Acquiring the Right Rights: Will Your Contract Keep Up with the Markets for Your Books?

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September 2011
by Steve Gillen

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When Apple launched its iTunes digital music download business in 2001, few anticipated that it would change the entire landscape of the music business in less than a decade. But by 2008, iTunes had overtaken Wal-Mart as the top music retailer in the United States, and, looking forward across the entire market, some commentators expect digital music downloads to surpass music CD sales this year.

This shift in media and channel has left some constituents staggered. The revenue sources, cost structure, and profit-and-loss models are very different than they were, in ways unanticipated in the original contracts with composers and artists who provide the content that fuels the business. Book publishing may be next in line to be jolted by the accelerating displacement of paper by digital. Are you ready? Are your contracts up to the challenge?

Where your publishing contracts are concerned, you need to confront two separate issues: Did you acquire the rights you intended to acquire (addressed in a section typically entitled “Grant of Rights”)? And what must you pay for exploiting them (addressed in a section typically entitled “Royalties”)?

Intent and Interpretation

Your author starts with an advantage here, courtesy of U.S. copyright law, which, by default, vests copyrights initially in the human author of a work upon its creation. Any transfer of ownership or exclusive license of those rights must be memorialized in a signed writing before it will be given legal effect. So the language in your grant provision is critical. To the extent that language is inadequate or not in line with your intent, it will likely not get you what you want.

The norm in trade publishing for many decades was for the publisher to receive a limited assignment of book-publishing rights and certain specified subsidiary rights from the author. It was the model, for example, in 1967 when Kurt Vonnegut entered a contract with Dell Publishing that granted Dell the exclusive right to “print, publish and sell [Slaughterhouse-Five] in book form.” But this tradition has recently begun to work some mischief. Nearly 35 years later, the question presented to a federal court was, does “book form” encompass e-books in this case? And the answer, in this case, was no.

A court’s job, when presented with the task of interpreting language like this, is to determine the intent of the parties to the original contract. That can be especially challenging when the contract was written long ago and one or more of the original parties is no longer available. Indeed, one court that faced such a task observed, “Any effort to reconstruct what the parties actually intended nearly 40 years ago is doomed to failure.”

The truth, of course, is that neither Vonnegut nor his publisher could have intended anything about e-books, as e-books didn’t exist at that time. But what they might have intended was, more generally, an allocation of the business risk that some portion of the familiar, traditional market might be subsumed by an as-yet-unknown medium or distribution channel.

For assistance in interpreting Vonnegut’s 1967 contract, the court turned to some accepted legal rules of interpretation.

Because contract interpretation is a matter of state law, it varies from state to state; but generally speaking, courts look first within the four corners of the agreement (i.e., they try to find the answer in the document itself, without resort to outside evidence); they give weight to clear and unambiguous language; they give terms their ordinary meaning unless the terms have a special meaning in the context of the agreement or in the relevant industry or trade; they read the contract as a whole and construe it to give effect to all provisions; they construe an ambiguity against the party that drafted the contract it’s in; and they sometimes look at postcontract behavior of the parties as a signal of what they intended in their negotiations.

In the case of Vonnegut’s contract, the court looked for guidance on the term book form in the context of other language in the contract (including a “for example” list of specific book forms—such as abridged, book club, reprint, and Braille—that did not include anything other than print); and the court also looked at dictionary definitions of the term book (using, ironically, the publisher’s own dictionary) to reach the conclusion that “book form” was not intended to include e-books.

If you ask me, the court was standing a little too close to this document. If it had taken a step or two back for perspective, it might have concluded that the publisher did not intend “book form” to be limiting, but rather intended it as a catch-all that would encompass the form and media by which a publisher services its traditional market as that market may evolve over time.

But there is no recognized rule of interpretation that says, “Take a step back for perspective.” So, as you can see, where the application of these court-developed rules will take you is not always where you meant to go. Determine your own destiny by writing a clear and forward-looking grant and avoid leaving it to a court to divine what your intentions were.

Rights Grant Nitty-Gritty

If your business objective is to get the broadest possible grant from an author, then you should try for a grant consisting of a general assignment of the copyrights in the work together with all other intellectual property rights associated with the work in all languages throughout the world (see “Sample Contract Clauses” in this issue for suggestions about language for this provision and others).

Such a grant will be effective to convey to you:

All the copyright rights (i.e., reproduction, distribution, adaptation, public display, public performance, and digital transmission).

All other rights (trademark rights, which are important for merchandising; and trade secret rights, which may be important for controlling prepublication promotion).

Rights throughout the world (intellectual property rights are established country by country, so if you don’t say “world rights,” you may not get world rights).

Do follow the grant language with a forward-looking sentence that expressly acknowledges your intention for the grant to encompass both known and as-yet-unknown media and means of exploitation.

