CROSS-COLLATERALIZATION IN PUBLISHING CONTRACTS
IVAN HOFFMAN, B.A., J.D.
When a publisher and author enter into an agreement,
whether for one book or a series of books, there is a clause that deals
with cross-collateralization that should be negotiated. This term refers
to the provision that allows the publisher to recoup, recover, any unearned
advances paid the author from book 1 against royalties or monies coming
due from book 2. Or vice versa. Or any such other combination of books
depending upon the nature of how the clause is structured.
To explain further, when you take out a loan,
the lender often requires you to put up certain collateral to secure the
loan. These are assets of some sort to which the lender can resort and
ultimately sell should you not repay that loan. So as used in the publishing
industry (and other entertainment-oriented industries as well), it is a
mechanism whereby the publisher can resort to income due the author from
other books to secure the repayment of an otherwise perhaps non-repayable
amount--the advance.
This is not necessarily an all or nothing proposition
and there are some negotiating variables that can be put in if both sides
are willing to be somewhat flexible. And in the end, what the issue really
is about is the cost of money and who is going to take the risk of less
than satisfactory results.
Initially, the operative contract language
may vary but usually looks something like:
"All Works covered by this agreement
or any other agreement between Publisher and Author shall be considered
one account and shall be accounted for jointly or collectively."
Or the contract may refer to "any other agreement
between Author and Publisher."
Here are some but perhaps not all of the negotiating
issues:
-
If the agreement is for one book only, then the
clause may seem like it is not relevant but it may become so if the publisher
and author make a subsequent deal for another book. And so both parties
must face this clause for neither knows what may be the future.
-
If the agreement is for more than one book, then
the advantage for the writer is that the writer knows he or she has an
outlet for multiple books. Thus the downside of this clause may be overweighed
by that apparent advantage. At the same time, the publisher's position
in this multiple book deal is that the publisher is contracting for more
than one book, perhaps by an unknown author, and so should be protected
in such a case by this clause. By giving the author this multiple book
deal, the publisher would claim to be paying for something perhaps not
available to the author in the open market and so should be entitled to
the broad provision. To this position the author would undoubtedly reply
that he or she should not be put in a worse position simply because of
this multiple book deal than the author would have been had the author
sold different books to different publishers. And additionally, the author
would claim, the publisher is often granted merely an option to purchase
the second book and so the author is really at no advantage since the option
would likely be exercised only if the first book were a success. In such
an instance, the author would claim, perhaps the author might obtain a
better deal from a new publisher.
-
The parties can agree to limit the operation of
the clause to take effect only after a defined period. In other words,
the publisher can cross-collateralize only after say a one year period
after the release of each book or each version of each book. Example. There
is an unrecouped advance on book 1 and then book 2 comes out in hard back.
The clause can provide that publisher can cross-collateralize only after
1 year after the release of the hard back of book 2 and then the same after
the release of the paperback version of book 2.
-
The parties should make clear what monies can
be cross-collateralized. Certainly the author would not want to have an
unrecouped advance on book 1 recovered by part or perhaps all of the advance
on book 2 but that the unrecouped advance should only come out of royalties
on book 2. The publisher would of course want the maximum protection. The
key language of which to be aware is that of "monies coming due" or "royalties
coming due" on subsequent books.
Since the payments to the author from the publisher
can vary significantly depending upon how this clause is structured, it
is to the advantage of both parties to review the same carefully and approach
the negotiation with an understanding of the rights and positions of the
other side. Without knowing how the other feels, it perhaps becomes a zero
sum game in which neither side actually wins, appearances to the contrary
notwithstanding.
All of these apparent conflicts are, by the
way, best resolved over lunch. Then the parties would negotiate which party
pays and if it is the publisher, the question becomes whether or not the
lunch is recoupable. [Grin]
© 1996 Ivan Hoffman
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This article is not intended as a substitute
for legal advice. The specific facts that apply to your matter may make
the outcome different than would be anticipated by you. You should consult
with an attorney familiar with the issues and the laws.
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No portion of this article may be copied, retransmitted,
reposted, duplicated or otherwise used without the express written approval
of the author.
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