PUBLISHED JANUARY 2001
With the already happening revolution in printing, what sorts of contract provisions are to be included in an on-demand printing agreement? If you’re a publisher (licensor) controlling on-demand rights in your author agreement, or you’re an author who has reserved such rights in your agreement with a publisher and you seek to make a deal with an on-demand publisher (licensee), or if you are or contemplate becoming an on-demand licensee, what must you be aware of in that deal? On-demand publishing rights can be exercised by a publisher (or indeed even an author directly), but at least at this time, the trend seems to be to license these rights to firms with the technology and marketing to handle the on-demand book. For the purposes of this article, on-demand refers to a format by which a book or article is made available on a single copy basis. It can be via the Internet by downloading to a user’s computer or through an ordering system that then delivers the printed book to the consumer. It can also be through an in-store kiosk that then delivers the book to the consumer.
Controlling the Rights
As between author and publisher, the foundational issue is which party has the rights to make such a deal? To resolve this issue, the parties need to examine their author-publisher agreement. Frankly, if the issue of on-demand rights is not specifically covered, there may be an uncertainty. If the contract is more than a couple of years old or in any instance where the parties have used a form from a book, on-demand is very unlikely to have been discussed with any specificity. Merely a mention of “electronic rights” is often not specific since the scope of these “electronic rights” has greatly expanded. (Read “Electronic Issues in Publishing Contracts” on my site. Click on “Articles for Writers and Publishers.”) Since whichever party is going to be making the deal will generally have to represent that it owns the rights to make the deal, it’s important that the ownership of these rights be quite clear including provisions that detail what the non-controlling party gets from the exploitation of those rights. The author-publisher agreement should also contain provisions by which the non-controlling party, say the author, is compensated for the exploitation of these rights by the other party, in this example, the publisher. What percentage of the income so derived is going to be paid to the author if the publisher exploits the market itself or, alternatively, if it licenses the rights?
The On-Demand Deal
The Grant and Term of Rights. What is the scope of rights being granted to the licensee? Is it to make the book available online? Or merely offline but in an on-demand format, say in a kiosk inside a store? And if it is online, it is off of the licensee’s site only or does the licensee have rights to further sublicense its rights? Does the licensee have the right to combine the licensed work with others, and if so, how does this impact on the participation by the licensee (see below)? As in all deals, are the rights being granted exclusively or non-exclusively or in some combination? For how long shall the licensee have rights? Given the newness of the format, caution on the publisher-author’s side would dictate that the term be as short as possible giving those parties an opportunity to either renegotiate or find a new licensee at the conclusion when the market matures. The pull, of course, is between the parties. Clearly, the licensee would like as broad a set of rights for the longest term as possible, even if it is not currently in those markets. However, the licensors should grant only those rights that the licensee is currently able to exploit on its own without further sublicensing, thereby allowing the licensors to make other deals. Ownership of the Rights in the Electronic Version. Generally speaking, the creation of the electronic version of the printed material is deemed a derivative work in the parlance of the United States copyright law. The creator of a derivative work can only make that work with the consent of the original copyright proprietor in most instances and that is the function of the on-demand agreement. However, that in itself does not resolve the question of who owns the rights to the derivative work so created. Additionally, if the licensee creates new copyrightable work in regard to the licensed work, such as new graphics or the like, who owns those rights?
What share in the revenue derived from the on-demand work is going to be retained by the licensor and licensee? There are a number of scenarios. The first is a sale or download of merely the one work being licensed. How much should the licensor be paid from that act of exploitation? Another possible scenario is the sale or download of only a portion of the work being licensed. (Read “Compilation Rights in Book Contracts” on my Web site.) Given the fluidity of the process of electronic publishing, these issues become potentially problematical. Some licensees are now offering percentages of the revenue derived when only part of a work is made available in some sort of on-demand format. What is the revenue in which the licensor is going to share? How is it defined? Is it based on gross or net income, and if the latter, how is the difference defined? What costs are allowed to be included in determining “net?” Is income limited to merely that income derived directly from a download or an on-demand call for the particular work or a part of it, or does the licensor share in supplemental income the site creates such as advertising? The licensor can argue that by providing the licensed work, this helps create traffic on the site, and if so, shouldn’t the licensor participate in that stream of revenue? On the other hand, the pricing model may have already factored in that the supplemental income should belong to the licensee site owner so that the licensee can pay the licensor the royalties being proposed. There are other forms of arrangement by which the licensor sells the book to a consumer, generally off the licensor’s Web site, and then transmits that order to the licensee’s site which then prints the book and direct ships it to the consumer. The licensor is charged a “wholesale” price and its profit is the difference between that price and the retail price it has charged to the consumer.
Keep in mind that the entire area of on-demand and electronic publishing is brand new and there certainly are no “standard” deals. I have seen a wide variety of proposed structures, and they are all over the place. Each deal, like all deals, depends on the skill of the negotiator and the marketing clout of the licensor and upon the basis of who wants who more. But since we are in the “day of the deal,” a time when the four corners of the agreement will likely determine the success of the deal or the lack of it, licensors and licensees alike should approach these deals with care.