MERCHANDISING RIGHTS IN PUBLISHING AGREEMENTS (Revised 2018) Ivan Hoffman, B.A., J.D.

Who owns the rights to market and sell underwear, lunch pails, t-shirts, toys and the like in an agreement between authors and publishers? (Note: these issues are relevant to numerous forms of agreements including artist/illustrator agreements, web design agreements, recording artist agreements and other agreements but for sake of simplicity, this article will deal with the issues within the context of book publishing agreements.  Read for example “The Cover Artist/Illustrator Agreement.”) Merchandising rights have always been important but now have become essential given the Internet and other media resulting from it and the accompanying worldwide exploitation.  I have frequently said that today’s web site can become tomorrow’s feature length motion picture.  And that merchandising success can in turn spawn further success of the book and so on.  It is often the hit record that carries the feature motion picture which in turn creates a market not only for the original book but spin-offs as well.  With all due respect to the writers of the world (and I am certainly one), artwork is frequently much more important than the text since it is from artwork that these merchandising rights arise.  These rights are key and often are not addressed or adequately addressed in the agreement. The party that controls these rights may be in a position to determine much of that success.

By “merchandising rights” I mean those rights that attend the ownership of the underlying copyright in the book but which involve the sale or license of rights to do marketing and promotional material in all media including but certainly not limited to the printed medium of the book.  And while soft cover or book club licensing or the like may fall loosely within this term, for the purposes of this article I intend to speak to non-book exploitation of the material.  These are part of what are considered “ancillary rights” and are, in copyright terms, the rights to create derivative works based upon the original copyright in the book.  The United States Copyright law in section 106 states in part:

Subject to sections 107 through 122, the owner of copyright under this title has the exclusive rights to do and to authorize any of the following:

 …

(2) to prepare derivative works based upon the copyrighted work;

And a “derivative work” is defined in Section 101 as follows:

 A “derivative work” is a work based upon one or more preexisting works, such as a translation, musical arrangement, dramatization, fictionalization, motion picture version, sound recording, art reproduction, abridgment, condensation, or any other form in which a work may be recast, transformed, or adapted. A work consisting of editorial revisions, annotations, elaborations, or other modifications, which, as a whole, represent an original work of authorship, is a “derivative work”.       

THE AGREEMENT AND COPYRIGHT QUESTIONS

         The initial premise is that the author of a creative work is the owner of the copyright in that work, whether the work is fiction or non-fiction, prose or poetry.

Section 201 states in part:

(a) Initial Ownership.—Copyright in a work protected under this title vests initially in the author or authors of the work. The authors of a joint work are coowners of copyright in the work.

This is so absent a valid agreement to the contrary.  It is through the mechanism of the agreement between author and publisher that some, if not all, rights are transferred from one to the other.  Read “The Fundamental Principle Under The United States Copyright Law.”  It is so important an article that it is included on each index page.  If not specifically addressed in the agreement under the language of merchandising rights, a transfer of  “all rights” may create confusion and ambiguity in this area that can lead to loss of potential marketing opportunities if neither party clearly owns the rights to license.  Read the numerous articles on my site under the title “Precise Contract Language.”  Click on “Articles for Writers and Publishers.”  Boilerplate language may not be sufficient.  There should be a specific reference and definition to these rights.  A review by an attorney of the publishing agreement that you are using may be in order with regard to this issue.

         Additionally, these rights must address the entire scope of what may be considered copyrightable material in the underlying work including rights to characters, titles, art, and such.  The specific areas in which these rights may be exploited should also be covered, areas such as films, television, multimedia such as the Internet and all other potential marketing platforms and media.  Furthermore, the territory and term of rights must also be addressed. 

INCOME SPLITS AND OTHER ISSUES 

Another area that must be covered in the agreement is how any revenue related to these rights is to be handled.  If as between author and publisher one party retains those rights, what shall be the compensation to the other party from any income so derived?  What is the split to be, if indeed there is any split at all?  And if there is a split, upon what basis are the calculations to be made?  Shall the split be based upon gross income, gross revenue, net income and if the latter, how shall the difference between gross and net be calculated?

       Yet another concern may be the allocation of the right of approval of the particular merchandising item.  Neither side is likely to want to license anything that might be considered as lessening the value of the book but such a standard is at best subjective.  Someone has to be given the right of final approval. 

Income splits are also important provisions because often a particular form of exploitation might not clearly be a “sale” or a “license.”  The shares of the parties vary considerably depending on whether it is one or the other.  Read “Is It A Sale Or A License” and “Are You Paying (Or Getting Paid) on Licensing Income?” 

CONCLUSION 

These are only a sampling of the issues that may arise in this area and this article is not intended to be exhaustive of those issues.  But given the potential licensing income that may be involved, it is certainly worth a careful look during the deal-making process.  No one knows which book can create the market. 

Copyright © 1996, 2018 Ivan Hoffman.  All Rights Reserved. 

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This article is not legal advice and is not intended as legal advice.  This article is intended to provide only general, non-specific legal information.  This article is not intended to cover all the issues related to the topic discussed.  You should not rely on this article in any manner whatsoever and you should not draw any conclusions of any sort from this article.  The specific facts that apply to your matter may make the outcome different than would be anticipated by you.  This article is based on United States laws but the laws of other countries may be different.  You should consult with an attorney familiar with the issues and the laws of your country.  This article does not create any attorney client relationship and is not a solicitation.  

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