Kristine Kathryn Rusch

The Business Rusch: A Tale of Two Royalty Statements

Written By: Kristine Kathryn Rusch - Aug• 15•12

Today I had hoped to write a blog about something other than traditional publishing contracts, but events have conspired against me.  Cory Doctorow published a column on Publishers Weekly’s website about a new contract demand that might be coming from Hachette. Apparently, Hachette has decided to ensure that all of its e-books have some sort of DRM. That’s an acronym for Digital Rights Management which is just a fancy way of saying that your document will have some encryption that will make it hard (but not impossible) to share the document with other devices and/or people.

Apple has used DRM forever, particularly in its iTunes store. Amazon uses DRM on its Kindle devices—that’s why you can’t read an e-book you bought on Amazon on your Nook.

Long ago and far away (like a year ago), most people in publishing believed that DRM would stop the pirating of books. That’s before publishers realized that average readers liked sharing their books with friends and family, and DRM got in the way of that. Cory explains a lot of this, and while he’s farther into the information-wants-to-be-free side of the equation than I am, he’s got a lot of good points.

The thing I noted in this piece, however, is this:

The letter also contains language that will apparently be included in future Hachette imprint contracts, language that would require authors to “ensure that any of his or her licensees of rights in territories not licensed under this agreement” will use DRM. It’s hard to say what’s more shocking to me: the temerity of Hachette to attempt to dictate terms to its rivals on the use of anti-customer technology, or the evidence-free insistence that DRM has some nexus with improving the commercial fortunes of writers and their publishers. Let’s just say that Hachette has balls the size of Mars if it thinks it can dictate what other publishers do with titles in territories where it has no rights.

Yeah. Cory’s exactly right about this. And he’s right about the balls the size of Mars. Check out my post from two weeks ago about the non-compete clause. Publishers have been dictating what other people do with their businesses for quite some time now.

Still, I e-mailed the link to a friend of mine who happens to be an intellectual property attorney who deals with the publishing industry a lot. The attorney’s response? Not shock, not surprise, but this (and I’m paraphrasing here):

Given what I see in  my dealings with the general counsels at various traditional publishing houses, I have to say that everyone in traditional publishing has gone insane.

Needless to say this clause—if indeed it exists—will be a new deal breaker. Often the same book has multiple contracts with multiple publishers. What Hachette, as your English-language publisher, wants you to tell your Russian-language publisher to publish the book in DRM. Do not sign anything that requires you to tell other publishers who publish your work in a different territory what to do. For that matter, do not sign anything that requires you to publish all your other work  (not covered under this contract) with DRM attached. If I had signed a contract like that, for example, I would not be able to publish this blog on my website. I would need to have some sort of DRM on this blog to remain in compliance with this contract.

So…if a publisher demands this of you, do not sign that contract. Negotiate it away. If you can’t, walk away.

This clause has a major impact on indie writers who publish their own work in their native language, then sell foreign rights to Hachette. If you sign the DRM clause as Cory outlines it, you must make sure your indie title is available only as DRM. Do you indie writers now understand why you must pay attention to these contract discussions?

And since I’m already talking about traditional publishing contracts, I’m going to talk about another side of the contract—royalty statements.

Your contract governs what’s in your royalty statement. The percentages of the sales price that you get paid (royalties) for a hardcover book is in your statement, as well as the royalty rate for that same hardcover if it’s sold at a standard discount, a deep discount, given away, or trashed. Much of your contract—even language that you might not understand—applies to how much, and how often you will be paid for each copy of the book sold.

In these days of free e-books, your contract should even have a definition of what “sold” is. Is a free e-copy given away a sale? Or is it a promotional copy? I’ll wager most of you don’t know the answer to that question on your traditionally published books.

Here’s how your royalty statement should work. You should be able to calculate when you will start receiving royalties on your novel, based entirely on your contract.

Let me give an example.

Let’s say that you licensed your book to a publisher. (If you don’t understand why I say “licensed” instead of “sold,” get a copy of The Copyright Handbook right now.) Assume this publisher gave you a $10,000 advance against royalties. An advance, by the way, is a fancy way of saying you got an interest-free loan from that publisher, and your royalties on this book will repay that loan.

