Business Musings: Long-term Thinking: The Contract Termination Clause (Contracts/Dealbreakers)

Here, in the United States, we’re heading into the long Fourth of July weekend, where we celebrate our country’s birthday with fireworks and picnics and vacations and flat-out ignoring anything to do with anything except explosions, fun, family, and theme parks.

I suspect those of you in Europe are not celebrating at all, considering the events of last week. A number of you have written me, asking how Brexit will impact writers.

I don’t know. I’m watching this play out in real time, just like the rest of you. I can tell you that the devaluation of the pound will have an impact on anyone who does business with Great Britain. The fact that the Euro is down as well against the dollar will also impact trade. But I can’t say how it will impact you. If you’re in the States, you’ll end up with less money from your overseas sales. If you’re in Europe, you’ll make more money from your U.S. sales.

And that’s about all I know.

So while we’re distracted these next two weeks, I’m going to run two posts that focus on things I’ve discussed before. I’m revising my book Dealbreakers from 2013, as many of you know, and I’m expanding it to deal with book contracts in general. Remember that I am not a lawyer, and nothing in these blogs should be considered legal advice. The information here is simply things to think about when you end up in a contract with an outside entity.

This post deals with the termination of contracts. The first post I did on this, almost five years ago now, is unrecognizable from this post. I’m basing this post on the one in the book from 2013.

However, that book dealt with traditional publishing contracts only. What I didn’t foresee was how many contracts indie writers would end up signing. Some of those contracts are with foreign publishers for translation rights; some are with game companies for gaming rights; some are with app developers for rights to use a story in an app—and so on.

So, the advice I’m giving below doesn’t just apply to traditionally published novelists. This advice is for all of you who have writing careers.

I am going to keep the writing below in the context of a traditional publishing contract, however, because so many indies are still signing contracts with traditional publishers, selling everything but ebook rights. (Which is a mistake, imho, but hey! It’s your career, indies.)

Just think about some of these things when you sign a gaming contract or developing a web comic based on your fantasy series. These general rules do apply.

Got that?

Here we go, with the slightly revised post on the contract termination clause.

It feels odd to talk about how a contract ends when you’re entering a brand new relationship with a publisher. Both of you feel like this is a Great Thing, and it’s all shiny and celebratory and marvelous. And maybe your relationship will be that way.

But the law is all about planning for the worst-case scenario, not the best case. It’s all about protecting someone, so that someone, in my opinion, should be the writer, not the publisher.

Since 2009 or so, publishers have gotten quite nasty about contracts. In short, they’re refusing to let any contract terminate.

This is causing all kinds of problems for writers.

Here’s the thing: A valid contract must have some sort of ending. A contract “forever” or unlimited. It must have a limitation. For the past fifty years or so, the limitation in the U.S. publishing contracts has been what is called sales velocity. If the sales dip below a particular amount, then the writer can ask for a reversion.

In the past, sales were impossible if a book wasn’t in a brick-and-mortar store. So if you couldn’t find your book in a bookstore, and your friendly neighborhood bookseller couldn’t order it, then the book was officially out of print. You would write a letter demanding your rights back, and your publisher would have six months to put the book back into print or the rights would revert to you. Simple (more or less), even if it was contingent on action by the writer (composing and mailing that letter).

The rise of print-on-demand and e-books changed the bookstore calculus. Now, a book could remain “in print” and “available” forever. With the click of a button, a publisher could send another copy of that book to the interested party.

However, book agents still recommend a limitation clause of some kind—based on book sales and/or royalties.

I’ve seen the clause written one of two ways: the book must sell a minimum of 200 copies per year in any format to remain in print. Some agents have raised that threshold to 1,000 copies, or more, but that doesn’t help.

Because all the publisher has to do to hang onto the book is a 99-cent sale on the book, advertised via BookBub or through Amazon’s Deal of the Day, and the book will cross that 1,000 copy threshold.

Years ago, I recommended that authors define out of print like this:

The book shall be deemed out of print if, after five years in print, the author is not receiving a royalty check of at least $500 per six-month period.

In other words, your book has to have earned out its advance, and be paying you royalties of at least $1000 every single year.

Publishers are loathe to agree to this because it’s not in their best interest. Negotiate on the number of years to recoup the advance—three years, five years, ten years—but never on the money. You have to be earning real money on this book for them to hang onto your rights indefinitely.

