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A blog wherein a literary agent will sometimes discuss his business, sometimes discuss the movies he sees, the tennis he watches, or the world around him. In which he will often wish he could say more, but will be obliged by business necessity and basic politeness and simple civility to hold his tongue. Rankings are done on a scale of one to five Slithy Toads, where a 0 is a complete waste of time, a 2 is a completely innocuous way to spend your time, and a 4 is intended as a geas compelling you to make the time.

Monday, November 25, 2013

False Equivalencies

So how do you push back against onerous publishing clauses that will probably never be deal-breakers for an author?

I'm pondering on that question a lot as I think about the ever worsening audit clauses which publishers are offering.

The audit clause is the one that says you've got the right to hire an accountant to go and look at the publisher's records for your book to be sure the royalty reporting is accurate.

I've never done an audit in the 27 years I've been in the business.  They're expensive.  An accountant might cost hundreds of dollars an hour, a single day of looking at the publisher's records and the prep work and reporting could easily cost a few thousand dollars, and a complicated situation might bring that cost up considerably.  You have to have a lot of money to do this, and you have to be pretty convinced that it's going to be worthwhile.

There have always been some restrictions on the author's right to audit.  It has to be done during business hours.  You can't do it six times a year.  You can't audit a royalty statement from 39 years ago.

While there have always been restrictions, there's also been an understanding that if you find the publisher's screwing up, the publisher will have to pay costs of the audit, kind of like the "loser pays" for attorney fees that are found in certain types of civil court actions.

But over the years, the publishers have tried to make it more and more restrictive.

They'll start out saying a statement is binding after just one year.  This is ridiculous.  The publishers have to keep records for the IRS for a lot longer than that.  But the shorter that time period, the harder it might be to find a cumulative pattern of errors, or become aware of some sub-licensed edition the publisher never told you about.

They'll pay for the audit only if mistakes are above a certain amount.   The publishers now start out suggesting this might be 10% of the lifetime earnings on a book.  So let's say you are one of our successful clients making a lot of money. You might think it's significant if you find out the publisher's made a $25,000 error in its favor.  But if you're talking about a book like The Firm by John Grisham or a Harry Potter novel or Dead Until Dark -- well, if hypothetically that book has the 10% of lifetime language, the publisher won't pay a dime toward the cost of you discovering a $25K error if the earnings on the book are above $250,000 over its entire existence.

We try and bargain these things to our clients' betterment.  But rarely will the publisher give us as long to audit as the several years they may need to retain records to make the IRS happy.  Getting 10% of lifetime down to 5% of lifetime is better but still not good.  Let's say you find there's a particular royalty period when the publisher paid you $2500 and should have paid you $5000.  You might think that's a 100% error, but the publisher will look not at that one period but the entire lifetime earnings.

So now the new wrinkle is to say that the publisher will pay for the audit only up to the size of the error.  Let's say you spend $5250 to find that $2500 error, and that you're lucky enough that this is more than 5% of the total earnings for your book.  Well, the rich publishing conglomerate that is responsible for rendering correct royalty statements will pay only $2500 of the $5250 you spent to find out that they made a $2500 boo-boo in their favor, which means you've just spent $2750 in order to get back $2500.

This sucks!

The publisher has the responsibility to account correctly.  They shouldn't be able to layer on fine print restriction after fine print restriction that makes it very likely that there is never going to be any way to rigorously check that they are fulfilling their obligation.

But how can I recommend an author walk away from a deal over this when I've never actually done an audit in 27 years, even on older contracts that predate many of these most onerous provisions?

And if an author will never walk away from a deal because of the bad audit language, what is the ultimate leverage to keep the language from getting worse and worse and worse?

It might seem reasonable that the publisher shouldn't be responsible for all the costs of a $12,398 audit that ends up finding a $298 error in the publisher's favor.  In fact, it is unreasonable to expect the publisher to do that.  Nonetheless, it's a false equivalency.  The publisher has deeper pockets.  The publisher has a responsibility to get it right in the first place.

There's another clause where similar language is starting to show up.  It seems very reasonable to say that in the event of a lawsuit regarding the work, which could be someone suing you for libel or you suing the publisher for violating the contract, that the liability of each party will be limited to the size of your advance.  Isn't that great!  You get a $5K advance, you get sued for libel, you only have to pay $5K to the publisher if there's a settlement or you're found guilty.  But it isn't so great.  Let's say the publisher forgets to pay you royalties or has this nasty habit of selling translation rights it doesn't own or puts cover copy on the book that is libelous where your book itself is not.  They get to walk away after paying you only $5K in damages.

False equivalency.

You write one book a year.  Your livelihood depends on that one book.  You have to pay $5K, it's a very very big deal for you.

Your publisher might publish dozens of books a month, hundreds of books a year, take in hundreds of millions of dollars in revenue and earn tens of millions in profit.

$5K is a big deal to you.  $5K is nothing to your publisher.  This very fair-sounding language that puts this nice equal limit on everyone's obligations is a lot nicer to your publisher than it is to you.

And, again, how many authors are going to walk away from a deal over this contract language?  How many instances can I even recommend that they do so?

What's sauce for the goose isn't always sauce for the gander.


VA Andrews said...

This seems like a spot where a strong independent showing will help the author. If I'm successful, I know my fans will buy my book no matter who the publisher is. Brandon Sanderson is proving this right now by publishing through various houses, and he could easily have released his books independently and sold quite well.

That puts an author of his stature in a good position, assuming other clauses in previous contracts do not restrict his movement. Midlist authors have less room to negotiate, but the option to go it alone is there. It seems like many are taking that path and quite a few are finding success. Others fail, of course, but that's the nature of any business.

The whole situation must be challenging for an agent like yourself. If you know the deal is rotten and you think the author has a better chance independent, do you suggest they go it alone? If the author finds success on their own, that might prove the commercial viability of the book and bring the publisher back to the negotiating table. Then again, they might fail and blame you for the advice.

I love your business oriented posts, and hope you'll find time to write more!

Anonymous said...

Thank you for this post Joshua, although, I would say that to an attorney's ears, these clauses don't even sound fair.

Indemnity is the shifting of risk from one party to the other. It makes absolutely no sense for an author to bear the same risk as a publishing house with respect to damages on potential third party infringement. An author has one way in which he or she might infringe (i.e., write a book that in some way plagiarizes another novel or can be construed as libel). However a publisher has multiple ways in which it can create liability for the author.

As for the question of audits, law and economics tells us that the burden should be shifted to the person in the best position to determine the damages... i.e., the publisher. The burden should remain with the publisher to properly account for the royalty payments that it owes its authors, and this should be an inviolate absolute.

That said, as a lawyer, I recommend that my corporate clients limit audit rights to only once or twice a year. I have recommended a percentage of deficiency, but only on the numbers audited, not on the lifetime of the agreement. I don't have literary publishers for clients, however. It is sad to hear that this trend is getting even less author friendly.

As someone who aspires to be a published novelist some day, I can assure you that I would care very much about my potential liability and loss of profits with respect to my valuable intellectual property.

Best Regards!