This article is written by Janhavi Sitaram Dudam, pursuing a Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho.com. Here she discusses “Drafting of Royalty Clause in a Book Publishing Agreement.”

Introduction

A contract is essentially an agreement between the parties to decide their legal rights and responsibilities to one another. This is mostly in return for money, but it may also be in return for a potential commitment to do (or not do) anything. Contracts can be as simple as a casual commitment between friends or as complicated as a corporate contract. However, the words “contract” or “agreement” applies to a formal written publication agreement for this article. 

There is no such thing as a “standard” contract that applies to all types of publishers and all books. The desire and capacity of a publisher to accept the desired author’s terms would be determined by the business model. And while there are keywords likely to be included in most publishing contracts, though, these provisions are structured and vocabulary used to describe them may vary. 

Ownership

Generally speaking, when a work is created it belongs to the author – he is the ‘first copyright owner’. Therefore, authors/writers in the publishing sense start holding the copyright of the works they have published. According to provisions of Sec 17 of the Copyright Act, 1957 – the author of the work is the first owner of the copyright in the work. Section 2(d)(i) which specifies ‘author’ with ‘literary or dramatic work, the author of the work’ must be read to understand who is considered the author of the work. 

Rights available to the author

Sec 14 of the Copyright Act grants authors ‘exclusive rights’ in their works. Over a short but lengthy period, copyright law grants an author or creator of a work a broad set of exclusive rights to his work. Such rights require the author to regulate in a variety of ways the commercial usage of his writing and to earn money, i.e. royalties.

The exclusive rights allow the author to authorize the following activities:

• Reproducing a work in copies;
• Distributing copies of a work to the public;
• Communicating a work to the public (e.g. displaying, performing, broadcasting, or making it available interactively;
• Lending or renting copies of a work;
• Making translation or adaptation of a work;
• Making the work available on the Internet.

Eastern Book Company & Ors v. D.B. Modak & Anr: In this case, the Supreme Court held that the author will be entitled to copyright protection even in derivative work if he has applied his skill, labour, and judgment. The courts don’t need to determine the literary merit of the derivative work, but only to evaluate whether the skills, labour and resources used, required to create the work, are not trivial and negligible. In the case where the copy-edited version is created, the changed version requiring skills or judgment should be considered as original work and should be entitled to copyright protection.

This is the author’s use of their creativity and commitment that creates an original piece. It is this intellectual work that has a value that can be exchanged like any other type of ‘property’ sold to a publisher or bought by a film studio.

Book Publishing Agreement

No particular act defines the book publishing agreement. However, according to my understanding, a book publishing agreement is a legally binding document that specifies the transfer of rights, responsibilities and money received by an author and their book publisher. It would also typically control words including the deadlines for writers and word count.

The document outlines the book as well as the activities to be carried out by the publisher during the creation and publication of the book, to avoid any ambiguity later.

It stipulates the fee earned by the author for his work, the date of payment, the method of payment, etc. This is necessary to prevent later disputes. It helps defend the parties in the case of a disagreement since it serves as a written statement enforceable by law and that can be challenged in the court.

Essentials elements of a Book Publishing Agreement

The deal for the book covers every facet of the author’s relationship with the publisher. These include the physical, functional elements of the creation of the book, such as:

• It should define the parties from whom it is drawn and the business in which they are engaged in.
• The purpose of the work should be defined and the book to be published should be described.
• The duration of the author’s delivery of the manuscript and the author’s right to modify the manuscript should be captured in the agreement.
• The grant of rights contains the ‘term’ rights i.e. the time during which the publisher can continue to publish the book, the territory rights i.e. the territory where the published book can be distributed by the publisher and the media rights i.e. on which platform the publisher will publish the book.
• The publishing agreement must include either the transfer of the copyright to the publisher or merely a license given to the publisher by the author to use his copyright.
• The publishing agreement can include an electronic right clause relating to the right to sell copies of books through a digital subscription service.
• The publishing contract may contain a revert-back clause if the publisher may not exercise some rights within a defined period, the right shall be returned to the author.
• The publishing contract can include a reserve rights provision if the author retains all rights not expressly given to the publisher.

Payment clause

The financial elements of the book deal are a significant part of the agreement. such financial considerations include advance payment rates against royalties, exact royalty percentages to be paid for each form of sale – hardcover, paperback, e-book, etc. Giving authors a royalty in the form of a share of gross income would help in two principal aspects. Firstly, authors should engage more closely with the production phase of their book and thereby make a greater commitment to its progress. Publishers may want to establish a long-term association with their authors in the hope of further bookselling and building on the success of earlier books and royalties would contribute to the sense of collaboration. And secondly, paying authors as and when income from sales is generated will boost cash flow.

