OUT OF PRINT

 

 

Presented by:

Michael Thompson

at the Chicago Literary Club

November 3, 2003

michaelthompsonlaw@earthlink.net

 

 

I.          INTRODUCTION

 

A.        As my first paper before the Chicago Literary Club I’ve chosen a topic that I’m sure all of you have at some point in time encountered:  a book being out of print.  I’m going to talk about that phenomenon not from the point of view of a frustrated consumer, however, because in large part that frustration can now be eliminated by a quick review of any of a multitude of websites specializing in used books, but from the point of view of the discontinued book’s author.  Authors write books, as we all know but, in order to make a living they must also negotiate and sign publishing contracts with publishing companies.  These contracts involve many issues, not the least of which is the size of the advance and the associated royalty rate, but one of the most important is determining when a book goes out of print and, as a consequence thereof, the literary rights granted by the author to the publisher revert back to the author, who is the initial creative force that starts the whole process.

 

A book going out of print has always had serious economic implications for an author, and I will discuss exactly how those have worked historically and how, for the most part, they continue to work now in the 21st century.  Currently, however, there are more things for an author and a publisher to worry about than there were in the past and the implications of these contemporary challenges are both more threatening and more complex. 

 

In other words, the notion of being out of print is undergoing a sea change in this digital age.  It bears the dual and competing prospects that authors, on the one hand, will never again have to worry about their work becoming unavailable, but on the other hand, it will mean that authors will never again be confident that they can control the literary property they have created.

 

B.         I’ll begin with an explanation of the traditional trade publishing issues that have always been a regular part of a publishing lawyer’s practice, but that explanation will serve only as a transition to the brave new world of digital rights and of the implications it holds for all transactions involving artistic or literary property.  The Internet, digital piracy, and file sharing may well be an opportunity for some, in particular those with baggy shorts and skate boards, but in my view it presents a clear and present danger to the economic security of anyone who is concerned about the ownership, control, and attribution of literary or artistic property.

 

 

II.         THE RELATIONSHIP BETWEEN AUTHOR AND PUBLISHER

 

A.        Under the Copyright Act of 1976, which despite its name became effective in 1978, an author owns whatever he or she creates.  As the owner, he can do with it as he pleases, he can sell it, copy it, or license it to a publisher for publication as a book.  The standard book deal in the United States is an example of the last option, under which the author licenses his work to a publisher who agrees to process it as a manufactured book, either hardbound or paperbound, and then distribute it, or arrange for its distribution, to retail sales outlets usually throughout the country.  The publisher will typically pay the author an advance, in the neighborhood of five to ten thousand dollars, and the author will earn royalties against that advance, in the neighborhood of 6-8% of the retail price.  (Obviously, authors with successful best-selling histories, such as J.K. Rowling, or with some sort of celebrity status, such as Hillary Clinton, can command more lucrative arrangements, but I will focus here on what in my experience is a typical book deal.)

 

The publisher fronts the money for the book’s printing, for promotional activities,  and for the cost of maintaining the book in its inventory, which is usually maintained both in warehouses owned by independent distribution agents and on the shelves of retail book stores.  As copies of the book are sold, the publisher collects its share of the proceeds from the retail sellers and, after the advance has been earned back, remits to the author the agreed-upon royalty percentage.  This straightforward arrangement continues so long as the publisher has books to be sold, either from the first printing of between 2,000 and 5,000 copies, or from any subsequent printings the publisher has in its discretion, and at its own risk, chosen to undertake.

 

In theory, after a book has been sold out and the publisher has chosen, or neglected, to provide for another printing, the book is out of print and the author’s license to the publisher comes to an end.  At that point in time, the publisher no longer has any right to publish the book and the author is once again its sole owner.  He or she can take the literary property to another publisher for a subsequent issuance, can sell movie or serial rights to studios or magazines, can write competing works, or can lock up the rights entirely and do nothing at all. 

