When Can a Publisher Terminate Your Contract?

"Sue me, sue me, what can you do me?"

The recent lawsuit brought by Milo Yiannopoulos against Simon & Schuster brings up an interesting question: Can a publisher simply terminate a contract at will?

Before I answer that question, here is some of the background to the Milo Yiannopoulos case.

Late last year, a Simon & Schuster imprint, Threshold, offered Milo Yiannopoulos a $250,000 advance for his book Dangerous. Yiannapoulos was editor of Breitbart Tech and had gained a reputation as a notorious right-wing "troll." His racist, misogynist, and generally over-the-top statements were outrageous enough that he became "cool." (Twitter did not think Milo was "cool." Yiannopoulos was banned for hate speech after his racist tirade against Ghostbusters actress, Leslie Jones.)

Yiannopoulos' bad behavior, if anything, made him more attractive to S&S, which was willing to pay a quarter of a million dollars for the opportunity to publish his book. There was some pushback however, as one reviewer announced he would not review the book once it was published, and bookstores said they would not carry it. (That, by the way, is not a violation of the First Amendment; it is the operation of the free market. Nobody is obligated to review or sell a book.) What made S&S think twice was Yiannopoulos' public endorsement of pedophilia between underage boys and men. Conservatives immediately dropped Yiannopoulos, and his contract with S&S was canceled shortly thereafter.

Not to be outdone, Yiannopoulos, sued S&S for breach of contract six months later. In the interim, he self-published his book, which sold 18,000 copies the first week. (Yiannopoulos' publicist said the book had sold 100,000 copies the first week, but all independent sales tracking sources disagree.)

This brings us back to the question: When can a publisher terminate a contract? The answer is: It depends on what is in the contract.

All publishing contracts contain a clause that specifies the circumstances under which a contract may be terminated by the publisher. These may include Acts of God (a hurricane wipes out your publisher's headquarters), buy-outs (a larger company purchases your publisher), failure to deliver a manuscript as promised, legal liability (plagiarism, possibility of lawsuit), and any other reason that a publisher might decide at the publisher's discretion. Publishing houses also claim the right of discretionary termination for an "unsatisfactory" manuscript, the definition of "unsatisfactory" being left entirely to the publisher. In that case, the publisher may terminate and demand all or part of the advance.

Can Yiannopolous win his lawsuit? Probably not. S&S returned all rights to Yiannopoulos and let him keep $80,000 of his advance. (An advance is not paid out all at once, but in stages. The second of those stages would have been acceptance of the manuscript, which did not happen.) A further problem for Yiannopoulos is that one of those discretionary termination clauses was included in his contract. Once you sign on the dotted line, especially if you keep your advance and accept a reversion of rights, it's hard to have your day in court, especially if that day is, as S&S put it, “a meritless publicity stunt.”

You can read more about the suit here: S&S Asks Court to Dismiss Yiannopoulos Suit

Hold on to Your Copyright!

Updated 12/4/24

Copyright is one of the few legal protections offered to authors, yet surprisingly few writers take advantage of this safety net. Many writers assume that once they have written something it is automatically copyrighted.

Technically, that assumption is correct. Anything you create is copyrighted, but unless you register your work with the U.S. Copyright Office you will never be able to defend your claim. If someone steals your work, you are free to take legal action, but judges like to see formal proof of intellectual property rights.

As far as the courts are concerned, simply claiming ownership does not confer it. Sending yourself a manuscript in the mail, and leaving it unopened, does not qualify as proof that you wrote it. It only proves that someone wrote it.

What is copyright?

Copyright is legal protection for any expressive work, published or unpublished, that appears in tangible form: books, articles, screenplays, dramatic works, poetry, images, songs, software, and architecture all fall under the umbrella of copyright. Work that appears online - your blog, let's say - can also be copyrighted. Having a copyright gives you legal grounds to sue someone who plagiarizes your work.

Your rights as the owner of any expressive work include reproduction, distribution, display, performance, and adaptation. As owner, you may assign or sell some (or all) of those rights either temporarily or permanently. While it is best to copyright your work as soon as it is finished, you can copyright any intellectual work within five years of its creation.

What can't be copyrighted?

Titles cannot be copyrighted, nor can names (including domain names), slogans, or taglines (although these can be covered under a Trademark). News items and historical facts are not covered. Likewise, ideas cannot be copyrighted.

After the publication of Dan Brown's The Da Vinci Code, two authors, Michael Baigent and Richard Leigh, sued Random House claiming "non-textual infringement in a literary work." The basis for the suit was a nonfiction book they, along with a third author, had published in 1982, The Holy Blood and the Holy Grail, in which they proposed that Jesus and Mary Magdalene were married and had produced a child, and that a secret society protects their descendants from the Catholic church. While this is remarkably close to Brown's book, and may in fact have been the source of his central premise, the lawsuit failed because copyright only extends to the expression of an idea, not the idea itself.

