Business Musings: Other Evil Clauses (Contracts/Dealbreakers)

We’ve spent more than a month now on contracts, and there are still a million clauses to go. Just this week, I heard about a new one, thanks to this article on Writer Beware.

I could spend the rest of my life writing about bad contract terms, and telling you how to avoid them. And that doesn’t even start to count Terms of Service clauses that no one reads, such as the very scary initial ToS for this month’s popular game, Pokémon Go.  In theory, Niantic, the makers of the game, claim that they have patched the problem. But not before they collected information on millions of users, information they did not promise to delete from their servers.

It’s a minefield out there, and not just because so many of us have been playing Pokémon Go outside without looking where we’re going. (A friend says he saw a woman walk into a telephone pole this weekend, which isn’t that bad, considering there are reports of people falling off cliffs near the Pacific Ocean in San Diego County. Those men are alive and not seriously injured. If they had fallen off a cliff here, in my hometown, they would be dead.)

Writers tend to go through their business life like Pokémon Go players, looking for something that isn’t there, hoping to score a magic number of points, and not seeing what is there.

It’s impossible to show you all the bad contract terms. I’ve delineated several that you need to watch out for. I’m going to go through some important ones quickly in this blog post, and then look at a few more major terms in the next few weeks before we go to agents and attorneys.

After that, folks, you’re on your own.

So, here are a few more things to watch out for, in no particular order.

  1. Definitions: Make sure all of the important and dicey terms in your contract come with an attached definition. And make sure that definition is in your favor, extremely clear, and very narrow. The biggest and most important definition in modern contracts is the definition of the word “net.”

Most contracts leave out the definition of the word “net” altogether. Those contracts assume, apparently, that we all agree on what the word means.

Here’s the thing about contracts, folks. Contracts create their own language and their own definitions. So if the word “net” is undefined, it means whatever someone wants it to mean.

If the publisher does define the word “net,” the publisher often does so in a way that benefits them. (Horrors! They don’t do that in other things…oh, wait, never mind.)

Publishers have moved to “net” in royalty payments at the same time as the rise in ebooks. But that’s not why publishers did it. They did it for the same reason that they have discount clauses in the contract, such as the ones we discussed in last week’s blog, to make sure the writer gets almost no money for the books the publisher sells.

If the publishing contracts end up defining the word “net,” then the clause usually looks something like this:

As used herein, the term “Net Receipts” means monies received by the Publisher on the sale or license of the Work after all discounts, fees, and returned copies have been deducted, and before addition of freight charges and/or handling charges.

It’s all very, very loosy-goosy. Monies received by the Publisher. I suppose you can audit for that, but there’s lots of room for dispute in that language. And lots of room for abuse.

Daniel N. Steven, who runs the website publishlawyer.com, suggests that you define “net” this way:

“…actual cash receipts from all sales of the Work in any media or format less shipping costs, returns, and sales or value-added taxes remitted to Publisher by the purchaser.”

Frankly, I don’t like that definition either. I would rather have net defined as “actual cash receipts from all sales of the Work in any media or format” without the “less shipping costs…” The price of the book has already been lowered from “cover” price or “standard retail price.” Why should the writer be further penalized for something like taxes which vary from state to state or  “shipping costs,” a term which many mail order companies use to jack up their prices.

Since the publisher is already shorting you on the price of the book, try to get as high a percentage as possible as well. Not 15%, but 25%, if possible or 50%. In theory, you should be a co-equal partner in this publishing thing, although publishers don’t treat you that way.

Ask, though. You’ll be surprised what you might receive.

Remember though, in all definitions that you add to a contract, define narrowly. Define to your benefit. And be very, very clear, leaving no room for publisher interpretation.

  1. The Reserve Against Returns Clause: Traditional publishing works like this: The publisher solicits the book to bookstores. The bookstores order books. Many, many bookstores have the right to return those books if they don’t sell.

That’s a hold-over from the Great Depression—yes, the 1930s Depression. Back then, publishers wanted bookstores to survive. Such things are no longer necessary now, but those practices continue for most brick-and-mortar stores.

(And yes, bookstore owners, I know how hard it is to order inventory, and how costly it can be. I own two retail stores, and have owned several others—none of which allowed me to return anything for full price. Not a one.)

Because of computer ordering, returns are much less of a guessing game than they were. When I came into the business, they could be as much as 50% of the print run. Now, it’s more like 20-25% or even less. This little figure will be important below.