Therefore, the Royalty clause is a vital aspect of a publishing contract, since it is the only way at the author’s discretion to protect his rights and ensure that he receives the full financial gain from his work. Some of them on how an author can negotiate a Royalty clause that is of great benefit to him are as follows:

• Advance payment

Many publishers make an advance payment against royalties to the authors. This is, they are “advancing” a sum of money to the author depending on what they believe the book can receive. The amount of author’s advance is determined by several factors including the future market value of the book, the author’s track record, the timeliness and competitiveness of the book, and the risk and reward assessment of a publisher. As a rule of thumb, payment of an advance amounting to more than half of what will be paid in royalty before the first printing was published is sometimes considered unwise.

Example– Advances are often broken into two stages: half before the publishing agreement is signed and the other half when the final manuscript is submitted to the publisher. 

• Royalty clause

From the author’s perspective, this clause forms the strong foundation of the book publishing arrangement. Royalties are the amount of money that authors earn from their book sales, typically expressed as a percentage. Authors ought to be careful about how their royalty clause is precisely specified and estimated. There are three different ways in which royalty transactions can be specified and calculated:

1. Published price royalties – Such royalties are dependent on the price printed on the book. In this case, the royalties will be a percentage of the retail price calculated by the number of copies sold.
2. Net income royalties – Such royalties are based on the publisher’s net income from sales of the book. These royalties are calculated on the value earned by the publisher when the books are distributed to book stores or distributors. Since the publisher’s net profit from each copy of a book is normally less than the selling price, the net income royalty rate is typically greater than published price royalties. Example– If the book may have a selling price of Rs. 1000 but it is sold for Rs.500 to retailers which means a rate of royalty depending on net profit has to be higher to earn the same chunk of money as the selling price. 
3. Net profit royalties – These royalties are based on the amount of revenue left after the publisher deducts the book related expenses such as editing, printing, advertisement, warehousing and shipping. As the basis for a net profit, royalty is much smaller than with the other two categories (because there is still less benefit than total revenue), the percentage of royalties is usually slightly higher.

4. Escalation clause

The next element of the negotiating royalty clause is to capture the escalation clause in the book publishing deal that favors the author by ensuring that the royalty rate increases as more books are sold.

Example – The publisher decides to pay the Author the following royalties:

7.5% on the first 3000 copies sold; 

10% on the next 4000 copies sold;

12.5% on the next 6000 copies sold;

15% on all copies sold later.

• Reserves on returns

The bookseller will return unsold books to publishers for a refund through industry standards. Returns are very common in a publishing contract, so the reserve on returns clause is relevant. This provision requires the publisher to withdraw a portion of royalties from an author as a “reserve” for potential returns.

• Derivative rights

Publishers usually have two ways to gain money. The simple and common approach to distribute copies of books in various formats such as hardcover, paperback, and e-book. But another significant method for publishers to make money is by allowing others to use a work. 

Example– Publishers may choose to grant the right to translate the novel into another language or create a novel-based screenplay. The privileges that the publisher can grant to third parties are often referred to as “derivative rights”. These privileges, while considered secondary, are very significant sources of income. These rights generate even more revenue in some cases than actual print sales.

Case law

Deshmukh And Co. (Publishers) v. Avinash Vishnu Khandekar And Ors.: In this case, it was held that the contents of the document filed by the plaintiffs were not admitted by the defendant through formal proof. There was a plea of assignment of copyright. The terms showed partial assignments. There was a presumption of permanence agreement. It was held that the agreement was neither transferred nor there was a partial assignment of exclusive right to publish the work of the author. 

Conclusion

Therefore, after reading the document and understanding its content, the author can consider negotiating terms that are more compatible with his goals. Sometimes, authors can be tempted to sign a deal as early as possible because of the anticipation of getting an offer for publication. That is a mistake. The book deal is the initiation of collaboration that will endure for years between the author and publisher, and the negotiation is the author’s chance to determine the terms of the arrangement so that it will work for both of them.

References

• https://www.authorsalliance.org/wp-content/uploads/2018/10/20181003_AuthorsAllianceGuidePublicationContracts.pdf.
• https://www.wipo.int/edocs/pubdocs/en/copyright/868/wipo_pub_868.pdf.
• https://indiancaselaws.wordpress.com/2015/02/10/eastern-book-company-and-ors-vs-d-b-modak-and-anr/  Eastern Book Company and Ors. v. D.B. Modak and Anr. (2008) 1 SCC 1.
• https://indiankanoon.org/doc/1095212/ Deshmukh And Co. (Publishers) … vs Avinash Vishnu Khandekar And Ors. on 4 May, 2005 Equivalent citations: 2006 (2) BomCR 321, 2005 (3) MhLj 387, 2006 (32) PTC 358 Bom.

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