Do not follow this grant language—as is commonly done, and as the publisher did in Vonnegut’s contract—with a laundry list of the things you might do with the work (such as reproduce it or portions of it, adapt it for other editions, or translate it or license others to do so), because the list may later be read to limit the scope of your grant. And resist attempts by authors and agents to insert a reservation-of-rights-not-expressly-granted provision, which will also undermine your general assignment.

Although the general assignment sounds like a comprehensive transfer, it comes with a few strings attached, courtesy of certain provisions written into U.S. copyright law for the protection of authors. The most significant of these is a nonwaivable termination right that can be exercised by the author or the author’s heirs 35 years after execution of the grant—yes, the grant you contract for today can be unilaterally terminated over your objection 35 years from now. Also reserved to the human author are certain moral rights of attribution and integrity with respect to certain categories of works in the United States and with broader application in other countries.

The potential impact of termination rights and moral rights can be avoided if a work is created as a work-made-for-hire. In this event, the commissioning party (the publisher) is considered to be the author for copyright purposes.

Work-for-hire will be the default result, in the United States, at least, for works prepared by employees within the scope of their employment, and it’s also possible for work product prepared by independent contractors under certain conditions and with respect to certain categories of works listed in the Copyright Act.

Unfortunately, the sorts of works most commonly published by trade publishers (fiction, biographies, self-help, how-to, histories, cookbooks, travel, and so on) do not fall into the statutorily prescribed categories of works that may be for-hire by agreement. But some permitted categories may have relevance for trade book publishers, and they include collective works, translations, instructional texts, and atlases.

Other Alternatives

Still, everything comes at a cost. If you are intransigent about contract terms with authors and agents, they may go elsewhere. If you bargain for rights you are not currently positioned to exploit, you will likely end up paying a price for something that you do not need and that does not generate any benefit for you. The prices you pay may not take the form of dollars or royalty points, but you will have costs nonetheless in author goodwill, credibility, or other contract concessions that might have been traded for a grant more precisely tailored to your publishing plans.

Publishers willing to take the risk of having to bargain later for the right to exploit a medium that does not exist today can provide for a grant of all rights that is conditioned on their being exploited within a certain period of time from first publication of the work in its primary form. Media/channels not exploited by the publisher within that period would be subject to a nonexclusive license back to the author, provided that the author had agreed not to exploit them in any way that would interfere with or cannibalize the publisher’s primary market. Another option is taking a narrower grant but getting the right of first refusal on any medium or channel retained by the author.

If you decide to settle for the much narrower grant of “book form” rights together with a list of specified subsidiary rights, be sure to define “book form” to encompass all forms that the modern book takes or may take in the future, as in “Sample Contract Clauses” below.

Thinking Royalties Through

While it is good strategy for publishers to write the grant provision broadly, you will want to be more granular when you write the royalty provisions. Since the economics vary from revenue stream to revenue stream, you will likely want your royalty rates to vary accordingly.

Most publishers pay one rate on sales of a hardcover edition; a lower rate on a trade paperback edition; and a still-lower rate on mass market paperbacks. And many publishers are positioned to exploit more than the traditional book-publishing rights through imprints, affiliates, or other standing relationships.

Royalty rates tend to vary among traditional “subsidiary rights” in established ways, and these rights have universally understood and accepted industry definitions. But rights in any form of new media don’t, and they need to be expressly and carefully defined in your contract. Variously termed “electronic rights” or “digital rights” or “e-book rights,” they reflect technology that is fluid and evolving, and some labels commonly used for them can be misleading.

For example, is “electronic rights” meant to be limited to electromagnetic media, or is it meant to include optical (e.g., laser disc) media as well? Are “e-book rights” meant to encompass only a substantially verbatim transcription of the print edition of a book, or do they also encompass a digital transcription with hot links, interactive features, and other enhancements not available in the printed book? Are “audio rights” meant to be limited to what we think of as audiobooks, or do they also include the text-to-speech feature available on some dedicated e-readers and in software applications designed for the sight-impaired?

To the extent that some of these uses require little additional effort or expense, the royalty rate is likely to be something approaching the domestic book rate. To the extent that some of them require contributions from other creative people besides the author, or involve manufacturing or distribution costs that are markedly different from established norms, they may necessitate a much lower royalty rate. To the extent that they are not exploited directly but instead are licensed to a third party for exploitation, they may allow for a much higher rate (except when the license is an end-user license, in effect the digital equivalent of the sale of a copy of a physical book).

Regardless of how carefully and finely you parse the royalty provisions, make sure that you add a catch-all royalty provision to capture any form of publication you have not otherwise provided for. The presence of such a provision will serve to reinforce broad interpretation of the grant language and will preclude your being left in a position where you have to negotiate a rate after the fact.