 

Publishers are loath to allow this to happen.  Having spent the money on the advance, the promotion,  and the manufacturing, the publisher has nothing to lose by keeping its license from the author in place in the event interest in the book, or in the author, picks up again.  Publishers will therefore try to define out of print in vague, open-ended terms, sometimes even in terms that refer to their own unfettered discretion, but in any event in some way that avoids a clear delineation of exactly at what point in time the out-of-print status occurs.  While authors can and should negotiate for clarity in the contractual wording, they must nevertheless recognize that while the publisher’s promotional activities have in all likelihood moved on to this season’s new current list of titles, the publisher is usually left with some unsold inventory of the author’s book, and that will make a reversion of rights a difficult idea for the publisher to accept.

 

B.         How this conflict between the author and the publisher is resolved depends, of course, upon the exact wording of the reversion clause in the standard publishing contract.  Here are two examples:

 

The first comes from the standard contract used by W.W. Norton, a main stream New- York-based trade publisher:

Discontinuance.  If the publisher allows the work to go out of print and declines to manufacture another printing, the Author may inform the Publisher in writing of intent to cancel this agreement; if the Publisher fails to bring the work back into print within six months after receipt thereof, unless prevented by circumstances beyond its control, the Author may cancel this agreement by written notice to the Publisher….  It is agreed that the work shall be considered to be in print if its text is available in its entirety in any volume regularly offered for sale in the United States of America….

Let me make a few observations about this provision.  It defines out of print negatively by the phrase not “available in its entirety in any volume regularly offered for sale.”   First, the book is not considered to be out of print so long as a single copy is available for sale anywhere in the country.  Any unsold inventory, therefore, will prevent the reversion of rights.  Second, and more ominous, the availability of the book as a used book on the Internet or, given the literal language used in this contract, even in a single used book store (so long as it was regularly on the shelf and ready to be sold), would prevent the author from ever regaining his or her rights to the book.   Under this definition, virtually no book would ever be out of print.

 

An alternative version of the out-of-print clause can be found in the form publishing contract posted on the website of the Science Fiction Writers of America, www.sfwa.org, which I recommend to any writer, whether of science fiction, general fiction, nonfiction, or otherwise, as a useful source of practical information about the book business.  It reads:

Reversions and Termination. In the event that the Publisher’s edition of the work shall at any time be out of print, the Author or his representative may give notice thereof to the Publisher, and in such event the Publisher shall declare within thirty (30) days in writing whether or not he intends to bring out a new printing of the work…[I]f he declares his intention not to bring out a new printing of the work, then this agreement shall automatically terminate and all rights hereunder shall revert to the Author…. The work shall be considered in print so long as the total print run minus total sales of all kinds, total destroyed copies, and total promotional copies distributed shall exceed 250 copies of the work.

Without taking time to parse the mathematical formula at the end of this provision, let me summarize it by saying that, from the author’s point of view, this is a much better definition of out of print.  First, the publisher has only thirty days to decide whether to bring out another printing, rather than the six months in the Norton contract.  Second, and more importantly, the publisher must have an inventory of at least 250 books in order for a book to considered to be “in print”.  This discourages any manipulation of inventory levels by a publisher with the intention not of selling books but of preventing a reversion of rights.  And finally, and most importantly, in order to be in print, the book must be available from the publisher; its availability in the used-book market has no effect on its out-of-print status.

 

While I like this provision, and would not hesitate to recommend its acceptance to one of my clients,  it’s not the provision I would prefer to use.  I feel it terminates the relationship between the author and the publisher too early: when the publisher still has a relatively large number of books to be sold.  The interests of the author and publisher actually coincide in most ways because both have an interest in selling any unsold books as quickly as possible.  I recommend a definition of out of print that targets the end of this coincidence of interests, that is, the point in time when the publisher no longer has a financial stake in a book’s sales.  In most cases, that’s when the publisher sells all of its remaining stock for one lump sum to a discounter and the book becomes what the industry calls a “remainder”.  I would therefore define out of print as follows:

If the book or any revision thereof is no longer offered for sale by the Publisher, if the Publisher makes a bulk transfer of all or substantially all of the Publisher’s inventory of unsold copies of the book in a remaindering transaction, or if at any earlier time the Publisher determines that the work is no longer viable in the marketplace and should not be revised, then all of the rights and interests in the book shall revert automatically to the Author and this contract shall terminate.

