This article is written by Dhruv, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
Publishing contracts are some of the most common and important agreements in the field of intellectual property law and media law. Every author and publisher entering into an agreement for publishing a book is advised to execute a definitive and comprehensive publishing contract to protect their respective rights.
Before we talk about termination clauses in publishing contracts, it is pertinent to first understand what termination clauses really entail and what publishing contracts are actually about.
What is a termination clause?
Every contract and agreement is meant to last and stay in subsistence for a fixed period of time. In some rare instances, the parties may expressly agree to keep their contract alive permanently, but this may not always be enforceable by the law.
The main purpose of a termination clause of a contract is to specify the date on which the contract will cease to exist and the circumstances under which this may happen. This can either be stated in a separate clause altogether, which is more advisable to do, or else it can also be stated in the term clause of the contract.
In other words, a termination clause states the date on which a contract will cease to exist and the events that will trigger such termination. In contracts fixed by duration (such as rent agreements), such dates of termination are often expressly stated.
Another way to enforce termination of contracts is to trigger termination automatically when certain events transpire. For example, a contract may get terminated automatically in the event that a party fails to fulfil its obligations or if any party dies.
The importance of a clear and comprehensive termination clause, as we will see below, can be gauged from the consequences of not mentioning the date of termination of the contract, the conditions under which it will get terminated, and the consequences of termination.
What are publishing contracts?
A publishing contract is an agreement between the author of a book and a publisher, specifying the contractual terms under which the publisher will publish the book. It specifies the rights, duties and liabilities of the author and the publisher with respect to the writing and editing of the book, printing and publishing of the book, the author’s intellectual property rights and royalties, the publisher’s rights, marketing of the book, and all consequent obligations of the parties.
A comprehensive publishing agreement can contain minute details like the timelines for the author to finish writing the book and for the publisher to complete printing of the book, the format in which the book shall be published, the exact rates at which the author shall receive royalties from the publisher, marketing and sale of the book, and all other specific details which the parties may agree to.
Book publishing agreements can be distinguished from certain other commercial contracts because of factors like the unique nature of rights involved for the parties, strict deadlines, specific margins and high stakes. Both, the authors as well as the publishers have to abide by accurate deadlines and timelines for writing, reviewing, editing, finalizing and publishing the books. This is because publishers often have pre-decided terms and agreements with dealers, distributors and retailers with respect to their books even before they are published.
Another factor that makes publishing contracts different for some other agreements is the fact that they involve important intellectual property rights and thin sales margins. Furthermore, payment of consideration in book publishing contracts often does not involve specific predetermined amounts; it depends on royalties which the author is entitled to, depending on sales of the books.
Therefore, considering the unique nature of publishing contracts, it is very important to be clear about when such contracts get terminated and the events which can lead to such termination. However, before understanding why termination clauses are so important, let us first see when publishing contracts can get terminated.
How can publishing contracts get terminated?
1) Expiration of the term of the contract
If the contract contains a termination clause or mentions the date on which the term of the contract will end, such contract will automatically get terminated on this date, unless the parties have any other agreement or understanding in place. For example, if a contract’s term is said to be 5 years, it will automatically get terminated when 5 years are up from the effective date.
2) Author’s failure to complete the book
In many cases, publishing contracts are executed even before the author finishes writing her book. This often happens when reputed authors are involved, because their track record assures the publishers that they will finish writing their books within the agreed timelines.
Since the completion of the book is extremely important for the publishing contract to fructify, some contracts contain termination clauses that lead to automatic termination if the author fails to submit her book to the publisher before their mutually agreed deadlines.
3) Publisher’s failure to publish the book
Once the author has submitted her book to the publisher as per the terms of their contract, it becomes the publisher’s duty to start printing and publishing the book as soon as possible so that it can start selling and generating sales, which further makes the author earn royalties. Therefore, timely publication of the book is very important for both parties, and the failure to do so can allow the author to terminate the contract. For example, if a publishing contract requires the publisher to start printing the book within 6 months of the book getting finalized, the publisher’s failure to do so can allow the author to terminate the agreement immediately.
4) Book goes out of print
Printing and publication of books is the main way in which the publisher keeps selling the books and generating royalties for the author. If the books are put out of print, the author’s revenue stream of royalties ceases to exist and there is no more consideration involved. Thus, the contract may automatically get terminated.
5) Subsidiary rights are not exploited
A publishing contract may often involve subsidiary rights for the publisher to promote books and generate sales through alternative mediums without printing and publishing them. For example, the contracts may allow the publisher to enter into other agreements with artists and film producers for converting the book’s story into other forms like songs and movies.
Since such subsidiary rights allow the author to earn more royalties through additional streams, the author may reserve her rights to terminate the publishing contract immediately if the publisher fails to exploit such rights.
An example of this can be remake of the book’s story into a movie from which the author may be entitled to further royalty. If the publisher is required to enter into a movie producer for such a movie but does not do so, the author may terminate the publishing agreement.
Now that we know how publishing contracts can get terminated, it would be easier to appreciate why termination clauses are so important in publishing contracts.
Why is a termination clause important?
1) Prevents ambiguity and litigation
The most important role of a termination clause in publishing contracts is to not leave any ambiguity in determining the term of the contracts. Parties know exactly when the contracts will get terminated and what events may cause such termination. This, in turn, can help prevent litigation, because there cannot be contradictory interpretations about whether a contract has already been terminated or it is still in existence.
2) Protects monetary considerations for parties
As we have already seen above, publishing contracts often involve large monetary stakes, which leaves no room for ambiguities for the terms of these contracts. Once the parties are clear about terminating their publishing contracts, the author can stop the publisher from publishing and selling her book, and the publisher can stop paying royalties to the author, which makes the question of consideration clear for both parties.
3) Protects IP rights
Termination of a publishing contract will mean that the publisher may no longer be entitled to print, market, distribute and sell the book without the author’s permission. It may automatically lead to all intellectual property rights over the book reverting back to the author. This ensures that the author’s rights remain protected even after the contract ceases to subsist. In such case, the author may then be free to enter into another publishing agreement with a different publisher.
Similarly, termination can also protect the publisher’s intellectual property rights if the author has assigned copyrights over the book to the publisher. This can mean that the publisher’s right to exploit the book exists even after termination without paying any more royalties to the author.
4) Suspends obligations of parties
Once a publishing contract gets terminated, all obligations of the parties will immediately get suspended, unless they agree otherwise. For example, if termination occurs even before the author has completed the book or transferred exploitation rights over it to the publisher, the author can immediately stop writing and start negotiating with a different publisher.
Similarly, termination of the contract may allow the publisher to stop printing the book and paying royalty to the author. This can be a boon for the publisher if the books do not generate as much revenue as expected and can, thus, be put out of print soon. Therefore, a well-drafted termination clause can benefit both parties in lawfully suspending their obligations under their publishing contracts.
As we can see from this discussion over the role of a termination clause in publishing contracts, it is clear that the lack of a clear, well-defined termination clause can have severe financial and legal consequences in any publishing contract. The risk of lengthy litigation arising from ambiguities over termination terms makes authors and publishers lose potential revenue that may occur if their books could have continued to remain in publication.
Considering the fact that a large number of books are published each year in this highly competitive industry, it is always in the parties’ interests to prevent their rights from being challenged in avoidable disputes. Therefore, it is in the interest of both, authors and publishers, to negotiate a clear termination clause in their contracts.
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