Assume (for the sake of my math skills) that your contract provides you with a 10% royalty on the cover price of any book sold. Then assume that your publisher publishes that book in a $25.00 hardcover edition.  Assume also that you will get royalty statements every six months as is customary.

So here’s what should happen in that instance. You should get $2.50 for every book sold. After 4,000 copies of your novel, you should start earning royalties. What happens at 4,000 copies? Why your interest-free loan (or as you call it, your advance) gets paid off. ($2.50 x 4,000=$10,000.)

When I got my first publishing contract back in the Jurassic Period, I sat down and did the math on when that book would earn out its advance. I believed I would start seeing money over and above my advance within two years of publication.

Even though the book sold many more copies than I needed by those simple calculations to earn out its advance, I never received royalties on that book. The publisher did not cheat me. I signed a contract that gave the publisher too many loopholes. Discounted books received a smaller royalty. Books sold in certain chain bookstores got a smaller royalty than books sold in independent bookstores. And on and on and on.

I got nickel and dimed to death by the publisher, even though I had a very good contract for the time. All of those different payouts, by the way, were delineated in the contract. I just didn’t understand them.

These sorts of delineations and the interpretation of them are behind the class action lawsuit that writers have brought against Harlequin this summer. The writers claim that Harlequin is playing a shell game so that it can pay a lower royalty rate on certain types of books.

Harlequin isn’t alone in trying to charge a lower rate under the contract than the rate the writer assumes applies. Harlequin is simply being more blatant about it, and going about it in a way that is easy to catch.

When large companies try to pay lower rates to their suppliers, it has an impact on the supplier (of course), but it usually saves the company millions of dollars (spread out over all suppliers). It is in the company’s best interest to pay as little as possible for the goods it receives.  It is in the supplier’s best interest to get paid as much as possible for the goods provided.

Most writers do what I did back in the Jurassic Age. They shrug, and figure that the industry is too complicated for them, the contract too arcane. They simply go on as if nothing happened.

Me, I started my quest to understand contracts right then. And I learned that big names get better terms on everything—including discounted books—than I (as a midlist writer) ever could. If, of course, the big name writer knew how to negotiation a contract. Which, I have learned over the years, is a very big if.

I still play that payout game when I sign a traditional publishing contract. Several years ago, I signed with two companies that were new to me. I signed with them both in the same year and their contracts were similar.

In fact, one had a contract that I would call iffy. It had some terms in it that I really didn’t like. However, that contract—let’s call it Contract A—defined those terms very narrowly.

I did the math. I figured that if everything went as promised by the editor and by the contract, I would be earning royalties on the books in that contract in 24 to 36 months. I mentioned this to Dean, then we both laughed. We knew the likelihood of my earning any royalties on those books was between slim and none.

Contract A covered three books. Contract B, from the other company, only covered one book. The terms of Contract B seemed a lot better than Contract A, right down to this lovely promise: all payments were due within thirty days of fulfillment of each contract term.

By putting that in the contract, a payment that was overdue by one day breached the contract. In other words, if I didn’t get paid, the contract got canceled.

If you had asked me on that day which contract was better, I would have said Contract B. It was for one book, it licensed fewer rights, and it had clauses that benefitted me like that payment clause.

Over the years, I sold two more books to the company that issued Contract B. Those were Contracts C and D. Those contracts were identical to Contract B. They were fine.

I sold other books to the same company that issued Contract A. Those contracts got progressively better as the company revamped its contracts and as I became more savvy about what to ask for in this new world of publishing.

Problems showed up with the company that issued Contract B almost from day one. The signing payment on my advance was late, so late in fact that I told them that I would not turn in the book until I received the payment. If they couldn’t pay me quickly (within two weeks, as I recall), then they breached the contract and I would be free to sell my already-completed book elsewhere.

They begged me to reconsider, asked me to wait until the end of the quarter (a month away), and when I refused, angrily cut me a check. This process got repeated with each check owed. I must be honest, however. Because of that clause and my willingness to enforce it, that company paid faster than any other publishing company I had worked with.

The issues got stranger as the royalty statements became due. I didn’t understand the first royalty statement issued for Contract B. Information seemed to be missing, and a lot of stuff just seemed off.

