match the other publisher’s terms.

They don’t seem too bad until you start to think about what such clauses do to your ability to get another offer. Put yourself in the shoes of the editor at the other publishing house. In order to make an offer to buy a book, you have to put in a lot of work. You have to read and evaluate the book. Then you have to champion that book to several other constituencies in house. Are you going to want to invest in that book, both in terms of time and workplace capital, if the first publisher can snipe the book out from under you for the same terms? Not likely.

So, while it appears that a last refusal clause gives you the ability to improve the terms of the next contract by getting a better offer somewhere else, that’s not a very realistic option.

Additionally, because the original publisher does not have to make a yes or no decision as they do with an option clause, you might actually get worse terms in the second contract. An option clause at least locks terms in. If your ability to go anywhere else is blocked because no other editor wants to invest the time to make an offer on a book subject to a last refusal, the original publisher can actually offer you worse terms because they know you don’t have any other options.

The final word on rights of last refusal: Don’t.

Right of First Refusal

The right of first refusal gives the publisher the right to be the first publisher to see your next work and the right to make the first offer on it. Unlike the option clause, the publisher cannot unilaterally purchase your next work. You have to agree to their terms. That’s not a bad deal for you as an author provided the right is limited.

You want a good and prosperous relationship with your publisher that spans multiple books. One in which both of you do well. And if you are writing a series, you really don’t want to switch publishers mid-series.

While the presence of this clause should not cause you to reconsider the contract, you should seek to limit it in at least two ways.

First, you should limit what works it covers. It should specify novels and not short works, unless your publisher does in fact publish short works and on terms you would like. It should also be limited to that specific series, or if you can’t negotiate for limiting it to that series, it should be limited to books in that particular genre.

Second, you should limit how much time the publisher has to respond once you have submitted the new work to them. The traditional publishing process is incredibly slow as it is. You don’t want it slowed down even further.

The final word on first rights of refusal: Fine if properly limited.

The Takeaway

Work to limit a right of first refusal in scope to a particular series or genre and in the amount of time the publisher has to make the offer. Avoid options and rights of last refusal.

 

Guest Writer Bio:
M. Scott Boone lives in Atlanta, Georgia, where he works as a law professor in order to support a clowder of cats. He writes about legal issues affecting writers at writerinlaw.com. When not writing or teaching, he is a self-proclaimed soccervangelist.

Partnership Considerations

Business Guest Posts The Writing Life 1 Comment

A guest post by Sandra Fitzpatrick.

Greetings!

Thanks to the Fictorians for letting me have some space on their blog. I hope this can help people understand partnerships. There are tax and legal implications that differ slightly between Canada and the US, but I hope to give everyone a starting point.

Partnerships are when two or more people get together for a purpose. For this blog, the basis of the partnership is that you want to share a writing project with other people. It can be the best thing that ever happened to all of you or the worst.

Partnerships need to be thought out carefully. It may seem to wreck the mood of creativity and joy to think about what might happen if things go wrong. Partnerships can range in size from two people to any number. They may grow. They don’t have to be registered with the government but everyone has to pay taxes on the profits and can deduct many expenses if there isn’t. If there is significant income, you should think about registering it or forming a corporation to hold the rights to the work. Either gives everyone involved protection and more structure that makes the bookkeeping and who’s responsible for what easier.

Think of this as a prenuptial agreement. The excitement of starting a new life with someone you love. You’ll never have any troubles. And then the lawyers get involved. Yuck. Bummer. But… The most import question a writer can ask: What if?

Some discussion topics are:

Who owns the project?

Who are the writers, editors, illustrators or publishers of the project? For writers, are you a plotter or a pantser? Can you work with someone who is the opposite?

What percentage of the work and what type will be done by each person? If you are doing a children’s picture book, pairing with an artist may be the obvious division of labor. But is the artist the writer’s partner or an employee? It makes a legal difference.

Communication is key to a partnership in the arts or any other endeavor. Living in different cities makes sitting down and brainstorming difficult. How will you arrange those meetings? Skype is cheaper than long distance phone calls. Emoticons only go so far in showing your passion on a topic in email. Recording your sessions eliminates the ‘Didn’t I write down that fantastic idea?’ blues. Or the ‘I said, you said’ memory lapses.

