Simon Etherington is a Legal Officer at Arts Law
Earlier this year Arts Law was contacted by a number of authors who wanted advice about their rights to royalties for sales of their books. The authors had been accustomed to dealing with and being paid their royalties by an Australian publishing house.
Problems arose when the authors received letters from a new Australian publishing company, explaining that the first publishing house's business had been sold to the new company but without any obligation for the new company to continue paying royalties to the authors for sales of their books. That is, the new company claimed to be entitled to sell copies of the authors' copyright works without paying them any royalties. The authors asked us for advice about their rights.
What's the story?
The upshot of our analysis is that the legal case against both publishing companies is not as straightforward as you might think or hope.
In general, permission is needed before someone can copy another person's copyright-protected work. This permission is often given in the form of a licence. Licences are usually granted in return for a promise of royalties. This means a licensee (the person or company being granted the licence) is allowed to print copies of your book and then in return the licensee has to pay you a royalty. The amount of the royalty is negotiable and is often based on the number of copies sold or the amount of profit made.
In this case it turns out that the licence agreements (i.e. publishing contracts) the authors entered into were not with either of the publishing companies. Instead they contracted with overseas-based companies supposedly related to the first publishing company. The contracts were brokered by the same staff at the same publishing house that the authors were used to dealing with.
The books were then printed under licence by the overseas company and provided to the first publishing house for distribution and sale. The first publishing house would then pay the authors their royalties on behalf of the overseas companies. This arrangement worked only until the publishing house, including the books, was sold to the new publishing house. As the new company has no contractual agreement with the authors, they argue they have no obligation to pay the authors royalties.
While it seems clear that the authors have a right to be paid their royalties by the overseas companies this is not much help to them because it will cost more time and money than it is worth to pursue the foreign companies for the money owed, especially where those companies have no presence in Australia and their assets are all overseas. Besides, it seems that the overseas companies may have gone out of business in the meantime.
The authors are therefore left in the position that they have to decide whether to pursue more complicated legal action against the new Australian publishing company that has taken over the arts publishing business, or just wear the losses even as the new company continues to sell copies of their work.
What can we learn?
Some general pointers about how to avoid getting into a similar situation:
Be very careful who you contract with. When you sign a contract take care to notice exactly who is going to keep the promises that are made to you. If they are a company make sure you note the exact corporate name – sometimes companies are organised in groups where the individual companies have very similar names. You need to be clear about which one you are dealing with.
Are the people you are contracting with reputable? And do they have money? If it is a company, consider contacting the Australian Securities and Investments Commission (ASIC) and inquiring about the company's capitalised value (i.e. the worth of the company). Many companies don't have enough money or assets to pay the debts you are owed.
Think especially long and hard if the person (or company) you are dealing with is based overseas. What will you do if they do not pay you? Can you afford to chase them overseas? If not, the contract may be worthless to you.
With publishing contracts, check the provisions dealing with ‘reversion' of rights. You should try to ensure that if the licensee defaults on their payment obligations all the rights in your copyright work revert to you. This way you can at least try and seek out another publisher for your work.
If you are being paid royalties that vary according to the price at which your work is sold, check what provisions there are for your works to be sold at a discounted price. Are you happy with them?
- Generally publishing contracts (and other contracts providing for royalty payments) should have provisions requiring the publisher to account on a regular basis (eg quarterly, annually) and give the author, or the author's accountant, the right to inspect the publisher's books.
It is therefore a good idea get legal advice, for example from Arts Law or the Australian Society of Authors, before signing a publishing agreement.