The reserve against returns usually looks like this:

In making accountings, the Publisher may retain a reasonable reserve against returns on any accounting statement, provided the amount of the reserve is clearly indicated.

But that clause is unclear—and, hello!, there is no cap on the reserve. The entire print run can be counted as reserve against returns. Because the only way you can know if the publisher deems the entire print run a “reasonable” reserve is to, again, go to court over that clause.

Better to define everything.

Cap the number of copies of the reserve at 15-20%. So if the print run is 10,000 copies, then let the publisher keep 1500 to 2000 copies as a reserve against returns.

Since most publishers only ship print copies to bookstores in the first month of a book’s life, cap the time that the reserve can be held to six months. The reserve must be lifted after six months.

Finally, make sure your reserve against returns does not count against ebooks. That clause above? It can be applied to any kind of book. I’ve seen the royalty statements from the company that issued that clause. They keep a reserve against returns for ebooks.

So limit the clause severely. In fact, I would love to see you strike it out, and figure out if the publisher even notices. If they do, they’ll go bonkers. Then anything else you suggest after you tried to cut the reserve against returns clause would seem reasonable.

But I’m bratty, and I’m tired of elucidating all the ways these fraking publishers will, can, and do screw writers.

Seriously. It’s ugly out there. And this clause is just one more screw in the coffin.

Sigh.

  1. Basket Accounting: speaking of screwing the writer, let’s look at this old favorite, that has existed since the 1970s. Basket accounting refers to the fact that the publisher throws all of the books in one contract into the same “basket” before paying out royalties.

So if you have a three-book contract, and book one sells 5 times its advance, but books two and three never earn out, you probably won’t see a dime in royalties.

If each book were accounted separately, then you’d receive royalties for book one, making you significantly more money.

The clause is not called the “basket accounting” clause. Every contract does it differently.

And I have to tell you: in this modern world, it’s a lot more probable that you’ll get a basket accounting deal if you have a multiple book deal with a publisher. That publisher will guarantee that you don’t see a dime in royalties by underpublishing at least one of those books.

The best way to avoid this?

Have a one-book contract. Never ever ever sign a multiple book deal, no matter how much they offer you.

Traditional publishers and agents will tell you it’s in your best interest to sign a multiple book deal. After all, you’ll get money for years, and you’ll know how much. But you won’t necessarily get actual money for years, especially if there’s an “acceptance” clause in your contract. (Meaning your book is not considered publishable until the publisher deems it “accepted.”) And there’s no guarantee, in this publishing environment, that your publisher will be around five years from now.

Besides, if you have a one-book contract, and your book is successful, then you have the opportunity to negotiate a better contract for book two. And with the rise of indie publishing, if you can’t get a contract for book two, who cares? You can publish it yourself.

Now, you’re thinking you’re safe, right? You won’t have to ever worry about basket accounting.

Not true! Because there’s an even sneakier clause that can show up in your later contracts. And it’s…

  1. The Cross-Collateralization Clause: Oh, yes, this one is ugly. And you’ll find it mostly in bestseller contracts.

It goes something like this:

All Works covered by this Agreement or any other agreement between Publisher and Author shall be considered one account and shall be accounted for jointly or collectively.

This little beauty should simply be deleted. This probably should be a deal-breaker. If your previous novels haven’t earned out, but your fifth did, and then you got a contract for your sixth for twice the advance of the previous, you might find the cross-collateralization clause in that contract for the sixth book.

It means that the publisher wouldn’t have to pay you the full advance for the sixth book. The publisher could subtract all the unearned advance payments from that sixth book advance.

And God forbid that any of your books becomes a bestseller, because those royalties that you expected (diminished as they are, from the undefined net royalty calculations and the discount clauses) won’t come. They’ll be counted against all of the previous books you’ve done for this company and any other book already under contract, even if it’s not published.

Holy crap. Yet another major screw-the-author clause.

(Why do you people want to have your novels published with a traditional publisher, again? Really. Why?)

  1. Time limit on publication.

This one is sneaky. It caught me on my very first novel. What you want here is for the clause to read in your favor. Something like:

If the Work is not published within two years of the date of this contract, the contract terminates, and all rights revert to the author.

Usually this clause isn’t quite so writer-friendly. But something like this clause is in most good publishing contracts.

The contracts that leave it out—well, the publisher never has to publish the book.

