Feature

FOREIGN PUBLISHING DEALS: Profit or Peril?

Not every book that comes out in the United States is a candidate for a foreign deal. For those that are however, the overseas market, while not likely to make the publisher or the author rich beyond their wildest imaginations, is definitely worth explori
By "foreign" I mean a deal made by an owner in the United States with a publisher in another nation. There are essentially two and perhaps three forms of foreign deals. The first is the right that the owner of foreign rights has to license the translation of the English version of the book into a foreign language. The second is the right to license the reprint of the book in the English language and sell the same in a local territory. There is also an export deal in which the American publisher sells the very same book that is distributed in the U.S. to a foreign publisher at a discount. The foreign publisher merely is distributing the U.S. book in that territory. While not traditionally considered a "foreign" deal, I have included in here to round out the picture.

The question as to who owns the right to make these deals is the subject of the agreement between author and publisher. Since copyright initially resides in the creator of the work--usually the author unless it is a work for hire situation--how much of that bundle of rights called copyright the author gives away is what that agreement is all about. Part of the negotiation will involve foreign rights of the sorts mentioned above.

FOREIGN DEAL STRUCTURE
The normal kind of deal for a book that originally was published in the United States generally involves a royalty and hopefully an advance against that royalty. The size of the advance varies depending upon the size of the market and the success or lack of it that the book enjoyed in the U.S. For example, reprint rights to a large territory, such as the United Kingdom or Germany, might bring a larger advance than a similar deal for Portugal. The same is true for translations. Since not all books are interchangeable, the rule of thumb for determining the size of the advance is based upon the "WYCG" approach. "WYCG" is the technical legal term for "Whatever You Can Get." If the buyer feels the book is going to do particularly well in the territory, that buyer may be willing to pay a larger advance for the rights. In all negotiations, the end result depends upon the relative bargaining position of the parties. But isn't that the same with life generally?

The advance will be applied against a royalty rate of somewhere between 7% and 10%, more or less computed, upon the retail price or cover price in the market. However, there may be other royalty provisions for foreign book clubs, flat fee licenses made by the foreign licensee and so on. The actual royalties in turn may be subject to other calculations that may reduce the effective royalty from the stated rate and these factors should be the subject of negotiation as well. See "Royalty Calculations In Book Contracts" on my website.

In the export deal, the American publisher sells the book directly to the foreign publisher at a discount from the cover or retail price, not unlike a sale to an American distributor. Here, however, the American publisher may seek payment in full in advance before shipping. How the books will be shipped may be another issue. In both the translation and reprint deals, shipping is not an issue. Diskettes or electronic transfer may suffice to get the book to the foreign publisher.

The owner of the foreign rights may elect to sell separate territorial rights to separate licensees or make an overall deal for several territories with one licensee. In the latter event, the advance that is paid can be separately allocated by territory and provide that there shall be no "cross-collateralization" between or among territories. This means that if the book does well in one territory and recoups the advance paid for that territory, the excess royalties due the American licensor may not be used to recoup any other un-recouped advance from another territory. See "Cross Collateralization In Book Contracts."

Obviously, having different licensees in different countries can be an accounting headache for the small publisher but it may be otherwise worthwhile not to put all one's literary eggs into the basket of a single licensee, at least until the relationship has proven itself. But isn't that as well the same as with life generally?

THE TERRITORY
Additionally, it should be made clear that the license to the foreign publisher does not include the right to export from the territory into other territories. This is a subtle but important point since a local publisher may feel that because they own rights for the territory such rights include the right to sell to exporters in the territory even though the ultimate sales may take place *outside* the territory. In this regard, it may be the same issue that an American publisher faces in its agreement with the author if the author has not granted foreign rights to that publisher.

If the licensee has the right to sell your book outside the territory, your ability to further license the book is potentially severely limited since that licensee may get there first, thereby reducing your power to make another deal (and make additional money in the process). And even if the licensee does not actually itself sell the book outside the territory, the licensee may sell the book to another company who is an exporter who then sells the book from the territory to another territory.

By including the "rest of the world is an open market" clause, you may be cutting yourself off from other sales. Example: if you sell exclusive Portuguese language rights to a licensee for Portugal and your agreement prevents "open market" sales, you can perhaps make an exclusive Portuguese rights deal for Brazil. But if your contract allows for open market sales by the licensee, it means that sales in that open market, which is, in this example, a Portuguese language version sold in other Portuguese-speaking countries such as Brazil or Macao, as a practical matter may cut off your ability to make an additional deal. I say "as a practical matter" because although such "open market sales" are usually on a non-exclusive basis, that original licensee is already in print with the book in these open market countries and your ability to make a competing deal is unlikely. Not only do you then lose the additional advance, but you often also receive a lower royalty on these open market sales since there is a sub-licensee involved.

Now imagine if the deal were for Spanish language rights in Spain. If you do not restrict the open market language in the deal with the Spanish licensee, you could be losing the practical ability to make other Spanish language deals in all of the countries of the world where Spanish is spoken.