Author Lewis Perdue also sued Random House on similar grounds, claiming that Dan Brown had plagiarized characters from two of his novels. He lost as well. Characters, like premises, are ideas.

Cost

The fee for registering a copyright is $45 online for a single work, and $125 via USPS. Authors who are used to doing things on the cheap may balk at the expense, but it is well worth it. Even if you spend nothing else on your work, spring for registering your copyright.

What to do when a publisher wants to copyright your work

Unless a publisher specifies that the book will be copyrighted in your name (and offers to send you proof), do not give your copyright to a publisher.

My first book was published by a small publishing house, the owner of which sent me what she called a "boilerplate" contract. (There is no such thing. All contracts are negotiable.) One of the clauses stated that the publisher would hold the copyright of my book. I balked, although I wasn't sure what the details of copyright were, and refused to sign the contract. Reluctantly ("Oh, all right.") the publisher agreed to remove the clause. Years later, when the book had gone out of print, I hired a lawyer to restore my rights. (Had the out-of-print clause been better worded I would not have needed a lawyer, but that's a topic for another post.)

Subsequently, I self-published a second edition, which sold significantly more copies than the first edition. Had I given up my copyright, a second edition probably would not have been published, and the book would simply have died.

Underhanded ways of usurping copyright

While most publishers are happy to give copyright to their authors, securing rights for the duration of the copyright in effect gives publishers a de facto copyright. Authors Guild has objected to this practice, stating in its Fair Contract Initiative:

"There’s no good reason why a book should be held hostage by a publisher for the lifetime of the copyright, the life of the author plus seventy years—essentially forever. Yet that’s precisely what happens today. A publisher may go bankrupt or be bought by a conglomerate, the editors who championed the author may go on to other companies, the sales force may fail to establish the title in the marketplace and ignore it thereafter, but no matter how badly the publisher mishandles the book, the author’s agreement with the original publisher is likely to remain in effect for many decades."

The Authors Guild has proposed three changes: (1) time-limited contracts, (2) a clause that provides for reversion of unexploited rights, and (3) a specific new unchallengeable definition to replace historic “out of print” clauses that are not remotely relevant in the electronic age. While publishers may be reluctant to issue time-limited contracts, the second and third suggestions are not only possible, they were part of my contract with Random House, which means they can be included any contract.

With shorter works, such as short stories, no literary magazine should ask for rights for the length of the copyright. Literary magazines typically ask for first North American serial rights, which gives them permission to publish your story first in North America only. Rights to short stories usually revert "upon publication." If the literary magazine also publishes a yearly anthology they may require an extension of those rights for up to a year. Any longer than that is not reasonable. Because short stories published in literary journals have a short shelf-life, rights that last for the length of the copyright effectively prevent authors from keeping their stories alive through reprints and collections.

Copyright for news pieces is often owned by news media under "work for hire" stipulations. But this is not the case for literary magazines, unless you are expressly hired to produce work for the publication. Being paid for an original short story or nonfiction piece that you have submitted, or receiving an advance, does not constitute work for hire.

Can someone else quote what you have copyrighted in their own work?

The simple answer to that question is yes. Anyone can quote what you have copyrighted, provided that it is in a different context. This is called "fair use." (Fair use stipulations are located in Section 107 of the Copyright Act.)

A good example of fair use is when a reviewer or journalist excerpts portions of your novel. Because the context has changed, your work has now been "transformed." For nonfiction, any scholar or researcher can quote your work in the context of a book or article discussing similar material. Teachers can also make copies of your work to use in a classroom.

Contrary to popular belief, there is no set amount - 10%, 20%, 30% - that constitutes fair use. What is important is not the quantity, but how it is used. As long as the context has been changed your work can be quoted. Because fair use falls under the First Amendment right to free speech, permission from the copyright holder is not required.

Do this now

Don't wait until you have finished your book to find out about copyright protection. Go to copyright.gov and read the FAQs. In spite of their plethora of circulars - which rival the IRS in sheer quantity of excess verbiage - registering a copyright is fairly straightforward: You pay the fee, and you send them your work. They then send you a certificate of copyright, which you will keep in a safe place.

Always copyright your books! If you don't, you will have no protection against intellectual property theft - a practice which, sadly, is rife in the publishing industry. If you send material to beta readers or to reviewers before publication make sure you have added a copyright notice.

Authors Guild Pushes for Higher E-Book Royalties

Last week, I received an email from the Authors Guild which struck a chord. The subject was royalties for electronic books, which, as AG correctly points out, have been dropping even as the market for ebooks is booming. 