The first royalty statement for Contract C never arrived. When my agent requested it, he was told that the book had only been out for a month and the company never issued royalty statements that early(!) Even though the contract required it. Even though I had received the first royalty statement for Contract B that early. By then, I had already turned in the book for Contract D and that book was in production. I had turned down a fourth project with the company because they were so awful to deal with on the business side.

The editor, by the way, was wonderful.

When the next royalty period arrived, I had a real surprise. My books—contracted separately—were basket-accounted.

For those of you who are unfamiliar with basket accounting, this is what it means:

A writer signs a contract with Publisher Z for three books. The contract is a three-book contract. One contract, three books. Got that?

Okay, a contract with a basket-accounting clause allows the publisher to put all three books in the same accounting “basket” as if the books are one entity. So let’s say that book one does poorly, book two does better, and book three blows out of the water.

If book three earns royalties, those royalties go toward paying off the advances on books one and two.

Like this:

Advance for book one: $10,000

Advance for book two: $10,000

Advance for book three: $10,000

Book one only earned back $5,000 toward its advance. Book two only earned $6,000 toward its advance.

Book three earned $12,000—paying off its advance, with a $2,000 profit.

In a standard contract without basket accounting, the writer would have received the $2,000 as a royalty payment.

But with basket accounting, the writer receives nothing. That accounting looks like this:

Advance on contract 1: $30,000

Earnings on contract 1: $23,000

Amount still owed before the advance earns out: $7,000

Instead of getting $2,000, the writer looks at the contract and realizes she still has $7,000 before earning out.

Without basket accounting, she would have to earn $5,000 to earn out Book 1, and $4,000 to earn out Book 2, but Book 3 would be paying her cold hard cash.

But here’s the thing: You can’t have basket accounting without a basket. The contract must provide for this strange accounting method, and not one of those three contracts did. Even if Contract D had a clause for basket-accounting with Contracts B & C, those contracts would have had to be amended for that clause to work. I did not sign any amendments, nor did Contract D provide for it.

My agent and I complained about this.  We were told that the books are not basket accounted, but that the publisher’s system just showed up that way on the royalty statement. That way, the publisher could keep track of what it owed each writer. It was an internal thing, nothing more, and wouldn’t have an impact on payouts to me. And, to make things even more interesting, we got a check for e-book royalties with that letter.

Weird, since none of the books had earned back their advance (interest-free loan) yet, and all e-book royalties should go against that advance according to the contract.

I’ll be honest. I really, really, really want to get away from this company. So we sent the check back to them telling them that there are a lot of errors in their royalty statements and we needed accurate royalty statements. If we did not receive accurate statements within six months (which was the next royalty statement), we would consider this a breach of contract. (The contract calls for accurate royalty statements.) The letter went to the publisher, not to the accounting department or to the editor, but to the person at the top.

Who wrote back and said that these were just accounting quirks and we need to live with them. We got a legal statement signed from the publisher, saying that this is how their accounting system works, that the books were not basket-accounted, and we would continue to receive e-book royalties separate from print royalties.

Can I fight all of this and get the contracts canceled? Yeah, but it would take attorneys. Will I do it? No, because there are other contract clauses I will use in a few years to break these contracts in a much easier (and much more painless) fashion.

If I didn’t have those other clauses in the contract, I would be fighting to get out of this contract right now. Because this company is not trustworthy and, I suspect, is having serious financial problems. I’ve suspected that for years now.

Honestly, this company has the messiest, stupidest royalty and accounting system I have ever seen (which is saying something). This company, while not part of the erroneously named Big Six, is a large company with a name you would recognize. They’ve been around for more than 15 years.

So has the company that issued Contract A. (See? I haven’t forgotten it.) At the same time I was dealing with the royalty statements for Contracts B, C, and D, I received a royalty statement for Contract A.

Along with a nice check for royalties earned.

I about fell over backwards. Remember I told you that if that particular company followed its contract to the letter, I’d receive my first check 24 to 36 months after publication? Well, the check arrived 18 months after publication. One royalty period sooner than expected.

Why was my calculation off? Because the first book in that contract sold better and faster than I had expected.

Everything—and I do mean everything—in that royalty statement is easy to understand. Even better, the sales figures match or exceed the sales I receive from other books written under that name. The statement is accurate, clear, concise, and goes point by point with the terms of Contract A.