THE "EUROPEAN UNION" ISSUE
Having said all that, let me also say that we have a growing phenomenon in the financial world today called "common markets." For example, there are 15 member states within the European Economic Union (EU). Such a union represents a single market for social, agricultural and fiscal policies as well as the development of a single monetary currency. The EU allows for the free movement of products across what would otherwise be international boundaries. There are several sub-unions as well: The Benelux nations (Belgium, Netherlands and Luxembourg) started in 1948. There is also the European Free Trade Association (EFTA) comprised of Iceland, Liechtenstein, Norway and Sweden.

We also now have the North American Free Trade Agreement (NAFTA) and many other trading relationships throughout the world. All of these are attempts to form an economic trading block to benefit member states in their economic relations with non-member states.

The EU for example, requires that when a deal is made in one territory, the licensee shall have the right to sell the book in all member states as well. So, and here is where it gets even trickier, the concept of "territory" must be clearly defined in your agreement. Example: if you are making that same Spanish language translation deal for exclusive rights in Spain, one of the EU states, then the agreement should provide that Spanish language sales in the rest of the EU are non-exclusive and bring the same royalty as sales within Spain and that any advances received by the Spanish licensee are included in your deal. But you can imagine that since Spanish is spoken in many European nations, your markets are potentially severely impacted.

And more importantly, the "territory" that is defined must expressly exclude the rest of the world outside the EU as an "open market." Otherwise you also lose the practical ability to make a Spanish language deal everywhere.

This becomes even more important with English language reprint deals. If you do not restrict the territory and you, as a publisher following the "standard" form you used without professional advice include this open market language, you could be losing substantial monies since now you have a competing book being sold, even if on a non-exclusive basis, everywhere in the world.

OTHER ISSUES
In deals involving translations, it is important to note that, from a copyright standpoint a translation of an English language book, originally copyrighted in the United States, creates a separate copyright in the translated work. That copyright may be governed by the laws of the territory, and may be different than United States copyright law. But as between American and foreign publishers, the ownership of this translation copyright can be the subject of a negotiation. The foreign publisher must, at the very least, warrant that it owns the copyright in the translation.

If this is a foreign translation agreement, the foreign publisher is responsible for paying the translator his or her royalty directly and the royalty paid to the American publisher is over and above that amount.

Among the other issues that should be covered in the sub-publishing agreement are:

* duration of the license (for a number of years or conditioned upon the continued publication in the territory or minimum number of units sold each year or variations on those issues);
* nature of the edition, whether hard back or paper, and a fixed date of indigenous publication;
* reserves against returns;
* frequency of accountings;
* which party bears the cost of currency conversion and fluctuations; and
* design and creative control, including approval rights to the translation if such is the nature of the deal (usually best left to the local publisher who presumably knows the market better than the American publisher. This is subject to the discretion and best judgment of the American publisher to know who is licensee is. Two of my books, "The Tao of Love" and "The Tao of Money," have been translated into other languages and the versions look very different than the United States' version.

AUTHOR AND PUBLISHER ISSUES
As between American publisher and the original author, the licensing fee (both the advance and the royalties) are usually split 50% to each but this may be subject to negotiation in the original deal. (Note however that in the case of exports, the royalties payable to the author are usually only one-half of the normal U.S. royalty rate and far less than the 50% mentioned.) It is wise to make clear how these licensing fees are going to be calculated. For example, if it is based upon the "net amount received" by the American publisher, are fees and commissions paid to owned and controlled licensing agents deductible? What about legal fees involved in the negotiation and drafting of any agreement? What about travel to and from Frankfurt for example where the annual book fair takes place at which many of these deals are consummated?

And if the author has retained foreign rights to a particular book and is going to use his or her agent to negotiate the same, it is worthwhile noting that often agency agreements provide that the agent receives a higher commission in such an event. That higher commission is to cover the agent's responsibility for paying the local agent in the territory for securing the deal (see "Beware The Agency Agreement"). And even if the author retains these rights, the author may have a contractual responsibility to pay to the American publisher a share of the income therefrom.

CONCLUSION
There are many other issues that may arise in such deals. This is an area filled with subtlety and nuance. Your rights and, more importantly your remedies are subject to severe geographical and, as a result, practical difficulties. As a further result, your contract must be as strong and protective as it can be.

You should not be representing yourself in such negotiations. Cutting and pasting from form contracts can turn out to be quite self-defeating. Seek professional advice, presumably from an attorney.

- - - - - - - - - - -

Ivan Hoffman is a publishing, copyright, Internet law, recording and music attorney as well as a published writer and author. He practices in the Los Angeles area. You may reach him on the Internet or via a real telephone at (310) 899-9641.

- - - - - - - - - - - - -

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.

- - - - - - - - - - - - - No portion of this article may be copied, retransmitted, reposted, duplicated or otherwise used without the express written approval of the author.

- - - - - - - - - - - - -

Editor's note: In our mid-month issue, we will present Part 2 of the Foreign Publishing Deals: Profits or Peril, in which author Hoffman will discuss Author/Publisher Issues and What Happens After Frankfurt?


Comments