No doubt you noticed that there are a number of differences between this provision of mine and the other two.  For our purposes here, however, I’ll just point out that it focuses on the sales efforts of the publisher as well as its inventory level, and it provides for automatic termination rather than notice and response.  In general, it is a provision that is fair to both parties to the contract, and therefore it is very hard to get a publisher to agree to it.

 

III.       DEFINING OUT OF PRINT IN THE DIGITAL AGE

All of what I’ve said so far this evening is just background for what constitutes the actual topic of this presentation: how does a literary work go out of print in the digital age.  My comments so far, as well as the standard contracts still in use in the publishing industry today, assume the continuation of the current prevalent method of printing and distribution, that is, that publishers make an initial print run and then sell those books as physical objects through retail outlets.  While that assumption may hold true for the vast majority of books being released today, it is no longer by itself an adequate way to analyze the economic interest of the publisher or the author.

 

We’ve all heard about, and perhaps some of us have actually experienced, electronic books.  These books are available on the Internet, or perhaps by CD, and can be read on a computer without the intermediary need of ink, paper, presses, and an elaborate retail distribution system.  This “disintermediation”, as it’s called by the electronic cognoscenti, if it were ever to be realized on an industry-wide scale, holds vast  implications for the cost of delivering written, copyrighted material to end users, whom we have heretofore called “readers”, and for the economic and legal well being of the vast number of individuals and entities involved in the publishing trade.  Contemplate how, of even if, the out of print issues I just outlined for you in the traditional publishing context will be different in a situation where a book is always available on the Internet to anyone with a credit card number and a computer screen.  When, in such an environment, is it appropriate for an author to regain his or her right to exclusive ownership and control of his or her literary property?  And how can he or she regain ownership and control when digital copies can be copied, downloaded, e-mailed, and even modified, at zero marginal cost with the click of a mouse?

 

The electronic-book scenario one normally hears about entails a website with a list of titles available for downloading on a pay-as-you-go basis.  A reader goes to the site, selects a book, pays a small charge for it, and then can read it at his or her leisure on his or her own computer over whatever period of time is suitable to his or her tastes.  Barnes & Noble has taken this idea very seriously.  As you may know, Barnes & Noble is primarily not a publisher but a retail book store chain that has been very successful in the traditional book market.  Nevertheless, it has begun to acquire the so-called digital rights to existing books currently in print, or at least still covered by a publisher’s contract and, in some cases, to acquire digital rights in original material that has never before been published.  It is able to offer a higher royalty rate to authors, 35% according to published newspaper reports, but that percentage is applied to a much lower base: a purchase price of between $5.95 to $7.95.   This new economic model doubtless reflects the different economics of electronic versus physical distribution of literary texts.

 

In the electronic world in which these books are sold, a book never needs to go out of print and under current industry norms an author never regains complete ownership of his property.  Perhaps this is not a bad result, at least so long as electronic versions of the book are being sold and the author is collecting 35% of the proceeds, but as a lawyer I would always be wary of a virtually perpetual grant of rights.

 

Jason Epstein, however, doesn’t consider this model to be realistic.   Jason Epstein is the founder of the Library of America, of Anchor Books, an early imprint of quality paperback’s, and a co-founder of the New York Review of Books.  He is a respected innovator in the publishing industry, and has researched and written much about the impact of the digital revolution on the economics of publishing.  In his view, readers are not interested in reading computer screens, but they are interested in acquiring traditional books easily and efficiently.  He foresees the advent of small printing presses located in local places like Starbucks or university residence halls that manufacture and dispense paperback books one at a time in response to an order placed on a computer by a nearby resident.  In this model, the buyer will peruse a catalogue of available titles on the Internet, make a selection, and the Internet merchant will send e-mail instructions to the buyer about where and when he can pick up his order.  This system has obvious implications to the out-of-print debate.  To quote Epstein, writing in the New York Review of Books, “[s]ince digitized books occupy no shelf space, they can remain in print and in stock as long as digital storage devices survive.” 

 

Even though a book never goes out of print as I suggested a minute ago, authors should eventually get their rights back.  They are often interested in writing sequels, in having a work included in anthologies, in university readings, and in a whole host of other types of activities that they should be able to undertake without permission from a publisher.  While there are no industry standards developing at this point, at least so far as I’m aware, one approach to this issue is to limit the initial grant of rights only to electronic publishing.  This is quite a departure from the current practice whereby the publisher acquires essentially all rights, the right of first publication along with the so-called subsidiary rights such as movie rights, paperback rights, translation rights, audio rights, et cetera.