Shortly after I published that suggestion, a publisher friend of mine pointed out that such a small threshold is a tiny price for a publisher to pay to hold onto a book indefinitely. If the book doesn’t earn $500 in real royalties in a time period, then the publisher could pay a $500 “bonus,” to buy the right to remain in print.

Since then, I have had a publisher do this very thing. I’m still trying to get the rights reverted on that contract, and the publisher’s practice of paying me money like a continual slow-moving advance is creating some problems in doing so. I’m going to have to hire a lawyer to get me out of a contract I should have been able to get out of, based on sales, five years ago.

Here’s the thing: any threshold that is based on sales or velocity or money can be worked around in the modern market.

So instead, here’s what I suggest: limit the term of your license.

Technically, because contracts cannot exist in perpetuity, all copyright licenses are limited. But I’m talking about a limitation in years, not in dollars or sales.

A limitation in years would work this way. The publisher would ask for the right to publish your book for five or ten years from the publication date. You would also limit how long it would take them to get the book into print. So, they might have a year from turn-in to publish the book and ten years to keep the book in print.

At that point, all rights would automatically revert to the author unless the publisher asks for an extension or a new contract for the same or better terms.

I have contracts that now contain such limitations. There is no longer a contract termination clause. Instead, the matter is dealt with in the Grant of Rights section, and usually says something like this:

The Author grants and assigns the Publisher the following rights…[paragraphs of rights granted, every explicit language]. The period of this grant shall be for ten years, at which point, the contract may be renewed on the same or better terms, provided both parties agree.

Usually that agreement of both parties requires a written document. Sometimes it’s an addendum. Sometimes it’s a new contract. Sometimes it’s a simple letter.

The term limit in years probably sounds unusual to you full-time professional midlist writers. Most contracts negotiated by agents do not have term limits in years. Why? Because if the license is limited, the author can renegotiate the deal without the agent attached or with a new agent to handle the negotiation. And yes, before you ask, I will be dealing with agents and attorneys in the next few weeks—probably starting in mid-to-late July.

I do know that many long-time major bestselling authors—those who use attorneys to negotiate for them instead of agents—have time-limitations on their licensing deals, rather than sales limitations.

It just makes sense.

Think about it: If your publisher is doing a crap-ass job with your book, you can wait through the publication period and then find a new publisher to take the work. Or, in this modern era, publish it yourself when the license expires.

That’s why so many bestsellers have the time limit instead of the sales limit. Because bestsellers might never sell at a low level, so if they want to jump ship, they need a way to do so. It keeps their publisher on his toes, and it ensures that their writing gets the best presentation possible.

Such limited-time licenses are common in other countries. Every foreign publishing contract I have signed since I fired my foreign agents is a limited-time deal. The contract will expire at a particular date, which then goes into my calendar, so I am aware of it. No sales velocity to worry about, and no earnings amount.

The Hollywood options that I’ve had are also limited-time. Just last month, I renewed—for the fifth? time —a property that continues to provoke interest, just not a full-fledged commitment from a studio. The producer holding the option is keen to renew and, in this case, so am I.

In the past, however, I’ve used the time-period limitation to jump from a mediocre option deal to an excellent one. The new producer and I just waited for the old deal to expire, and then we made our agreement. Of course, the old producer wanted to renew on better terms, because she knew that the new producer was waiting in the wings.

Suddenly, I was in the position of choosing between two good offers, instead of taking whatever came along.

Aside from convenience and an ease in future negotiations, why am I suggesting a limited-time contract?

Because of what publishing has become. Even back in the day of the handshake agreements, the relationship between publishers and authors was uneasy. Now it’s worse.

And the future is hard to imagine.

Dozens of people who work in traditional publishing companies follow my business blog, and many of them write to me about their experiences within the company. They often ask me to make their comments without attribution.

Often, when I get letters from these folks, it’s because they’re seeing a trend inside their company that scares them. Or because they have heard rumors that make them worry.

I got a letter on term-limited contracts in 2012 from a production editor who worked at what was then one of the Big Six publishers (and who has worked at others in the past).

Note how prescient this editor is, since we’re now dealing with the Big Five, instead of the Big Six.

This editor said some interesting things, which I excerpted in my book with the editor’s permission. I’m reprinting them here.

I have the details about this editor’s job, gender, and past history to myself all these years. I initially did it so that the editor didn’t get in trouble at work. Now, I have no idea if that editor is still employed with the same company, but just in case…

Here goes:

I was thinking about your post on term limits for contracts. I think this is especially important right now [2012], given what’s going on in publishing. Amazon just bought Avalon, and is in the process of buying Dorchester—for the purpose of putting up their backlist, probably as Kindle exclusives. I think you’re going to continue to see Amazon buying up small presses, and I don’t think it’s out of the question that they’d buy one of the Big Six. The big companies do get sold by their parent divisions from time to time. In the past, those divisions have been bought by other media companies and have continued on, business as usual, just in a different building.