This is the very first time in more than twenty years of publishing novels that any company has ever followed its contract to the letter in regards to its royalty statements. No obfuscation, no dicey interpretation of contract clauses, no surprises at all.

The very first time.

And that’s how contracts and royalty statements should work. They should be parts of a whole, so that both parties—publisher and writer—know exactly where the project stands at any given time.

Since we’ve been discussing deal breakers and ideal contracts, let me add one more thing. As small business owners, we writers need to make sure that our contracts call for accurate royalty statements issued in a timely manner.

Then we should demand that all of our royalty statement experiences be like mine with Contract A. We should consider an inaccurate or poorly done or impossible-to-understand royalty statement a violation of our contracts.  We should also be willing to defend our rights: if we get a bad royalty statement—impossible to understand, hard to see if it follows the terms of our contract—we should ask for a clear statement. If we don’t get one, then we should find out why.

We need to fight for this as hard as we fight for good contract terms. Because the contract terms mean nothing if we don’t make sure that they’re executed properly.

Remember, we writers have choices now. We can indie-publish our work and make quite a bit of money. If we choose to go with a traditional publisher, then we have to make sure that the traditional publishing deal is worth our while.

The contract clauses I’ve discussed for the past month are part of that. But so are the royalty statements themselves. The days of shrugging when a confusing royalty statement arrives are over. We have to demand clear statements, clear accounting, and clear terms.

If we don’t, we’re as much to blame for any loss of income as the publisher itself is. As small business owners, we need to monitor and enforce our contracts. Making sure our payments are both accurate and on time is part of that.

It’s time for traditional publishing to make large changes, and I’m not talking about the kind of changes that some publishers (like Hachette) seem to want. Those publishers want writers to give up any semblance of autonomy. We writers need to recognize that we have more autonomy than ever. If we give that up, then we only have ourselves to blame.

So demand accurate and understandable royalty statements. If you’re not willing to do that, then you probably want to stay away from traditional publishing. Because if you don’t ask for clear royalty statements, you will lose money. You just won’t know where or when.

It’s amazing to me how rapidly traditional publishing contracts are changing. I think my lawyer friend is right: traditional publishers have gone crazy—but only because they’re scared. They know they’re playing by old rules and they don’t know how to play by new rules. So they default to the old way of doing things by trying to dictate unreasonable terms to the authors.

I’m moving off this topic for a while. I can guarantee, however, that I’ll be doing more about it in the future.

You all have been great in supporting this short series. In the past, donations have dropped off as I’ve done these kinds of posts, but this time the drop-off has been less severe. Thank you for that. And thank you for the links, comments, emails and forwards. I appreciate that as well.

So, as usual, if you’ve gotten anything out of this week’s blog or any of the business blogs, please leave a tip on the way out. Thanks!

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“The Business Rusch: “A Tale of Two Royalty Statements,” copyright © 2012 by Kristine Kathryn Rusch.

 

 

 

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41 Comments

  1. RD Meyer says:

    I think the key line in here is that writers now have a choice. Indie published titles used to be sneered at, and traditional publishers haven’t caught up to the present time.

    It’s going to take a sea change in the industry which allows it to swallow its pride and re-look its business model if it wants to survive.

    • Thanks, Russ. There are a million reasons why publishers haven’t caught up, but the main thing is that they haven’t. There’s a great article on Forbes‘s website about publishing. It also points out that not only are traditional publishers blind about indie publishing, but so are big name writers, and that’s the opposite of the music industry. The big artists support the alternative methods of the indie artists. You can find the article here.

  2. Joe Vasicek says:

    I’ve got to be honest, Kris. All these posts about contract deal-breakers have only cemented in my mind that in my own writing career, I absolutely do not want to deal with a traditional publisher at all if I can avoid it. As an indie, if I don’t make it big, they probably won’t want anything to do with me, and if I do make it big, I probably won’t want anything to do with them. At the point where the non-writing stuff starts to cut too much into the writing time, I’ll be making enough to hire an assistant. Before then, it’s much less stressful (and actually kind of fun) to do everything myself.