When I got my first publishing contract in 1997, the ebook split was 50 - 50. By 2006, when I signed my contract with Random House, the royalty was 25% of retail, and zero on deep discounts. I have no idea how much I lost through that arrangement.

What AG has done is to calculate what authors have lost. While publishers are not gaining as much as they did in the first heady days of ebook expansion (before Amazon forced them to lower their prices), they are still gaining - at the expense of authors. According to AG, authors are losing up to half of their ebook royalties.

Read it and weep... (or, alternatively, read it and self-publish)

____________________

Authors Guild, July 9, 2015

We announced our Fair Contract Initiative earlier this summer. Now our first detailed analysis tackles today’s inadequate e-book royalties. At the heart of our concern with the unfair industry-standard e-book royalty rate is its failure to treat authors as full partners in the publishing enterprise. This will be a resounding theme in our initiative; it’s what’s wrong with many of the one-sided “standard” clauses we’ll be examining in future installments.

Traditionally, the author-publisher partnership was an equal one. Authors earned around 50% of their books’ profits. That equal split is reflected in the traditional hardcover royalty of 15% of list (cover price, that is, not the much lower wholesale price), and in the 50-50 split of publishers’ earnings from selling paperback, book club, or reprint rights. Authors generally received an even larger share than the publisher for non-print rights (such as stage and screen rights) and foreign rights.

But today’s standard contracts give authors just 25% of the publisher’s “net receipts” (more or less what the publisher collects from a book sale) for e-book royalties. That doesn’t look like a partnership to us.

We maintain that a 50-50 split in e-book profits is fair because the traditional author-publisher relationship is essentially a joint venture. The author writes the book, and by any fair measure the author’s efforts represent most of the labor invested and most of the resulting value. The publisher, like a venture capitalist, invests in the author’s work by paying an advance so the author can make ends meet while the book gets finished. Generally, the publisher also provides editing, marketing, packaging, and distribution services. In return for fronting the financial risk and providing these services, the publisher gets to share in the book’s profits. Not a bad deal. This worked well enough throughout much of the twentieth century: publishers prospered and authors had a decent shot at earning a living.

How the e-book rate evolved

From the mid-1990s, when e-book provisions regularly began appearing in contracts, until around 2004, e-royalties varied wildly. Many of the e-rates at major publishing houses were shockingly low—less than 10% of net receipts—and some were at 50%. Some standard contracts left them open to negotiation. As the years passed, and especially between 2000 and 2004, many publishers paid authors 50% of their net receipts from e-book sales, in keeping with the idea that authors and publishers were equal partners in the book business.

In 2004, we saw a hint of things to come. Random House, which had previously paid 50% of its revenues for e-book sales, anticipated the coming boom in e-book sales and cut its e-rates significantly. Other publishers followed, and gradually e-royalties began to coalesce around 25%. By 2010 it was clear that publishers had successfully tipped the scales on the longstanding partnership between author and publisher to achieve a 75-25 balance in their favor.
   

The lowball e-royalty was inequitable, but initially it didn’t have much effect on authors’ bottom lines. As late as 2009, e-books accounted for a paltry 3–5% of book sales. Authors and agents ought to have pushed back, but with e-book sales so low it didn’t make much sense to risk the chance of any individual book deal falling apart over e-royalties. We called the 25% rate a “low-water mark.” We said, “Once the digital market gets large enough, authors with strong sales records won’t put up with this: they’ll go where they’ll once again be paid as full partners in the exploitation of their creative work.”

E-books now represent 25–30% of all adult trade book sales, but for the vast majority of authors the rate remains unchanged. If anything, publishers have dug in their heels. Why? There’s a contractual roadblock, for one: major book publishers have agreed to include “most favored nation” clauses in thousands of existing contracts. These clauses require automatic adjustment or renegotiation of e-book royalties if the publisher changes its standard royalty rate, giving publishers a strong incentive to maintain the status quo. And the increasing consolidation of the book industry has drastically reduced competition among publishers, allowing them more than ever to hand authors “take it or leave it” deals in the expectation that the author won’t find a better offer.

The elephant in the room

And then there’s the elephant in the room: Amazon, which has used its e-book dominance to demand steep discounts from publishers and drive down the price of frontlist e-books, even selling them at a loss. As a result, there’s simply not as much e-book revenue to split as there was in 2011when we reported on the e-book royalty math. At that time, publishers made a killing on frontlist e-book sales as compared to frontlist hardcover sales—at the author’s expense—because, as compared to today, the price of e-books was relatively high.

When we analyzed e-royalties for three books in the 2011 post, “E-Book Royalty Math: The House Always Wins,” we found that every time an e-book was sold in place of a hardcover, the author’s take decreased substantially, while the publisher’s take increased.