How will you fund the project to get the book to a publisher or self-publishing? Do a Kickstarter campaign or each contribute an equal amount? An arts grant to help cover printing costs of your new magazine? What happens if that isn’t enough to cover the expenses?

How are royalties split? Evenly? In the case of an anthology, the stories may be purchased and only the editors get royalties. How much can you afford to pay for the stories?

If one person drops out of a larger partnership, what compensation will they get in the future? How do new people join? Or can they?

Who is the final authority on what happens to the overall plot line of the series? Who decides on the little details of adding characters or major plot threads?

If one partner dies, who inherits their share? This supposes that you have a finished book. Or an unfinished one but lots of notes. (Everyone should have a will. Really.)

For an anthology or a magazine, who makes the final decision on what stories to include? Who gets to deal with the slush pile? Who is the faster reader? The better line editor?

How will you shut down the partnership if everyone gets tired of it and wants out? What if not everyone does?

The lawyers’ fees. Who pays them? Can you sit down and go ‘what if’ with each other? And still remain friends and complete the project? A lawyer is a neutral party. If you know a publisher, ask them for a referral to their lawyer. You can look up information on the net, but most articles have limited information for a writing partnership.

Examples:

Two people write a book together. They thrash out the general plot line and take turns writing chapters. Each edits the other’s chapters. What is the time limit on writing your chapter? Or they could alternate books, or have subplots within the novel, each following their own main character. Each has expertise that makes the book(s) better.

A big name and a newcomer collaborate on a book. This can boost sales because the big name will sell the book. The newcomer will be noticed. Be careful. Is the newcomer putting in 90% of the work and getting 10% of the profit? How much does the big name make just because his name was on a book someone else wrote?

Anthologies can be fun. Choose a theme, a publisher and send out word for submissions. Are the editors guaranteed a story spot? Is there a set fee for each story and/or a percentage of royalties? Who’s the better copy editor?

Shared universe series. The overall coordinator supervises the universe with veto power over plot lines. New authors can be invited in or just ask. These series can get very large and complex. More plot and character oversight is needed once you get past three or four partners.

Enjoy your writing partnership!

Guest Writer Bio:
Sandra head shotI’m a tax preparer and financial advisor in Canada with eight years experience in the trenches of business tax returns. I’ve done tax seminars for writers, artists and other creative folk over the years. I write sf and fantasy in my non-tax months. My husband Gary is working on a detective series when not confusing medical students.

Reversion Clauses – or when do I get my story back?

Business Nancy Greene Publishing The Writing Life 4 Comments

http://www.dreamstime.com/stock-images-recycle-dollar-image26790944There are four critical provisions in your contact: the granting clause, the payment clause, the indemnification clause and the reversion clause. All four  provisions work together to set out what you’ve given up (granting and indemnification clauses), what you get in return (the payment clause) and when you get your stuff back (the reversion clause).  I’m only going to talk about the last one today but keep in mind that whether a reversion clause is unreasonable depends in large part on what you’ve given away and what you received for it.

What’s the issue?

Your work has value. After all, that’s why a publisher wants it. The value of the work is why you get paid. In return for letting the publisher print your work (and, hopefully from the publisher’s prospective, earn more money off it than they pay you) you give the publisher an exclusive right to use your words anyway that falls into the grant of rights. Start to see the problem?

No?

Okay, let’s look at it this way. I was recently shopping a story to some E-publishers. Before submitting, I checked out the contract terms as stated on the webpage.  Buried in the mumbo-jumbo about submission guidelines and other facts was this gem: “Length of grant of publishing rights: Life of copyright.” What the heck?

A copyright lasts your life and another 70 years (in the US and UK. There some other countries which the copyright only lasts 50 years after your death, but it’s still a darned long time.). If you signed a contract with this “reversion” clause your publisher OWNS YOUR STORY for your life, the life of your kids, and a good chunk of your grandchildren’s life. The publisher can do whatever it wants with your story until it has no commercial value (i.e. is in the public domain) and, most likely, not pay you a penny more.