Amazon has way, way more cash reserves than other potential bidders. I think, if [Amazon] wanted it, they could buy a major publisher. And then you would suddenly see an enormous portion of the backlist of the last twenty or thirty (or seventy) years on Amazon, probably as Amazon exclusives.

The editor goes on to point out—with examples from the editor’s current and former employers—how hard it is to get rights reverted “even if the book was truly out of print.” I’m still dealing with rights reversions from one recalcitrant company whom I will eventually have to take to court. I’m waiting until I have the rest of my backlist in print, because I’m hoping someone else will fight this issue out before me.

The editor’s point on rights reversions is an excellent one. (I will be doing a rights reversion blog next week.) The editor then goes on:

What I mean is, rights sold to a publisher now could end up—anywhere. Most contracts have very broad language allowing the publisher to sell a book how they want to and at a price they want to. And with Amazon entering the publisher market (and I don’t think it’s impossible to think Google or Apple might as well), there’s no telling if five or ten years down the line an author’s book might wind up being sold, or offered for free, in a way they never anticipated or intended.

I think authors still think that if they sell a book to the publisher, the publisher will follow the traditional path publishing. And even if that is the acquiring editor’s intent, and the publisher’s intent, things are changing so fast now, there’s no guarantee of anything.

We exchanged a number of e-mails on this point, and as the editor mentioned, all of this might get settled in court. But my goal here, folks, is to make you stay out of court. How do you stay out of court? Have the best damn contract going into an agreement with another party (in this case, the publisher).

I always tell writers that when negotiating a contract, you must imagine this: that the very nice person sitting across the desk from you negotiating for the other side retires or gets fired, and is replaced by the meanest, nastiest person you can imagine. Think of some movie villain if you have to, but imagine someone who cares nothing about you and will twist every piece of that contract to their company’s benefit at the expense of you and yours. Ideally, that person wants to pay you nothing for your book or your property and wants to do it legally.

When you’re negotiating your contract, imagine you’re negotiating with that vile person. Because as this kind editor is pointing out, your publishing company (even one of the so-called Big Five) might get sold to That Guy. And if That Guy runs the company, do you think he cares about promises some fired employee of the bought-out business made to you? Of course not. You and your book have become a widget, made for generating profit for That Guy’s company, and nothing else.

You can argue reversions and velocity and sales and money in court. Or you can have a limited-time contract, that automatically expires in five or ten years after publication. Then you leave That Guy’s company legally with a minimum of fuss.

See why I want authors to consider limited-time period contracts as the only kind of contract? It benefits us all.

You have choices now, including publishing the novel yourself. Remember that. You don’t have to take a bad traditional publishing contract just to see your book in print. In fact, that’s probably the worst thing you can do. It’ll tie your work up for decades, and you’ll have to go to court to set that work free.

And, um, going to court means you’ll have to hire an attorney.

So if when you sign a contract, make sure that you consider how that contract will end. If you can’t figure out how the contract will end, then you have a serious problem. Don’t sign that contract. Add a term limit in years or months—with an option for renewal on the same or better terms.

Then mark the end of that contract in your calender, and act upon the renewal (or cancelation) in a timely fashion.

Believe me, you’ll benefit from this.

I know, because I have. Repeatedly.

I initially started writing about contract and dealbreakers six years ago, as I watched contracts become more draconian and writers sign them without a single thought. Now that we have choices, I want writers to know what they’re signing. You might still want that traditional contract, but at least you know what your options are in the negotiation.

Or why you might want to avoid traditional publishing. Or what you can ask for in other kinds of contracts.

I know a lot of you are sharing and recommending these contract blogs to your fellow writers. Thank you! I greatly appreciate it.

However, this writer cannot continue to blog just on sharing alone. That’s why I include a donate button at the end of every business post, but I don’t do so on the fiction posts.

My thanks to those of you who’ve been supporting these contract blogs. For the rest of you, if this post has been valuable to you, please leave a tip on the way out.

Thanks!

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“Business Musings: Long-term Thinking: The Contract Termination Clause,” copyright © 2016 by Kristine Kathryn Rusch. Image at the top of the blog copyright © 2016 by Canstock Photo/Ydur.