    Yes, I understand that everyone has to deal with contracts, even us indies. But the Terms of Service for KDP, Smashwords, Pubit!, Kobo Writing Life, and all other ebook venders are so much simpler–not to mention easier to get out of! I shudder to think about what it would mean to have my rights tied up, with no way to get out except to threaten bringing the publisher to court.

    If I can make a living on my writing without having to license, transfer, sell, give up, or otherwise jeopardize any of my copyright, why would I ever want to switch to a business model where I did? It’s just not worth the headache. The only circumstances where I might want to deal with this would be sales to foreign publishers or movie options, which would only be nice additional income streams–not my main source of income.

    Why so many traditional publishers are clamping down on their contract terms, I have absolutely no idea. They’ve done nothing but shoot themselves in the foot when it comes to digital, and time is not on their side. I just hope that someone takes these guys to court soon and strikes down all these ridiculous mars-balls clauses. Actually, I take that back–since I won’t be signing any of them, I could really care less.

    In any case, thanks for doing these contract-breaker posts! They have been very insightful, especially since this isn’t the kind of writerly advice we beginners usually hear. If I’m ever approached by a trad publisher (since I certainly won’t be seeking any of them out myself), I’ll definitely keep it in mind. Thanks!

    • You’re very welcome, Joe. I’m glad you’re getting something from the posts.

      Remember that KDP and a lot of the terms of service can change at any time, and if you agreed up front, you agreed to abide by the future changes. What that means is it’s up to you to monitor the site, and if the terms of service change to something you don’t like, then you must opt out at that moment.

      And on the order from Hachette: It’s coming through the UK. Which, to me, is a foreign publisher. So if you’re an American author who indie-publishes your work only in the US, then you sign a UK deal, you might be faced with this very clause. And it would prevent you from publishing your US work on Smashwords, for example. This is pernicious and has an impact on all of us.

  3. Ramon says:

    I honestly wonder how long it will be before publishers will become anything resembling sane enough for us to be able to do business with them. I’m exclusively indie, but I would love to ride both sides of the fence. Unfortunately, it doesn’t seem like that’s going to happen any time soon given that big publishers A) Don’t seem to want to offer much in terms of exposure to new authors, B) have these ridiculous clauses in their contracts, not to mention crazy royalty rates that are just insulting, and C) seem to be too busy scrambling around to be bothered with doing things right with their authors.

    Maybe in five years…..

    • Yeah, I know, Ramon. I truly don’t see much of a reason for new writers to go to a traditional publisher, unless that publisher is willing to negotiate with them. I think it’ll take most of this decade to shake out. Then we’ll be in a new normal.

      • Hi Kristine – thanks so much for the blog post. I always point my less battle-scarred writer friends to you. (I’ve signed a load of crap contracts and basically became savvy through pain; I signed “forever” contracts and “total buyouts” that people later said were “unethical/unenforceable”, and I’ve signed ROFR clauses that killed series.) So, yeah, after some pretty dire experiences with a Big Six in Germany, I’m an indie and happy.

        However, I can absolutely see a reason to sign up with trad publishing, but really only one. That’s marketing and reach and actually getting books into book stores. So they could have one every couple years (ideally a book I don’t care that much about and which I’d treat as a “sacrificial lamb”) while I go with author-centric and author-friendly indie publishers for stuff like control, bigger royalties and better treatment. I’d definitely hire a very sharp IP lawyer, though.

        • Aleksandr, I don’t know the German market very well, but I do know that in the US, you can have the exact same reach in marketing and bookstores as traditional publishers. Dean deals with that in his “Think LIke a Publisher” series. With Amazon’s Createspace now in Germany, I suspect you might have the same opportunities there. Just saying. And indie, happy. Yeah. It seems to go hand in hand. :-)

    • L. M. May says:

      One silver lining (that Kris has pointed out in the past) is that if you like to write short stories, there are traditional magazine markets that you can submit to that have reasonable terms, and each month the number of good markets is growing.

      So it is possible to easily ride both sides of the fence right now, if short stories are in the mix.

  4. David Lang says:

    minor quibble about DRM.

    for a while now Amazon has made DRM be at the option of the person publishing the work. Many books have DRM turned on, some do not.

    Even without DRM, the kindle and nook use different document formats, there is free software to convert between formats, but it is a bit of a hassle to do so ( http://calibre-ebook.com/ ).