Now do you see the problem?

You might shake your head and say that “well, that was an e-publisher, the traditional houses aren’t like that.” Oh yes, they can be. If you let them.  Publishers of all kinds are trying to grab as many of your right as possible, keep them for as long as possible and return as few of them to you as possible. This doesn’t make the publishers “evil.” It just means they are better at looking out for their businesses interests than most writers are. After all, they make money off the stories other people write. Of course, the publisher wants to keep those words for as long as possible.

“But wait!” you say. “Isn’t there something about my getting the rights back if the work goes out of print?”

Most contracts will have a provision that says something along those lines but the words really matter. Ambiguity is not your friend. Reversion clauses often have no definitions or meaningless ones.  I’ll just highlight a few terms that MUST be clearly defined. If “out of print” isn’t explicitly defined the publisher can, and likely will, win on the argument that because your book is available on a “print on demand” basis, whether or not any copies are actually sold, the work isn’t “out of print” and the publisher still owns it.

What does “sales” mean? Can the publisher “sell” 1,000 free copies and meet the “Sales” threshold, if your contract even has one? Courts will read an undefined word consistent with its dictionary definition or its “plain meaning” as it is ordinarily used.  If “sales” isn’t defined a court will likely rule that giving away free copies is a “sale” as the “plain meaning” of “sale” includes the “transfer of something to the ownership or use of somebody else.” In other words, no money or anything else of value has to change hands for a “sale” to occur.  So, many of the new “reversion” clauses won’t let you get your book back until either the copyright expires, or you pay an attorney a lot of money to argue about your contract and rights.  Either way, this is a lose-lose situation for the writer.

The “New Normal” of contracts is that if you aren’t careful you may never get your book back, or worse, you might pay the publisher far more than it every paid you to get your story back.

Hand in glove with the “new” non-reversion clauses are “buy back” provisions. Under these provisions you can “early terminate” the contract for a fee. One of the more egregious of these clauses I’ve seen recently was part of a horrible contract where the writer gave up all rights to her story (which was supposed to be put in an anthology) for 7 years for no advance – just a small royalty percentage. The publisher was going to reprint the story as a stand alone arguably under the same payment terms – 7.5% of the price sold. In order to get the story back before the 7 years expired the writer had to pay the publisher a predetermined amount. Given the sales-to-date this meant the writer had to pay the publisher more than 18 times what she received from the sale to get her rights back.  Does this sound wrong to you? It should.  

Also keep in  mind that many established writers are making LOTS of money self-publishing or reselling their back list – books once in print with a publisher that have reverted to the writer. Publishers know this. For obvious reasons, publishers would prefer to keep the bulk of that money too. With a “life of copyright” grant the income from reissuing those older books would go to your publisher if the publisher even felt like reissuing your work.

What should you ask for in a reversion clause?

1. A reasonable term for the publisher to recoup its expenses and make a profit off you. This is going to vary from an e-book only, to paperback, to hardcover publishers. Hardcover publishers have more legitimate expenses in publishing your book than an e-book publisher does.  Generally, the more rights you give a publisher the shorter you want the contract’s term to be. Three years is probably reasonable for an e-book only publisher. Seven to ten years may be reasonable for a print publisher.

2. Clear language as to when and how you get your rights back. Again, ambiguity is not your friend.

3. A definition of “out of print” that sets a sales threshold for e-book publishers,  and excludes e-books (for traditional publishers), and print on demand copies and audio books for all publishers.

4.  A definition of “sales” that excludes the transfer of your work for no monetary consideration and has a specific number threshold.

5. A renewal clause so the publisher can keep using your Work if it is selling and has to pay you a set amount (an additional royalty) for renewing the contract.

6. If there is a “buy-out” provision, a purchase price that takes into account the publisher’s actual costs, potential lost profits and what it paid you. The reality is if your book is selling well with Publisher X you are unlikely to want your rights back. These provisions come into play when you disagree with what your publisher is doing with your work or the work simply isn’t selling.

7. You don’t want a lengthy notice provision. If you opt to take your rights back, you should get them almost immediately upon notice. This keeps the process from being drawn out and keeps a vengeful publisher from trashing your work – bad cover, bad press – while you wait to get it back.