 

A less drastic idea would be a reversion of rights tied back to sales.  If after a period of several months no electronic sales of the book or only some nominal amount of sales have been made, I would propose that the author should be permitted to terminate the publishing contract.  The rationale for choosing this point in time is that having sales decline to a de minimus level probably indicates that the method of distribution used by the publisher has been exhausted, and the author should therefore have the right to pursue other avenues of distribution, whether it’s movies, television, serialization, or something else, on his own or in cooperation with another entity that specializes in that medium.

 

Determining an electronic counterpart of the being out of print is only part of the new challenge, however, and in my view it is not the bigger part.  With books distributed to readers as electronic files, there exists a very real possibility that the property owned by the author can no longer be controlled by anyone, the author, the publisher, or anyone else.  While digitalization of literary property holds the potential to make the out-of-print issue moot, a proliferation of Napster-like services for sharing literary property holds the potential to render virtually worthless the value of literary ownership at all.

 

IV.       REVIEW OF THE NAPSTER CONTROVERSY

A.        As you may recall, Napster permitted the exchange of files over the Internet by providing software that enabled one user to list songs he or she was willing to share with others in the form of digital copies.  It also maintained a website whereby such information was made available to all participants.  It was shut down by order of a federal court on two separate but related bases of liability under the copyright laws.  First, for contributory infringement, which is knowingly facilitating or materially contributing to an infringement by another person.  Second, Napster was found liable for vicariously infringing the copyrights of others by allowing its users to exchange copyrighted material over facilities it controlled. 

 

Although Napster is no longer operating, it has been replaced by several other websites with slightly different operating procedures, and bearing names like KaZaA, iMesh, Grokster, et cetera.  The Recording Industry Association of America, claiming that file sharing has dealt it a severe financial blow, has now bypassed these services entirely and proceeded directly against the file sharers themselves.  In September of this year, it launched 261 lawsuits against students and other music aficionados who it claimed had downloaded over 1000 songs each.  This litigation is not over, and newspaper reports indicate that the RIAA is settling individual suits for between $3,000 and $7,000 along with obtaining a signed commitment to cease and desist from future file sharing activity.

 

B.         Whether file sharing of electronic books will ever pose the same threat to authors and publishers that file sharing of music poses to musicians and record labels is a matter of some speculation.  One important difference between music and books is that the shared medium, usually a compact disc, is the preferred one for music listeners, while it most decidedly is not for book readers.  If Jason Epstein is right, and I personally think he is, readers will not willingly exchange the opportunity to sit quietly in front of a fire, next to a single malt, reading words off a carefully designed printed page, for a rigid chair in front of desk on which a keyboard and computer screen sit. 

 

V.        MOVIE RIGHTS

A.        But before we conclude that the digitalization of books will not have the impact on the cozy world of publishing that the digitalization of recordings has had on the more flamboyant world of recorded music, the analysis must be deepened to a third, and final, level.  Authors have always wanted to sell books and for most of them the sale of books is their principal source of compensation.  For some, however, more money can be made by selling movie rights, which is one of the subsidiary rights I mentioned earlier.  Subsidiary rights are typically sold by the publisher for a fixed sum which is then split by the publisher and the author.

 

Most books, of course, are never made into movies, although a surprisingly large number of them are optioned, that is, a motion picture producer will pay several thousand dollars for the right, but not the obligation, to acquire the rights to make a movie based on the book.  This has several advantages for both the author and the producer.  First, for a relatively modest outlay of cash, the producer can tie up the movie rights to a particular literary property and thereby buy time to permit him or her to determine if financing is available.  If it is, he or she can exercise the option and then pay a larger amount to acquire the rights with investors’ money.  For the author and the publisher, the option provides immediate cash without imposing any affirmative obligations.

 

The amount paid for the option, and the amount paid for exercising the option, is clearly linked to the anticipated profitability of the potential movie.  I make this obvious statement merely to set the stage for the next statement:  while authors may take some solace in the fact that readers’ preference for the printed page will insulate them from the worst excesses of digital file sharing, makers of movies cannot.  The preferred medium for music is the CD, and the preferred medium for movies is the CD as well, although it goes by the designation DVD.