Albert Einstein said he never thinks of the future . . . it comes soon enough. But then, he wasn’t writing book contracts. Take a fresh look at your contract with the experience of the past and the promise of the future in mind. Make sure you’re ready for where technology may take us.

Steve Gillen is a lawyer and partner in the intellectual property firm of Wood Herron & Evans and has focused his practice on publishing and media matters for 30 years. He is a member of IBPA and a frequent contributor to the Independent. Contact him at sgillen@whepatent.com or 513/241-2324.

Sample Contract Clauses

The provisions that follow may help you decide what your contract should say about rights. Note that they are only specimens of the sort of language you might employ and not a substitute for consultation with an attorney who’s familiar with your particular business, practices, and circumstances.

General assignment:The Author hereby grants and assigns to the Publisher the Work and all rights, title, and interest in and to the Work, its title, and all versions and revisions now in existence or to be created hereafter, including (without limitation) all copyrights in all languages throughout the world together with all other intellectual property rights associated with the Work. The Author and Publisher acknowledge that evolving technology may result in the development of media and means of exploitation of the Work heretofore unknown and they expressly intend nonetheless that this grant of rights encompass exploitation of the Work by the Publisher in all media and by all means whether now known or hereafter invented.”

Work for hire:The Author acknowledges that the Work was specially commissioned by the Publisher and intended as an [instructional text or other statutory category] and agrees that the Work shall be considered a work-made-for-hire, with the Publisher deemed the author and sole owner thereof for copyright purposes. In addition, and against the possibility that the Work might ultimately be deemed incapable of characterization as a work-made-for-hire as a matter of law, the author hereby irrevocably grants to the Publisher all right, title, and interest (including, without limitation, all copyrights throughout the world and all other legal and equitable rights in all media, whether now known or hereafter invented) to the Work.”

Reservation of rights:“The Author hereby reserves exclusively to herself/himself all rights not expressly granted to the Publisher herein.”

Conditional grant of all rights:“The Author hereby grants and assigns to the Publisher the Work and all rights, title, and interest in and to the Work, its title, and all versions and revisions now in existence or to be created hereafter, including (without limitation) all copyrights in all languages throughout the world together with all other intellectual property rights associated therewith; provided, however, that the right to publish the Work in any form other than [specify what you intend to publish—e.g., printed book form, e-book form, etc.] (the ‘Subsidiary Rights’) shall become nonexclusive as to those Subsidiary Rights which have not been commercially exploited by the Publisher within two years after first publication of the Work in [specify form] and the Author expressly reserves the nonexclusive right also to exploit said unexercised Subsidiary Rights, free of any obligation to pay royalties to the Publisher, but agrees to cooperate with the Publisher to ensure that any such exploitation shall not interfere with the Publisher’s exclusive right to produce and publish the Work in [specify form].”

Limited grant/first refusal right:The Author hereby grants and assigns to the Publisher the exclusive right to print, publish, and sell the Work in [specify authorized forms of publication]. With respect to exploitation in media or by means not otherwise expressly addressed herein, all such rights are reserved to the Author; provided, however, that as a condition precedent to the Author’s exploitation of any such media/means, he/she shall first offer the Publisher the right to exercise or exploit, either directly or indirectly by license, the Work via said media or means, whereupon publisher shall do so within ___ years or the right to do so shall be deemed waived. Notwithstanding any waiver by the Publisher, the Author shall not exploit any reserved right in any way that would, in the reasonable judgment of the Publisher, interfere with or injure the Publisher’s exploitation of the Work as otherwise authorized herein.”

Book form (including e-book) rights:The Author hereby grants and assigns to the Publisher the exclusive right to print, publish, and sell the Work in book form and to reproduce or adapt the Work or any portion thereof for one or more Electronic Versions in all languages throughout the world and the right to license others to do so. As used herein, the term ‘Electronic Versions’ shall mean versions produced by any and all methods of copying, recording, storage, retrieval, or transmission, alone or in combination with other works, including in any multimedia work or electronic book, by any electronic, electromagnetic, optical, or other means now known or hereafter devised, including by analog or digital signal, whether in sequential or nonsequential order, on any and all physical media now known or hereafter devised.”

Digital editions:As used herein, the term ‘Digital Editions’ shall mean a substantially verbatim version of the printed text in complete or abridged form, either with or without any or all of the illustrations that may appear in the printed text, that can be read on a computer terminal or other electronic device or medium. A Digital Edition may be contained on the same medium (such as a computer file or storage device) that contains other works and may also include software that enables the reader to move from one place to another in the work and/or to search or index the work for particular content.”

Royalty catch-all:“On the sales of the Work in any other medium or by any means not specifically addressed above, the Publisher shall pay the Author a royalty of [specify].”

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