Get it in Writing: Why You Need a Valid Publishing Contract
© Copyright 1998 Lloyd L. Rich

Introduction

The publishing contract is the most important document involved in the publication process. The significance of the publishing contract is that it defines the scope of the author's and publisher's interests and governs their respective rights and obligations, as well as those of their heirs and successors, far into the future.

The publishing industry is not unique with regard to formalizing business transactions through a written contract, however, publishing contracts because of the value of a publishing company's intangible intellectual property assets may have greater significance than contracts in other industries. A contract is a valid contract even if it is only an oral agreement between the parties. However, it is highly recommended that all publishing contracts be in writing. The main reasons for requiring a written contract are because (1) an oral contract could lead to problems if the parties have a disagreement regarding the specific terms of a contract or whether a contract actually exists; (2) the Copyright Act requires all transfers of copyright ownership and exclusive licenses be incorporated in a written document that has been signed by the copyright owner or a duly authorized agent of the owner; and (3) the Statute of Frauds requirement that there be a writing for any agreement that is not capable of being performed within one year from the execution date of the agreement.

Traditionally publishing projects, especially those involving the publisher and author, have been formalized by a written contract. However, a written contract has not always been the practice in many other publishing situations, such as those between the publisher and a writer who may provide a specific contribution to a book: e.g. a chapter, preface, introduction, or index; photographers, illustrators, cover designers and other independent contractors who may be involved in contributing elements to a project; and writers of magazine articles.

What is a contract?

A valid contract may be either an oral or a written agreement. The importance of a "valid contract" is that the terms of the contract will be enforceable if it becomes necessary by a court of law, while an invalid contract may not be enforceable. Every valid contract requires at least "one promise" that must be performed and have been agreed to by the parties. The performance of the promise(s) may then be enforced by a court for specific performance or a money judgment.

The requirements for a valid contract are (1) mutual agreement by the parties (2) to an offer (3) that is accepted, (4) and for which there is consideration. These requirements are usually satisfied as follows. The "offer" requirement will be met when the author submits a manuscript or proposal to the publisher requesting publication of his/her work by the publisher. The "acceptance" requirement will be satisfied once the publisher has reviewed the manuscript or proposal and has decided to publish the author's work. The "consideration" requirement will be satisfied when the publisher promises to compensate the author, such as by future royalty payments and/or a royalty advance, and by the author agreeing to deliver an acceptable manuscript to the publisher that will generate sales revenue for the publisher. Finally, the "mutual agreement" requirement will be satisfied once the publisher and the author agree to the terms and conditions of the publishing contract, preferably in writing.

Material Terms of a Contract

Indefiniteness or the absence of material terms in a contract could be used as evidence that the parties never intended there be a contract. The greater the number of material terms omitted from the contract the more likely is the implication that the parties never intended to enter into a binding contract. However, in the event the content of the agreement is unnecessarily "ambiguous" or "uncertain" a court might decide that the parties never entered into a valid contract with the result that the contract could be considered void and unenforceable upon the parties. This could be the case even if the parties truly intended to enter into the contract. The requirement for definiteness and material terms is to ensure that the court could enforce the contract.

Rule: The contract must be sufficiently definite as to the material terms or it could affect the validity of the contract.

Rule: Vagueness with respect to an immaterial term will not effect the validity of the contract.

The material terms for any contract includes specific contract language covering the subject matter, payment terms, quantity, quality, duration, and the work to be done. A valid and enforceable publishing contract must contain at a minimum the following terms. (1) Subject Matter -- a description of the work, and if possible a tentative title, would satisfy this requirement. (2) Payment Terms -- this requirement would be satisfied by the "royalty clause" describing the royalty percentage the author will receive from the publisher's sale of copies of the work or by a "fixed payment clause" enumerating the dollar amount to be paid to the author by the publisher. (3) Quantity and Quality -- these conditions would be satisfied by the "delivery clause" describing the length of the manuscript and other deliverables the author must provide the publisher, and the "acceptance clause" requiring that the manuscript and other deliverables must be acceptable to the publisher. (4) Duration -- contract language stating that the term of the agreement is for the duration of the copyright, or for any other fixed period of time, would satisfy this requirement. (5) Work To Be Done -- this requirement would be satisfied by the clauses describing the author's delivery of the manuscript to the publisher and the publisher's obligation to publish the manuscript.