8.  The term “Notice” needs to be defined. The Notice of your intent to take your rights back and the actual return of those rights should not be dependent on the publisher’s actions. Let’s say your reversion clause says you get your rights back 30 days after you notify the publisher: what happens if the publisher doesn’t pick up that certified letter or respond to your email? You might be stuck. “Notice” may mean “actual notice” and you may have to show that the publisher actually received your letter or email. All ambiguity does here is open the door to litigation or an extortion attempt by your publisher who now wants you to buy back not just your rights but also all the copies of your book in the warehouse. If you think I’m exaggerating check out Doranna Durgin‘s  post on Writer Beware at http://accrispin.blogspot.com/2011/10/guest-blog-post-fitzhenry-and-whiteside.html

9. A provision that automatically reverts your rights if your publisher files bankruptcy, has an involuntary bankruptcy filed against it, has a receiver appointed or makes an assignment for the benefit of creditors. If any of these things happen your publisher has or is  likely going out of business. You  don’t want to be caught up in lengthy and expensive litigation to reclaim your rights from a Bankruptcy Trustee or receiver. The likely result if you are pulled into the bankruptcy or receivership is that you will have to buy your story back to help pay off your publisher’s creditors. Again, getting enmeshed in a legal fight is something you want to avoid happening.

What’s the solution?

While a new writer won’t often have the clout to get everything he should in a reversion clause educated writers will push the publishers to stop overreaching. You MUST know what your contract says and how it affects you. Consult with an Intellectual Property (IP) lawyer.  This is a very technical and niche area of the law. Your agent likely doesn’t have the knowledge he needs to advise you. The  average family law or traffic lawyer does not have the knowledge to advise you. I’ve been practicing business law for nearly 20 years and I still check with an IP lawyer. Consult with a lawyer. Yes, we charge a lot. An IP lawyer may cost you $500 an hour or more. But, the alternative is potentially giving away thousands, if not millions of dollars, over your writing career. The expense of a lawyer is worth the investment.

But the most important solution –

Don’t accept bad contracts.

Don’t accept ambiguous contracts.

Don’t accept “reversion” clauses that don’t actually give you the rights back to your work.

Here’s the secret – Shh – You don’t need traditional publishers as much as they need you.  You can self-publish. Publishers need writers to give them content. See, the power has shifted. We can still get our stories to an audience without a publisher. The publisher can’t operate without writers. Don’t get me wrong. I want to be traditionally published. I understand the finances that drive Publishers (e- and traditional) to ask for the provisions they do.  But that doesn’t mean I have to accept all proposed terms.

Sometimes walking away is the best thing you can do for yourself, your story and your career.

The bottom line?

Know when and how you get your rights back. If this isn’t clear, hire an attorney to help you understand. If the contact still isn’t clear or acceptable renegotiate it. If you can’t get reasonable terms you may want to walk away.

Disclaimer:

The materials available at this website are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. No attorney-client relationship has been created.  Legal information is not the same as legal advice — the application of law to an individual’s specific circumstances. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a lawyer if you want professional advice.

The Basics of Copyright

Business Guest Posts Legal Issues The Writing Life 1 Comment

A guest post by Scott Boone.

Why are we talking about copyright?

As a writer, copyright is one of your primary assets. I’d put it right next to your reputation. If you are trying to build a career, copyright provides you with a legally enforceable means to reap monetary benefits from your work. It also gives you a high level of control over what is done with your work. Realize that what that means is that once you give up the copyright (by transferring it to someone else), you lose both, and you are limited to whatever the contract gives you.

What is copyright?

Copyright is a set of rights in a work of authorship. The exact scope of those rights differs slightly from country to country, particularly with respect to limitations and to moral rights, but the basic ones are the same. In the US, copyright gives the owner the exclusive right to reproduce the work, to prepare derivative works based on the work, and to distribute copies of the work. US copyright also gives additional rights depending on the types of work: to publicly perform the work (conduct a book reading, put on a play), to publicly display the work (hang a painting in a gallery), and to digitally transmit an audio work (streaming a sound recording).