Since 2011, we have found that publishers’ e-gains have diminished. But the author’s share has fallen even farther. Amazon has squeezed the publishers, to be sure. The publishers have helped recoup their losses by passing them on to their authors.

These were our calculations for several books in 2011. The trend was obvious. Compared with hardcovers, each e-book sold brought big gains to the publisher and sizable losses to the author when the author’s royalties are compared to the publisher’s gross profit (income per copy minus expenses per copy), calculated using industry-standard contract terms:

Author’s Royalty vs. Publisher’s Profit, 2011

The Help, by Kathryn Stockett

Author’s Standard Royalty: $3.75 hardcover; $2.28 e-book.

Author’s E-Loss = -39%

Publisher’s Margin: $4.75 hardcover; $6.32 e-book.

Publisher’s E-Gain = +33%

Hell’s Corner, by David Baldacci

Author’s Standard Royalty: $4.20 hardcover; $2.63 e-book.

Author’s E-Loss = -37%

Publisher’s Margin: $5.80 hardcover; $7.37 e-book.

Publisher’s E-Gain = +27%

Unbroken, by Laura Hillenbrand

Author’s Standard Royalty: $4.05 hardcover; $3.38 e-book.

Author’s E-Loss = -17%

Publisher’s Margin: $5.45 hardcover; $9.62 e-book.

Publisher’s E-Gain = +77%

What’s happening now? We ran the numbers again using the following recent bestsellers. Because of lower e-book prices, the publishers don’t do as well as they used to, though they still come out ahead when consumers choose e-books over hardcovers. But authors fare worse than ever:

Author’s Royalty vs. Publisher’s Profit, 2015

All the Light We Cannot See, by Anthony Doer

Author’s Standard Royalty: $4.04 hardcover; $2.09 e-book.

Author’s E-Loss= -48%

Publisher’s Margin: $5.44 hardcover; $5.80 e-book.

Publisher’s E-Gain: +7%

Being Mortal, by Atul Gawande

Author’s Standard Royalty: $3.90 hardcover; $1.92 e-book.

Author’s E-Loss= -51%

Publisher’s Margin: $5.10 hardcover; $5.27 e-book.

Publisher’s E-Gain: +3.5%

A Spool of Blue Thread, by Anne Tyler

Author’s Standard Royalty: $3.89; $1.92 e-book.

Author’s E-Loss: -51%

Publisher’s Margin: $5.09 hardcover; $5.27 e-book.

Publisher’s E-Gain: +3.5%[1]

Exceptions to the rule

It’s time for a change. If the publishers won’t correct this imbalance on their own, it will take a critical mass of authors and agents willing to fight for a fair 50% e-book royalty. We hope that established authors and, particularly, bestselling authors will start to push back and stand up to publishers on the royalty rate—on behalf of all authors, as well as themselves.

There have been cracks in some publishers’ façades. Some bestselling authors have managed to obtain a 50% e-book split, though they’re asked to sign non-disclosure agreements to keep these terms secret. We’ve also heard of authors with strong sales histories negotiating 50-50 royalty splits in exchange for foregoing an advance or getting a lower advance; or where the 50% rate kicks in only after a certain threshold level of sales. For instance, a major romance publishing house has offered 50% royalties, but only after the first 10,000 electronic copies—a high bar to clear in the current digital climate. But overall, publishers’ apparent inflexibility on their standard e-book royalty demonstrates their unwillingness to change it.

We know and respect the fact that publishers—especially in this era of media consolidation—need to meet their bottom lines. But if professional authors are going to continue to produce the sort of work publishing houses are willing to stake their reputations on, those authors need a fair share of the profits from their art and labor. In a time when electronic books provide an increasing share of revenues at significantly lower production and distribution costs, publishers’ e-book royalty practices need to change.

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[1] In calculating these numbers and percentages for hardcover editions, we made the following assumptions: (1) the publisher sells at an average 50% discount to the wholesaler or retailer, (2) the royalty rate is 15% of list price (as it is for most hardcover books, after 10,000 units are sold), (3) the average marginal cost to manufacture the book and get it to the store is $3, and (4) the return rate is 25% (a handy number—if one of four books produced is returned, then the $3 marginal cost of producing the book is spread over three other books, giving us a return cost of $1 per book). We also rounded up retail list price a few pennies to give us easy figures to work with.

Likewise, in calculating these numbers and percentages for the 2015 set of e-books, we are assuming that under the agency model—which is reportedly the new standard in the Big Five’s agreements with Amazon—the online bookseller pays 70% of the retail list price of the e-book to the publisher. The bookseller, acting as the publisher’s agent, sells the e-book at the price established by the publisher. The unit costs to the publisher are simply the author’s royalty and the encryption and transmission fees, for which we deduct a generous 50 cents per unit.   

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