    • TheSFReader says:

      Many (most?) books from Big Publishers HAVE DRMs.

      But you’re right, when the DRM is not there (either because it hadn’t one, or it was removed), Calibre makes quite good translations.

      One can also note that the DRM removal tools can be integrated into Calibre for transparent/automatic use.

    • Thanks, David. I haven’t really kept up on DRM because I think it’s stupid to limit your customer base. So…yeah. Ooops. I appreciate the clarification.

  5. TheSFReader says:

    Youch ! I hadn’t really seen how that part “ensure that any of his or her licensees of rights in territories not licensed under this agreement” could be so far reaching ! Now that you’ve pointed it out, I see it clearly.

    If it impacted only the same book in the same language, it would already be over-reaching.

    If it impacted only the same book, whichever language it’s translated to, it would already be WAY over the board.

    But no, it would be “any licensee of right [...]“, meaning as you show, anything distributed worldwide…

    Talk about carpet bombing your professional writing future !

  6. Vera Soroka says:

    Wow, that’s unbelievable. I was thinking of sending my YA to Tor but I don’t know, I think I will wait and see. I am self publishing my romance line so maybe when I have my feet wet I will self pub the YA. This other stuff is just too mind boggling and confusing to understand.

    • The biggest problem, imho, Vera, is that it changes almost weekly. So advice I gave last year is out of date, and the month-long series I started at the end of June has an addition because of more craziness. So yeah. Waiting a while is probably a good idea.

  7. J.M. says:

    I had a disturbing thought. In contract negotiations, have you ever demanded the removal of a deal-breaker clause only to have the publisher say, “Okay, we’ll let that one go but you need to give up something else” (accept a smaller advance, etc.)? I’m wondering if such things are a tactic: if the author accepts it, wonderful, if not then we can get a better deal elsewhere in the contract.
    Or is that giving the publisher too much credit?

    • That happens all the time, J.M. It’s how negotiation works. One side trades this for that. Or not. I’m only talking about deal breakers in this series. That’s where both sides dig in and say, “My way or the highway.” In the past, writers caved. I’m saying that too much is at stake for any writer to cave now. I hope that helps.

  8. Randall Wood says:

    Now that’s a post with good information, thank you.

    I have a somewhat radical question, but I’ll throw it out here anyway;

    Why do we sign their contract?

    If an author has gone to the lengths of forming his own publishing company, what’s to stop him/her from writing up a contract for them to sign? It would save a lot of time and red ink.

    It might be worth it just to see the expression on their faces.

    • I guess we call you Harlan Ellison now, Randall. That’s what Harlan has done as long as I’ve known him. I thought it odd twenty-five years ago. Now I think it smart. The publisher has a starting point, the writer has a starting point–let the negotiations begin!

      He is the only writer I know who has done that. It would be interesting, imho, if others tried it. I do wonder how legal in publishing houses would react. (And you can’t do this if you have an agent. The agent would have kittens.)

    • I would be interested in seeing a good writer’s contract.

  9. William Ockham says:

    One minor correction.

    Amazon uses DRM on its Kindle devices—that’s why you can’t read an e-book you bought on Amazon on your Nook.

    This isn’t quite correct. Amazon leaves it up to the publisher to decide whether or not to use DRM. The reason you can’t read a Kindle book on a Nook is that the two systems use different formats. The Nook (and almost every other ebook vendor) uses the epub format, but Amazon uses a semi-proprietary format called .mobi. Even though both formats are just crippled versions of HTML, epub is delivered as an OPC file (which is just a zip file)and .mobi files are actually delivered in the old Palm database format.

  10. C.E. Petit says:

    As I mentioned offhandedly a couple of days ago, the problem that Our Gracious Hostess mentions at the top (Hachette and its insistence on certain clauses in contracts relating to what other publishers do/might do) is precisely why the DoJ is suing Apple and five publishers — including Hachette — for breaking the law by doing so in the Wormyfruit antitrust case on e-book pricing.