I was lucky: the publisher wanted to publish my book advantageously, so he kept pushing the pub date back and giving the novel better and better placement on the list (with more advertising). The book came out more than 2 years after it was bought. By then, I had sold eight other novels to other publishers. If I had signed a non-compete, I couldn’t have done that.

But I have had friends who have had a different experience with this lack-of-definitive publication date. One friend lost his editor, and the editor who replaced the previous editor hated my friend. The new editor just buried the book. Took it off the schedule and never ever scheduled it.

My friend eventually bought back the book by repaying the advance five years after the book initially sold to the publisher.

Make sure there’s some kind of date. And again, make sure it benefits you, not the publisher.

Are you seeing a pattern here?

Speaking of getting out of a contract…

6. Termination Fee: I have never encountered this clause in any of the contracts I saw, signed or vetted for writers for this blog. However, this nasty little clause turned up on The Passive Voice blog on Sunday, as I was writing this piece. I’m linking to the initial site, Writer Beware, so that you can read their coverage of the issue and the clause.

I got nothing in regard to these fees. Except a dull sense of horror at the permutations that publishers, both large and small, are going to in order to make sure writers never ever ever make a living at their work or get their books published.

Sigh.

So… you’ve got the best contract possible. You’ve negotiated every single point I’ve mentioned in this week’s blog and last week’s. You have great royalty rates, no reserve against returns, a toothless discount clause…everything.

And yet, you’re still not making money. Well, that might be because you left out this clause:

  1. Audit Clause: All of this work you’re doing on your contract don’t mean shit if the contract lacks an audit clause. The audit clause, like the definitions, needs to benefit you, not the publisher. I’ve seen too many audit clauses that, in effect, make it impossible to audit the publisher because of all the restrictions placed in the clause.

What you want is the right to audit your publisher as often as your royalty statements appear. If you get six-month royalties, then make sure you can audit every six months. And make sure that you have the right to send in your own auditor. I’ve seen audit clauses that restrict the author to using the publisher’s choice of an auditor. (Seriously.)

The clause needs to be short and to the point. You have the right to audit your publisher’s records as they pertain to the books you’ve published with that publisher.

Why have the audit clause? Because right now, you’re going on faith that the publisher will be honest with you. They have no reason to accurately calculate your royalties and payments. Publishers have never been accurate in their royalty calculations. Never. Why should they start now?

So, get an audit clause on your book. Be prepared to use that clause, especially if you have royalty clauses in your contract that are different from the norm. Because publishers might “accidentally” default to the old way of doing things, and only shape up if you prod them.

An audit clause prods them.

Also make sure that elsewhere in your contract, there’s no clause about binding arbitration or mediation or anything like that. Buried in those clauses are often damage limitations as well as something that will rescind or cancel out the audit clause. (The publisher giveth, the publisher taketh away.)

You want the right to audit, and the right to dispute any claims you might find in a real court of law.

Got that?

  1. Reserved Rights:

Make sure your contract has this language in it somewhere:

All rights not expressly granted to the Publisher are reserved to the Author.

That will cover a lot of ground for you, should you ever have to take your publisher to court.

And…that’s a wrap, at least on some of these clauses.

I have another grouping of topics next week, and that will also include some language to watch for in your short fiction contracts.

I can’t cover everything. As the termination fee shows, there’s too much everything to even contemplate.

So you should look at all of this, not as legal advice—because I’m not qualified to give legal advice—but as an object lesson.

And I do mean “object.” Object to everything you can object to in these contracts. Yes, negotiate. You have to.

As I tell my students, you are responsible for your own career. That means you own the successes—and the failures. And the crappy contracts you signed. Not your agent, not your best writing buddy.

You.

So learn everything you need to, in order to protect yourself. No one else will do it for you.

In 2009, when I started doing a weekly business blog, I used to worry about pissing off my traditional publishing partners. I remember waking up in the middle of the night, my stomach in knots, because I couldn’t be quiet about these things, but I felt like I shouldn’t say them either.

Indie publishing was just starting, and it was not that respectable. The options were only just making themselves plain.

Those days feel like centuries ago. The world has changed greatly. I know many of you still want a traditional publisher to put out your novel, but I urge you to ask yourself why you want that. Is it for the prestige? Or is it because you’ve wanted it since you were a kid? Make sure you have damn good reasons for going to a traditional publisher, because as you can see from this week’s post, signing a contract with them has truly become a deal with the devil.

I’ll be marching through that brimstone with you for the next few weeks. Then we’ll turn to some fun things. I already have notes on what’s coming next.