It is the publisher's responsibility to make certain that the material terms are clearly stated and not indefinite or ambiguous. In the event that a contract is silent with respect to a material term, or where the material term is discussed but not agreed upon, and such agreement is deemed by the court not to be a prerequisite for a valid agreement, the court itself may attempt to imply the missing term. The court will take this action not because it is reasonable, but because it has surmised that the parties must have intended that term and only failed to include it in the agreement.

Types of Publishing Contracts

There are many situations for which a publishing organization should have a written contract. These situations are primarily those that (1) involve the creation of copyrightable material, whether by an author, illustrator, et.al., that is "granted, assigned and transferred" by the creator to the publisher; (2) result in the transfer of copyright ownership from the creator to the publisher; (3) have significant risk for the parties; (4) have the potential for disagreement over oral terms agreed to by the parties; and (5) are required by law, e.g. Statute of Frauds.

This article will discuss two types of publishing agreements: those involving the assignment of rights from the creator to the publisher -- "Assignment of Rights Contract", and those where copyright ownership initially resides with the publisher -- "Work Made For Hire Contract".

1. Assignment of Rights Contract

The Assignment of Rights Contract might include any of the following categories of agreements; however, these categories are not all inclusive. (1) An "Author and Publisher Agreement" whereby the author explicitly assigns specific rights in his/her work to the publisher through the "grant of rights" clause incorporated in the agreement. (2) A "Co-Author and Publisher Agreement" whereby more than one author, or an author and illustrator/photographer assign specific rights in their work to the publisher through the "grant of rights" clause. (3) A "Co-Publisher Agreement" which is a joint venture between more than one publishing company to publish an author's work. This agreement also requires an agreement between the author and publishers. (4) A "Subsidiary Rights Agreement" whereby the publisher licenses a previously assigned specific right(s) from the author to a third party, such as audio, video, dramatic, or electronic rights.

The critical contract language in the Assignment of Rights Contract is commonly referred to as the "grant of rights" clause. This clause delineates the scope of rights granted by the author to the publisher. The grant of rights clause may be extremely broad in that it includes a grant of all the exclusive rights and interests in the author's work, possibly even including copyright ownership. It could be as limited as to only include a specific grant of rights, such as to publish the author's work in a hard cover book format and only distribute the book in North America; all the other rights in the author's work would be reserved to the author. Or the grant of rights clause could be somewhere in between. The crucial point for the publisher to remember is that the publisher will only have the ability to commercially exploit those rights specifically granted by the author. The publisher could be found liable for copyright infringement of the author's work in the event the publisher attempted to exploit rights that were not granted to the publisher by the author.

Because the copyright is treated as property under the law, the author may transfer it like any other type of property to another party. Therefore, the author may assign or transfer the right of copyright ownership in the work to the publisher. If such an assignment or transfer occurred copyright ownership would shift from the author to the publisher, and the publisher would be entitled to copyright register the work in the publisher's name. The assignment or transfer of copyright ownership to the publisher occurred with greater frequency under the 1909 Copyright Act than it does under the 1976 Copyright Act. Today, the more normal situation is for the author to retain copyright ownership of his/her work and to have it registered in the author's name.

Although the previous discussion focused upon an author's assignment of rights to the publisher it is important to remember that these same issues are relevant for any creative individual who provides the publisher with copyrightable material.

Rule: The publisher must have a written contract with all creators of copyrightable material when the creator of the material is assigning rights to the publisher for the use of the material.

2. Work Made For Hire Contract

Copyright ownership is important to the publisher because it provides the publisher with complete control of the full bundle of "exclusive rights" enumerated in the Copyright Act. These exclusive rights are the rights to (1) reproduce the work, (2) prepare derivative works, (3) distribute the work, (4) perform the work, and (5) display the work.

Under copyright law, copyright ownership "vests initially in the author or authors of the work". The Work Made For Hire Doctrine, contained in the Copyright Act, is the exception to the fundamental principle that copyright ownership vests initially in the individual who creates the work. There are two scenarios under which the publisher could be the copyright owner of the work. The first is when the author of the work is an employee of the publishing company and is creating a copyrightable work within the scope of his/her employment, and the second is when the publisher commissions an independent contractor to create a copyrightable work. Therefore, if a copyrightable work is created as a Work Made For Hire and it satisfies the specific requirements set forth in the Copyright Act for a Work Made For Hire, then the publisher and not the author will be recognized as both the author and copyright owner of the work. The significance of copyright ownership is that the publisher, and not the actual person(s) who created the work, will own all exclusive rights in the work and will therefore be able to commercialize the work to its fullest extent; publishing and distributing the work in print and other formats, creating derivative works, or by licensing or transferring the rights owned by the publisher to third parties. The Work Made For Hire Doctrine is two-pronged and provides that a work will be "for hire" if it falls into one of the following two categories.