These rights are “exclusive.” That means that they give the holder of copyright the power to prevent others from doing them. They do not affirmatively give the copyright owner the right to do them. So, the owner of a copyright in a work might not be able to distribute the work if some other law made it illegal to do so (e.g. because it was obscene or defamatory).

The rights last for a long time. In most countries, the duration is set at the life of the author plus an additional 70 years.

Importantly, copyright can be transferred in small bits and pieces. In other words, you do not have to transfer all the rights as one unitary block. You can limit a transfer by time (e.g. 6 months from publication for a short story) or by geography (e.g. North America) or by type of copy (e.g. hardback or trade paperback or eBook). The key is not to give away more than what a publisher is paying you for it.

 What does it take to get copyright?

For the vast majority of countries, you simply need to either (1) create the work or (2) create the work and fix it in a tangible medium of expression. That’s the standard set for countries that are members of the Berne Convention (166 countries and the Holy See). That’s it. Now, the US gives you some nice benefits for doing more (registration and notice), but it’s not required for obtaining copyright.

 US Copyright Law

I’m going to focus the rest of the discussion on US copyright law. Partly because that is what I know best and partly because the US cut its own path in copyright law for a long time and so has some differences in its law and lingering confusion among its creative professionals. Essentially, most of the rest of the world agreed on the basics of copyright in the late 19th century and the US dragged it feet screaming it didn’t want to play for the better part of a hundred years.

 Registration – Not required, but recommended

Registering your work with the Copyright Office is not required for you to obtain copyright. Remember you have copyright in your work as soon as it is fixed in a tangible medium of expression. However, registration does convey significant advantages that you may want to consider. First, after five years, registration of the work serves as prima facie evidence in a lawsuit that the registrant owns the rights in the work. In other words, it shifts the burden to the other party in the lawsuit to prove you don’t own the copyright. Second, timely registration of your work makes statutory damages available to you in an infringement lawsuit. Actual damages are often quite hard to prove. So having the option of statutory damages, where the court just sets a dollar amount for each work infringed, can be quite helpful. Third, timely registration also makes attorney’s fees available if you prevail in an infringement suit. If you win a suit, the infringer has to pay your attorney’s fees. The latter two benefits can make a huge difference in whether it is financially worth it to pursue an infringement claim. They can also serve as a large sword hovering over infringers, making them more amenable to settlement.

So what constitutes “timely registration”? A published work is timely registered for these purposes if it is registered either within three months of first publication or before the infringement begins. An unpublished work needs an effective registration date prior to the infringement.

 Copyright Notice – Not required, but useful

Copyright notice is either the word “copyright” or the copyright symbol (a ‘c’ in a circle) followed by the date of first publication and the name of the copyright holder.

Before the US became a signatory to the international copyright treaty, the Berne Convention, copyright notice used to be required for obtaining any federal copyright protection. If you published the work without copyright notice, it was dedicated to the public. In other words, it was not protected by copyright and was free to all. However, since 1989, the US has not required copyright notice. This was a part of the US harmonizing its law to the international standards set by the Berne Convention.

But you still probably want to put copyright notice on your published works. First, it tells the world that someone is claiming the rights in the work. There are still people out there who think what they find on the internet is free. Second, copyright notice removes the statutory defense of “innocent infringement,” a defense that can lessen damages in an infringement suit. Lastly, it is cheap. In fact, it’s pretty much free. So why not do it?

You will note that I did say “put copyright notice on your PUBLISHED works.” I specified published works because you can create confusion about the works publication status if you put copyright notice on something that has not yet been published. If you submit a work to an editor with a copyright notice on it, the editor may think it has been previously published because the industry practice is to use copyright notice after publication. At the very least, the editor will think you do not know how the industry works or think they may have a potential problem with prior publication. Do you really want to create more hurdles for yourself?

 

Guest Writer Bio:
M. Scott Boone lives in Atlanta, Georgia, where he works as a law professor in order to support a clowder of cats. He writes about legal issues affecting writers at writerinlaw.com. When not writing or teaching, he is a self-proclaimed soccervangelist.