This article is written by Nisha Modak, pursuing a Diploma in Intellectual Property, Media and Entertainment Laws from LawSikho.com. Here she discusses “Negotiation of Royalty Clause in a Contract for Book Publishing.

Introduction

“The purpose of a writer is to keep civilization from destroying itself.”

Albert Camus

Books are a portal that allows the reader to travel to far and distant lands, meet new and fascinating characters, gain new experiences and learn about the realities of life. This gift is bestowed upon us by the authors of the books, who pen down the words that can create this spectacular effect.

However, an author’s work is truly complete only when his work is made available to the general public. Till a book is put down in print and circulated, it stays like a hidden treasure, with so much to offer, but no means to express itself. Thus, publishing of the book is extremely important, as it helps convey the thoughts of the author to the masses. A publisher performs the function of bridging the gap between an author and his audience.

Book Publishing Agreement

Like any other commercial transaction, the publishing of a book is carried out as per an enforceable agreement made to that effect. A book publishing contract is entered into between an author and a publisher, which lays down the terms according to which the publishing shall be undertaken. It outlines the contractual relationship entered into between the parties and ensures that the interests of both parties are represented and secured. Since the author is the owner of the copyright for his original, literary work, the publishing agreement must contain either an assignment of the copyright to the publisher or simply a license granted by the author for the publisher to use his copyright.

The other essential clauses that must be captured are:

• The agreement must contain a description of the literary work that is intended to be published. This is to help the publisher gain clarity as to the nature of the work, the target audience for the same, and to draw out a suitable publishing plan.
• The agreement must specify the term and territory within which the publisher can publish and distribute the author’s work.
• The agreement should specify the medium in which the publisher can publish the book. Thus a publishing agreement may allow the publisher to print hardbound copies, paperback copies as well as E-Books, or it may limit the publisher to only one of these mediums.
• The agreement should contain a clause relating to the marketing and promotion of the book.
• The agreement must contain a clause laying down the terms of payment that shall be made to the author. This is one of the most vital clauses in a book publishing agreement, as it specifies the monetary exchange to be undertaken by the parties.

Payment Clause

Consideration is the basis of any contractual relation formed between parties. The payment clause encapsulates this consideration, in exchange of which the author allows the publisher to use and exploit his copyright. The payment clause in a book publishing contract generally contains two distinct types of consideration. The first is the Advance payment made to the author, and the second is the Royalty payment.

Advance payment, as the name suggests, is given to the author in advance of the actual publishing and sale of the book. In some cases, it is given while the work is still in the development stage, in which case, the payment serves as an incentive as well as a financial aid to the author. In most contracts, the Advance is given as an advance towards the Royalties, which means that it is adjusted against the future Royalties payable to the author. Hence, it is not an extra amount that is given to the author, but simply a part of the Royalty payment, which is given at an earlier time. It serves as a mark of finalization of the deal purported to be entered into between the parties since the author is given a monetary assurance of the intention of the publisher to publish his work. It is a mechanism to protect the author, as it helps him recover some of the investment made by him towards the book, whether in terms of time or resources. The Advance can be said to be a minimum guarantee of income, as the author will receive this amount irrespective of the sales of the book.

Royalty Clause

From the point of view of an author, this clause forms the very backbone of the book publishing agreement. The author, after having poured his heart and soul into his work, should rightly receive some monetary gains for it. These monetary gains are sought from the publisher, who in turn has benefitted from the use of the author’s copyright. The Royalty clause captures this understanding between the author and his publisher.

Royalty payment may be defined as the money paid to an author upon the sales of his book. It can also be explained as the author’s share of the income earned from the sale and circulation of his work, which was facilitated by the publisher. It is generally expressed in publishing contracts as a percentage of the sales of the book.

Thus, the Royalty clause is a crucial component of a publishing contract, as it is the only means available to the author to secure his interests and ensure that he extracts the maximum financial benefits that can be extracted from his work. Some of the ways in which an author can negotiate a Royalty clause which is greatly beneficial for him are:

• In a publishing contract, the Royalty payment is not stated as a pre-decided amount, but rather it is laid down in terms of a percentage or a share from the sales of the book. The amount can either be expressed as a percentage of the sale price of the book, or a percentage of the receipts of the publisher. To negotiate a strong clause for himself, the author should have the Royalty expressed as a percentage of the sale price of the book (this is called Retail Royalty). If it is expressed as a percentage of the publisher’s receipts, the author will not gain the full returns that are to be obtained from the sale of the book, since he will only gain a share of what the publisher actually receives. The publisher often gives large discounts to bookstores, book clubs, online reading portals, etc., which is factored in while calculating the net receipts. Due to this, the amount received by the author will also subsequently reduce.

Example:  The retail price of a hard copy book is Rs. 100, the decided royalty rate is 10%, and the discount given by the publisher to bookstores selling the book is 20%. In such a case, if Retail Royalty payment is adopted, the author stands to gain an amount of Rs. 10 per sale of the book. The publisher will earn Rs. 80, and hence if royalty is calculated on the basis of publisher’s receipts, the author will only gain Rs. 8 per book.

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• Royalty payments that are decided as a share of the publisher’s receipts are also calculated in two ways. First is ‘gross calculation’, which evaluates the publisher’s receipts as simply all the money received by the publisher from buyers of the book, across all mediums. The second method is ‘net calculation’, as per which the publisher’s receipts are calculated after deducting certain incurred costs, such as marketing or advertising of the book. If the contract provides for royalty to be calculated based on the publisher’s receipts, the author can safeguard his interests by ensuring that the method of gross calculation is adopted. With this, he will directly gain a share of what is paid by buyers for the book, and will not have to bear any of the additional costs associated with the printing and circulation of the book.

• The next aspect of a Royalty clause is the negotiation of breakpoints for the royalty rate. Breakpoints imply that the royalty rate paid to the author shall increase with an increase in the sales of the book. This differs from a flat royalty rate, a stagnant figure upon which the increase in sales has no bearings. Publishers also are more amicable to the idea of granting a higher royalty rate when there is a boost in sales of the book since they have already recovered most of their own incurred costs. Thus, negotiating breakpoints is a simple yet effective way of securing good earnings through royalty for the author.

Example: Negotiation of breakpoints for an estimated sale of 10,000 copies of the book, the sale price of which is Rs. 50, in comparison with a flat royalty rate:

• Along with the basic publishing rights, a contract typically includes some other ancillary rights such as translation rights, adaptation rights for movies/ television series etc. When the author transfers these rights, he gains a considerable part of the returns obtained from these rights, as a part of his royalty payment. Authors can thus negotiate a high rate of the earnings from the ancillary rights to be included in their royalty payments.

• Lastly, to negotiate a strong Royalty clause, the author must ensure that the terms of the Advance payment are such that it does not allow the publisher to claim any part of the Advance paid if the Royalties earned from the book do not recover it.

Example: The Advance paid is Rs. 25,000, and the expected Royalty to be earned is Rs. 75,000. However, if the actual earnings only amount to Rs. 60,000, the publisher should not be allowed by the contract to reclaim the deficit of Rs. 15,000 from the Advance.

Conclusion

Hence, the publishing contract is a vital document for an author, and the royalty clause is the very lifeline of this contract. With the above-stated methods, an author can make the agreement suitable for his interests and can reap the full benefits from his literary creation.

Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skill.