(1) Employee Category - The work will be a "work made for hire" if it is prepared by an employee of the publisher who is working within the scope of his/her employment. In this situation, copyright ownership of the work will belong to the publisher unless the work is created outside the scope of the employee's employment or the employee's employment contract stipulates that the creation of copyrightable material is not within the scope of employment. If the creation of the work falls outside the scope of employment the employee, and not the publisher, will be the copyright owner of the work.

Rule: The publisher should obtain a written agreement with any individual where there may be question with respect to an individual's employment status or whether the employee created the copyrightable work within the scope of his/her employment.

(2) Independent Contractor — A work will also be a Work Made For Hire if the independent contractor and the publisher agree that the independent contractor's work will be recognized as a Work Made For Hire, and the agreement satisfies the requirements of the Copyright Act. The Copyright Act requirements will be satisfied if (1) the work was specially ordered or commissioned by the publisher; (2) the work fits into one of the nine categories of work enumerated in the Copyright Act - contribution to a collective work, translation, supplementary work, compilation, instructional text, test, answer material for a test, atlas, or part of a motion picture or audiovisual work; and (3) there is a written agreement between the publisher and independent contractor that specifically states that the work was created as a Work Made For Hire that is signed by both parties; it is highly recommended that the parties sign this agreement before the independent contractor commences with the creation of the work. The publisher must be aware that if the Copyright Act requirements are not strictly followed, the independent contractor, and not the publisher, could be the copyright owner of the work, and that the publisher's rights to exploit the work could be severely limited.

Rule: For any Work Made For Hire contract to be valid it must be in writing.

Rule: All Work Made For Hire contracts should contain a "vesting of rights" clause to protect against an adverse ruling that a contract failed to satisfy the Work Made For Hire requirements.

Key Contract Clauses

The significance of the "grant of rights" clause in the Assignment of Rights Contract and the "Work Made For Hire" clause in the Work Made For Hire Contract cannot be understated. This is because these clauses provide the publisher with the rights to use the author's work. However, in addition to these clauses there are many other contract clauses that are also extremely important to both the publisher and author. These clauses may include those dealing with delivery and acceptance, royalty payments, publisher and author representations and warranties, indemnification, termination, assignments, option for a subsequent work, competing works, and revisions and new editions. These clauses, as well as others, may have significant importance to a given publishing project.

Conclusion

The written publishing contract, which sets out the terms for the publication of an author's work, is the single most important document in the publishing process. Boilerplate publishing contracts, at least to some degree should be negotiable, and should represent a balancing of both the author and publisher's interests. The parties to an agreement should never forget that once they sign the publishing contract they are bound by its terms and conditions. Therefore, before signing any such agreement the author and publisher should fully understand their respective obligations and responsibilities that are set forth in the agreement.

It has been my experience, based upon more than thirty years of involvement in the publishing industry, both as a publisher and an attorney, that "form contracts" are often satisfactory. However, it is advisable for any publisher who uses "form contracts" or contracts obtained from their colleagues to have an attorney who is knowledgeable in publishing law review such agreements. This review becomes even more important if the publisher decides to revise these agreements based upon the specific requirements of their business or particular project. Problems frequently arise when the publisher revises these agreements since it is possible that these revisions could (1) contradict other clauses in the agreement, (2) increase the publisher's risk in the project, or (3) decrease the author's responsibilities and obligations under the agreement. It only takes one faulty publishing contract - whether it be because a contract is deemed invalid and unenforceable, results in the loss of exclusive rights or fails to provide the publisher with copyright ownership - to cause a publisher problems that might have an adverse impact upon the publishing company's investment of time and money in a publishing project. Therefore, the publisher should endeavor with as much certainty as possible that their company's valuable intellectual property assets and investment in each publishing project are protected by a publishing contract that meets their company's current needs and future growth plans, and if necessary will be enforceable by the court.

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Lloyd L. Rich is an attorney practicing publishing and intellectual property law. He can be reached at 1163 Vine Street, Denver, CO 80206. Phone: (303) 388-0291; FAX: (303) 388-0477; E-Mail: rich@publishingattorney.com; Web Site: http://www.publishingattorney.com.