 

B.         The potential impact of file sharing, also known as piracy, on the movie industry, is worth considering by authors who hope to do or to option a movie deal.  Before looking at that directly, however, it will be a good idea to take a brief look, from an author’s point of view, at some of the basic aspects of how the motion picture business works.

 

First, a producer will option and then exercise the right to make a movie based on a particular literary property which, as we all know, becomes known as a screenplay.  The producer selects the work, pays for it, hires the staff, arranges for financing, determines the production budget and, in general, oversees the making of the film.  He is compensated by a set fee and a percentage of the profits.

 

Talent, as it’s called, comprises the actors, screenwriters, and directors who generally get paid a fixed salary at whatever level they can negotiate, but in most cases in accordance with a variety of collective bargaining agreements that are in place in the industry.  Some talent with clout, such as name-brand actors and directors, can bargain successfully for a percentage of the film’s profits, which will be paid by the producer out of his profit share.  Screenwriters rarely achieve this level of compensation.

 

When the movie is finished, its release is a carefully choreographed sequence, designed to maximize revenue through the release of the film in certain venues with certain audiences at certain price points.  A release will follow this chronological path:

 

 

Conventional wisdom, about which I express no opinion, is that the motion picture business isn’t viable if it can’t preserve the integrity of this sequential  release system.  Stated differently, without the preservation of the residual value of a film studio’s back list, film studios would go bankrupt.  And it goes without saying that financial problems in Hollywood will reverberate in the publishing houses in New York, and in the bank accounts of authors across the nation.

 

C.        Movie file sharing, or piracy, quite obviously strikes at the heart of this carefully-staged sequential release.  In the same month in which the Recording Industry Ass’n was filing its lawsuits (last September), AT&T Labs, formerly know as Bell Labs, issued a study of movie piracy.  It reported that the Universal Studios movie The Hulk , released last summer, began appearing in file sharing websites two weeks before its theatrical release, that is, before the release sequence even began.  The pirated digital copy was traced to an employee at an advertising agency that had been hired by Universal for the promotional campaign.  In reaction, Jack Valenti, lobbyist and CEO of the Motion Picture Association of America, banned distribution of screening DVDs to members of the Academy of Motion Picture Arts and Sciences, the group that awards the Oscars.  The ban is now under reconsideration and may well be rescinded depending on resolution of how screening tapes will be encoded.

 

Apparently the only thing that has stopped Hollywood from being in the throes of a Napster-style onslaught may well be the size of the DVD files.  It generally takes about two hours to download a complete full-length movie, and only several minutes to download a song.  Nevertheless, the New York Times reported on September 23rd of this year that industry estimates are that 350,000 to 400,000 movie files are downloaded daily, and on the next day the Times published a new estimate of 500,000.  This activity, if it isn’t stopped, can become a serious problem for Hollywood and, indirectly, for the authors who created the stories on which the Hollywood screenplays are based.

 

VI.       CONCLUSION

In conclusion, the leitmotif of this presentation is a warning for authors and for anyone else who owns literary or artistic property that the ability to control the material you create is undergoing a rapid and difficult transition.  The Internet is quintessentially about information, interactive, detailed, combined text and illustration, delivered with the ease of making a telephone call, which is what your computer does when you go on line.  It has had obvious benefits for all of us who use it, and with which all of us are familiar, but it also poses challenges for those who actually own the information that is being displayed, read, analyzed and, importantly, copied and shared.

 

Despite the insularity of the book world, which the New York Times characterized last June as the “spinster aunt of the entertainment industry”, the digital revolution will need to be dealt with, and the legitimate interests of authors and publishers will have to be protected if the industry is to continue to deliver information in the traditional packages that most of us have grown to desire and prefer.  The debate has shifted in only a few short months from defining “out of print” in the context of sales volumes and inventory levels to determining how a DVD should be encoded with an indelible software identification mark.  At stake is not merely the profitability of movies and books, but ultimately also the control and attribution of the literary and artistic property creative people choose to create.

 

 

© Michael Thompson 2003