I need to thank all of you who shared last week’s post. It went viral, and I think we helped a wide variety of writers start to understand why their dreams have turned sour.

So thank you for the shares and the thoughts and the tips.

Donations have been slim lately, but the shares are up. So it’ll even out in the end.

As always, if this post has been valuable to you, please leave a tip on the way out.

Thanks!

Click paypal.me/kristinekathrynrusch to go to PayPal.

“Business Musings: Other Evil Clauses,” copyright © 2016 by Kristine Kathryn Rusch. Image at the top of the blog copyright © 2016 by Canstock Photo/ponomarenko13.




9 responses to “Business Musings: Other Evil Clauses (Contracts/Dealbreakers)”

  1. Is anybody auditing Amazon? I often wonder if I’m seeing the actual sales of my e-books and being paid for them all. How hard would it be for them to hide sales from individual authors?

    • Very hard, Michael, and on the scheme of Amazon’s earnings, like stealing pennies, and going to jail for it. Amazon is a publicly traded company in the US, which subjects it to unbelievable regulations, not counting what its other suppliers do to audit their books on a monthly basis. The laws Amazon faces in Europe and elsewhere are even more draconian when it comes to bookkeeping. So, believe me, they’re recording sales accurately. They gain nothing from doing otherwise.

  2. Polly Meulenberg says:

    Very sorry to see this! But all business, from investments to financial instruments of any kind today, include binding terms to help defraud clients, have no integrity obligations, with payments confiscated with no penalties or legal redress to recover loss. Look at Goldman Sachs in 2008. And Obama hired the same bunch to run US economy!
    I did not know the corruption had spread to fleecing writers. Artists too? Is that how Harlan became so angry? Stephen King also had problems. Best Wishes! Thanks for your posts!

  3. Kate Pavelle says:

    Hi Kris, another very useful post, thank you! When I was going over my Amazon royalty statements, I’ve been noticing that some books have a shipping charge (usually 5 cents or so), whereas others don’t. It’s kind of weird to charge for shipping on e-books. It’s a small amount but it adds up, especially for Amazon. Do you have any idea how they’re justifying it? I haven’t found anything on their site.

    • I have no idea. Anyone else?

    • Marsha says:

      Kate, On Amazon’s Direct Publishing pricing page they state that they charge per MB to send your ebook. Here are the rates from that page:

      Delivery Costs are equal to the number of megabytes we determine your Digital Book file contains, multiplied by the Delivery Cost rate listed below.

      Amazon.com: US $0.15/MB
      Amazon CA: CAD $0.15/MB
      Brazil: BRL R$0.30/MB
      Amazon.co.uk: UK £0.10/MB
      Amazon.de: €0,12/MB
      Amazon.fr: €0,12/MB
      Amazon.es: €0,12/MB
      Amazon.in: INR ?7/MB
      Amazon.it: €0,12/MB
      Amazon.nl: €0,12/MB
      Amazon.co.jp: ¥1/MB
      Amazon.com.mx: MXN $1/MB
      Amazon.com.au: AUD $0.15/MB

      Not justification, but not a hidden charge either.

      • davidelang says:

        it may be a charge to deliver your book via the cell network, without a similar charge to deliver via the Internet.

        I know that when e-mailing books to my kindle I have a charge if it’s delivered via the cell network, but not if delivered via wifi.

  4. Paul Sadler says:

    Hi Kris, another great post. Question about the “time limit” one for time to publication. Does insisting on the 2 year really help? Or, for example, can a publisher simply print 10 copies and they’re covered? I seem to recall there is something similar in a lot film rights, and where there were bad clauses, the licensee could keep extending the timeframe as long as something new was happening — a new cover, a new submission to someone, somebody else was approached, etc. In non-arts contracts, it is a common practice (even in criminal) that as long as there’s movement, the clauses hold, regardless how miniscule the movement is. Just wondering if the time commitment needs some other “oomph” behind it to somehow define that it isn’t simply you had to print 1 copy for all rights to vest…

    Paul

    • Great question, Paul. Generally, the term limit applies. However, it depends on the rest of the contract. I’ve seen contracts where it’s impossible to get the rights back even with a limit, and contracts that are incredibly specific in the termination language (it will terminate no matter what). Wish I could be more specific, but all the clauses in a contract interact with each other. One bad clause and 15 good ones might be a great contract or that one bad clause might negate all of it.

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