    Herewith, a short detour into antitrust law (which is the intellectual flip side of intellectual property law). Those of us with vast life experience — just call me “elderly” — might remember the bad old days of the 1970s with copy machines, when there was an absolute contractual requirement that if you leased a machine from Xerox, you bought your paper and supplies from Xerox and got all your service from Xerox. (And it was an industry standard; if you were an IBM shop, or a Kodak shop, it worked the same way.) There were effective patents and reputational “protection” covering the machines themselves; however, there weren’t any for the paper, or the toner (usually two-part in those days), or many of the parts… or the knowledge to service the machines. The agreements in question are called “tying arrangements.” Sometimes they’re lawful; sometimes they’re not.*

    The kind of tying arrangement complained of by the DoJ against Apple and the other publishers is a directly unlawful tying arrangement: The MFN clause.** One of the kinds of tying arrangements described by Our Gracious Hostess (the “noncompetition clause”) is ordinarily a directly unlawful tying arrangement. And then things begin to get murky as the layer of coin between the intellectual property issues and the antitrust issues disappears… and people start arguing as if the other side of the coin doesn’t exist, even though its image is clearly visible in the law of the side of the coin they’re arguing from, let alone whose interests on that side of the coin.

    It shouldn’t surprise anyone that there is not one general counsel among the top dozen or so US publishing houses who has any substantial experience with antitrust law, let alone litigating antitrust law matters. It’s a collective blind spot that influences their approach to everything… and being in New York doesn’t help matters, as the Second Circuit has a minority view on most antitrust law these days anyway, which in turn influences the advice the publishers get from outside counsel.

    * If you own an inkjet printer, you’ve run into this problem with the shrieking claims that using off-brand ink cartridges will void your warranty and cause the collapse of civilization as we know it.

    ** There are some nuanced ways to make an MFN clause lawful. The way Apple et al did it isn’t even close.

    • Thanks, C.E. A clarification for some of you: MFN clause is the Most Favored Nation clause. I’m not going to try to explain that. I’ll leave it to others. But do read C.E.’s post on all of this. (And jeez, I’m old enough to remember that about copiers as well. What a blast from the past.)

  11. Apple dropped DRM from iTunes in 2009. Though it was there six years before that. Thought you should know :)

  12. Dan Meadows says:

    Wow. When I first read the Hatchette thing a couple days ago, I read it as referring to the same book, as in I license hatchette in one territory, other publishers of that book in other territories would be compelled to use DRM. It didn’t even occur to me that the scope was wider than that, but when I went back and re read their wording, you’re absolutely right, that could be read as anything else you publish anywhere. If I’ve taken anything away from your writings (and I’ve gotten a lot from them) its the absolute necessity of having a good IP attorney if I’m ever dealing with these issues. I’m probably as guilty as the next person of reading things as they seem to make the most sense. But so much of contract language these days is written to imply one thing but actually be much broader in scope. I’ve got to wonder why that kind of deception doesn’t constitute some form of actionable fraud, because at the very least, it seems like dealing in bad faith. Thanks so much for your insights and keep up the good work!

    • Right now, publishers are taking advantage of everything. So if there’s a bad way to interpret a clause, a publisher will. The best thing to do is make sure the clause isn’t there. As for fraud, it’s different from bad faith. Most publishing contracts probably fall under bad faith, but they generally aren’t fraud. But then, I’m not a lawyer, so I’m not an expert on this stuff.

  13. Rayne Hall (@RayneHall) says:

    Years ago (in the dinosaur days) I wrote several books to a publisher. To contract terms were not particularly generous, but clear and fair. Royalties would be paid once a year on 1 March for the preceding year.

    After several years of writing for this publisher and receiving annual checks on 1 March, I received a notification. It was a standard letter sent to all their authors, informing us “We’re changing our payment schedule. From now on, we’ll be paying royalties on 1 December.”

    Just like that. It was against the contractual agreement. Having to wait a year for each royalty check was bad enough (but fair, since that’s what we’d agreed to in our contracts) but now we had to wait a further seven months.

    The publisher did not ask us to agree to an amended contract: he simply informed us. What a cheek!

    I was annoyed, but didn’t complain. At the time, I was stressed with other things, the amounts in question were too small to argue over, and I reckoned it wasn’t worth the fight. Now I’m ashamed I didn’t at least write a pointed letter.

    I believe we authors are far too soft when it comes to contractual matters. All the authors of that particular publishers were like me, sighing about the unfairness, but not doing anything about it.

