What are publishing contracts and how do they work?
A publishing contract (also known as a publishing agreement or publisher’s agreement) is a legal contract whereby an author grants a publisher the right to sell or otherwise commercially exploit the author’s work. The author usually receives a royalty payment (i.e. a commission on every sale) in return for signing over their intellectual property rights in the work to the publisher.
Publishing contracts are commonly used for music, books and film but can extend to all manner of works, including teaching materials and software.
This article summarises some of the key sections of a typical publishing contract and gives tips on identifying common issues from the author’s prospective.
The difference between an assignment and a licence of intellectual property rights
An assignment of intellectual property (IP) rights is a transfer of ownership of those rights. Often the transfer will be final (i.e. ownership doesn’t revert back to the author) but there are exceptions to this.
A licence of IP rights grants permission to use those IP rights without transferring ownership. The permission will usually be limited to a particular purpose (e.g. selling the work). A licence can be for a set duration or it can be perpetual. A licence will often have terms which the recipient of the licence (known as the licensee, in this case the publisher) must abide by. If the publisher breaches these terms then the author may be able to terminate (revoke) the licence, at which point the permissions end.
Your publishing contract will state whether you are assigning your rights or whether you are granting a licence to the publisher. If you are giving an assignment then you should be comfortable with not being able to use the assigned rights in the future, unless they are assigned back to you or you receive the publisher’s permission. This may be relevant where you want to use the work on another project, or you are working with multiple business partners to exploit the work. Some publishing contracts will include a mechanism for the rights to be assigned back (revert) to the author if the publisher doesn’t exploit them within a set time period. This is particularly relevant if you will only receive a royalty under the contract – if the work isn’t being sold then you don’t receive any payment for it.
If you are licensing the work then you should check how long that licence will last for and what conditions are placed on the licence. Generally speaking, you are granting a licence for the purpose of the publisher commercially exploiting the work. If the purpose of the licence is significantly wider than this, or the licence isn’t limited to a particular purpose, then you may wish to narrow the scope. An example of a restriction on the licence would be to exclude the right to use the work for merchandise without the author’s permission.
You should also check whether the licence is exclusive (in which case only the publisher can exploit the rights – this means you are not allowed to exploit your own work for the duration of the licence without the publisher’s consent), sole (in which case only the publisher and the author can exploit the rights – you cannot licence the rights to a third party) or non-exclusive (where the author can exploit the rights and can grant additional licences to third parties). Exclusivity may be tied to a geographical location. This means you can have multiple exclusive licences operating at the same time, provided each relates to a different region.
What are warranties and indemnities?
A warranty is a contractually enforceable promise in the contract. If a party breaches a warranty then the other party will often have the right to bring a legal claim for damages. The breach may also trigger the termination of the contract (and any underlying licences).
An indemnity is a promise to pay. The indemnifying party agrees to pay an amount to the indemnified party when a trigger event occurs. The indemnity clause will usually specify the amount and any restrictions placed on the indemnity.
A common warranty in a publishing contract is that the work is the author’s original work and has not been copied from other works or sources. Another common warranty given by the author is that the publisher’s exploitation of the work won’t result in the publisher infringing a third party’s rights. These warranties ensure the Publisher can claim back any losses it suffers if the author, for example, copied the work from another person. Often these warranties will be backed up by an indemnity. A typical indemnity will state that if a warranty is breached, and the publisher suffers any loss or damage as a result, then a debt will be created between the author and the publisher in the amount of that loss and damage. The publisher can then pursue the author for that money.
When reading through the warranties you should check that you are confident that each warranty is correct, and will remain correct for its stated duration. You may be able to ‘soften’ some warranties by saying they apply ‘to the best of your knowledge’. This can save you from breaching a warranty if it can’t be shown that you knew the warranty was untrue at the time you were giving it. A publisher can be expected to push back on these types of amendments to ensure it has the widest possible protection.
Indemnities in publishing contracts are often uncapped, meaning your liability under them isn’t subject to a maximum amount. Nevertheless, you may be able to negotiate a cap with the publisher, particularly if your work is in high demand. It is advisable to take advice from a solicitor when negotiating a limit on liability to ensure the wording fully protects you in the ways you are expecting.
5 things to check for in royalty clauses
Publishing contracts usually state that the author will receive payment in the form of a royalty. The royalty is usually a percentage of the proceeds of sale of the work, or a fixed amount per sale.
Some common terms to check for are:
- Is the royalty calculated on net receipts or gross receipts? Do you fully understand the distinction, as well as any legal definitions used in the royalty section? If you receive a royalty on net receipts, what deductions can the publisher make? Are these fair?
- Is there a minimum sales threshold to meet before royalties start accruing? Do you need to accrue royalties up to a certain amount before you receive a payment from the publisher?
- Is the royalty limited to sales made by a particular entity (e.g. the publisher itself)? Is there anything preventing the publisher from transferring its rights in the work to a third party who can sell the work without paying you a royalty?
- Does the royalty calculation account for all formats the work might be sold in? E.g. a book could also be sold as an e-book, an audiobook, and could be adapted for a screenplay – are these possibilities covered in the contract?
- Are the royalties open to renegotiation in the future?
The calculation of royalties is often a complex area which requires careful legal drafting. There are a number of tricks publishers can employ to minimise the amount of money they have to pay an author. For these reasons, it is recommended that you instruct a solicitor to review the royalty wording. They can also assist you with negotiating the royalty clause (and any other clauses in your publishing contract) with the publisher.
What obligations does the publisher have?
A publishing contract drafted by the publisher will usually impose relatively few duties upon the publisher. The publisher wants to maximise its freedom to exploit the work and wants to minimise the opportunity for the author bringing a breach of contract claim against it.
Where there aren’t comprehensive obligations on the publisher in the contract, you are relying on the publisher’s reputation and its motivation to make money from selling the work to ensure the relationship is successful. Hopefully, the money to be made by selling your work will be enough to motivate the publisher to do their best but what happens if a more profitable opportunity comes along and the publisher has only limited resources? You may be able to negotiate for additional clauses to be added to the publishing contract which increase the chances of the work being a commercial success. For example, requiring the publisher to proactively market the work, or setting a minimum marketing budget.
As with any commercial contract, it is important that you do your background research on the publisher before you commit. As the old adage goes: if something seems too good to be true, it probably is.
Some publishing contracts (including in particular music publishing contracts) tie the author to the publisher for a minimum period. During this exclusivity period, any new works produced by the author may automatically be licensed or assigned to the publisher for exploitation. It is important that you fully understand any exclusivity clauses and ensure that the royalty calculation takes into account any additional works you might produce whilst tied to the publisher.
If you are working on any third party commissions, or intend to do so during the term of the publishing contract, you should check that these don’t conflict with any exclusivity wording. Otherwise you may find yourself in breach of the publishing contract and/or your commission contract.
This article summarises only a small number of the issues to consider before signing a publishing contract. For advice and support relating to publishing contracts, including their drafting and negotiation for both authors and publishers, please contact Ryan Mitchell in our Commercial team.