    With indie publishing, the situation is so different.

    I don’t have to wait a year to learn how many books I’ve sold (Amazon gives me an update several times daily, and even the sluggish Barnes&Noble is seldom more than a few weeks behind). I don’t have to wait for my royalties for a year, let alone 19 months, but get them within a few weeks of the books’ sale.

    Sometimes I’m annoyed at how long Barnes&Noble delays paying authors, and at Amazon for delaying payments to international authors (there’s some gross discrimination against non-US nationals going on at Amazon, and the small print of the Amazon payment agreements are shocking in their discrimination, but that’s a different subject).

    But when I get enraged about these delays and unfairnesses, I recall the bad old days of dinosaur publishing, and compared with what we authors put up with then, Amazon’s discrimination and B&N’s delays seem such small matters.

    Rayne Hall

  14. Anonymous says:

    It’s not only publishing contracts you need to read and think about. I have a day job, in a field that normally does not have trade secrets. However, the powers that be developed operations manual and determined that the manual and associated resources (including additional resources, such as form letters, that might be created by any of us) are intellectual property of the company that needs to be protected by a non-disclosure agreement. Signing the agreement, we were told, is now a condition of employment. OK, I figured–a team of people spent more than a year creating this body of work and it is hoped it will make the company more profitable; I can see why they feel it is important to require employees to protect this intellectual property.

    Then I saw the agreement itself, which had words to the effect that … all creations, inventions, works of authorship … created by the employee during the term of employment … are works of hire and the property of employer…

    What? Wait!

    All acts of authorship starting from the the first moment of the first day I was hired (months before the agreement was presented to me) to the end of the last day I’m employed here are… Um–no. You see the problem.

    Happily, my employers were aware I am a published writer of speculative fiction before they hired me, and speculative fiction is not a part of their product. It made the conversation wherein I said I needed protection for my own intellectual property less awkward.

    This experience underscores the importance of reading contracts and imagining how they could affect things that are–or should be–unconnected to the subject matter at hand.

    Thanks, Kristine–I’m sure reading your column helped me make the immediate mental leap from how these words applied in my day job to how they might be applied to my creative work.

    • I’m glad to help. It’s tough out there. I know a lot of writers who signed such things with their day jobs and are now regretting it. Many have asked for addendums to their employment contracts, exempting the fictional work. I also know of a few companies that said no to such addendums. Do be careful, folks, before you sign anything. Thanks for the comment.

  15. The comment above from C.E. Petit is very appropriate, particularly the part noting that none of the GCs have antitrust experience. I’m a GC in my day job and do have some, but I don’t work at a publishing company. Most GCs of public companies are securities lawyers or deal folks, and it shows.

    Anywho… why I’m here is to comment on what you call the basket clause. If you’re looking through your own contracts, look for something called cross-collateralization, which is the technical term for this kind of thing. It’s what lawyers do when they want to protect their company from a situation where one book is a runaway hit but the other ones are duds: they can avoid paying royalties on the hit until the duds are paid off. Great for the company, crap for the author, like you’ve noted.

    And you’ve (accidentally) noted the best way not to get screwed with one of these which is to publish your books with different companies each time, but there’s possibly others. Another thought is maybe to create a separate bank account for each book you write and specify payments for each book into a each account. Even more protection: put each book into an LLC and sign the publishing contract between the publisher and the LLC. That way you’ll have a quick and easy breach of contract: failure to pay the money into the right bank account or to the right LLC. After all, companies are people ever since Citizens United, so they can’t cross-collateralize between different people…

  16. Another eye-opening post, Kris. Thanks for such good explanations about these contracts, I hope new and old writers are reading and taking this information in.

    As I learn more about traditional publishing I’m becoming less inclined to seek out that route and more inclined to stay indie. The only benefit there seems to be in traditional contracts is the advance, no matter how small it may be, but rights grabs like you’ve written about in this and other posts take away any bright spot that may have been.

    When I first starting reading about how to become published–back when I was in high school, aka in the Jurassic age ;) –I would have signed bad contracts without a thought, because I didn’t know there was any other way. Now, with the Internet and so much more information available, it would be foolish for anyone to just sign their rights away like this.

    Keep up the good work. You and Dean are my go-to people for writing information and advice.