BY:Michael I. Rudell and Neil J. Rosini
Originally published in the Entertainment Law column in the New York Law Journal on October 2, 2017.
Our last column analyzed provisions customarily included in agreements between performing artists and managers. Several of the same concepts also apply to agreements between authors and literary representatives. Although literary representatives do not seek employment for their author clients, they frequently are referred to as agents, as we will here.
The Agency Clause
Not all literary agents enter into separate written agreements with authors. Instead, agents often wait for preparation of the publishing agreement. It will contain a provision (the “Agency Clause”) specifying at a minimum that the agent (or agency) is empowered to act on behalf of the author in all matters arising out of the agreement, to receive all payments due under the agreement, and to deduct its commission before sending the balance to the author. Although agents are not parties to publishing agreements, publishers ordinarily do not object to the practice of inserting an Agency Clause in the agreement.
Often these relatively short clauses entitle the agent to a commission on more than the mere publishing rights being conveyed by the agreement in which they appear. For example, the Agency Clause may attach to matters arising out of the author’s “work” instead of just to the publishing agreement. Accordingly, if the publishing agreement reserves audiovisual rights for the author, the effect may be to entitle the agent to a commission from the disposition of audiovisual rights. The argument made by the agent for this entitlement is that in representing the publishing rights, the agent was an important factor (albeit an indirect one) in achieving revenue from ancillary uses like TV and film following the book’s publication. The author, however, should be made aware of this outcome.
An agency-author agreement made at the outset of an author-agent relationship rather than when the publishing agreement is being executed can cover a range of important details that don’t fit in a single Agency Clause. For example, it may start by describing the works covered by it, which might be one or more particularly designated works or, alternatively, all works written by the author during the term of the agent-author agreement. In that instance, issues may arise in determining what “written by” embraces — for example, when a work is started but not completed during the term.
An author-agent agreement ordinarily will designate the agent as the author’s exclusive representative during the term of the agreement. Then, even if the author is able to place the work with a publisher without the services of that agent, or another representative hired by the author finds or completes the deal, the agent will be entitled to a commission if a publishing agreement is entered into during the term.
Agencies can vary in size from one or two person operations to large corporations employing many agents. If the author’s agency relationship is with a business entity rather than with a particular individual, the author should consider the consequences of that. For one thing, a corporation can transfer its assets – including its author agreements — as part of a stock sale. Even if the author-agent agreement contains a provision prohibiting assignment, that wouldn’t necessarily stand in the way of a sale of the stock of the agency, perhaps to another agency with which the author might not choose to associate. Also, an agency relationship with a corporation or limited liability company doesn’t necessarily obligate the agency to provide the services of the particular individual whom the author chose to represent her; the agency could satisfy its obligations by selecting a different agent in the organization.
To avoid that, an author can seek a “key person” clause in her agency agreement, which provides that an agent identified by name must render substantial day to day services or else the author will have the right to terminate. Agencies are reluctant to accept this restriction. But the author-agent relationship is very personal and the author may insist on approving the particular agent who principally will represent her.
The services to be rendered by an agent and the agent’s level of expertise and experience are not often specified in agency agreements (and not stated at all in Agency Clauses). Apart from seeking a publisher, agents often provide advice to the author regarding the covered works. They often help shape the book proposal and even provide editing advice. They are expected to know the editors at publishing houses who might be interested in the type of work the author is writing. They also should know industry standards for setting advances and other business terms and should be skilled at negotiating good deals. It is unusual, however, for author-agent agreements to detail any of this.
The agency will seek to represent not only United States publication rights in the book but also, if the book is not sold to the U.S. publisher on a worldwide basis, foreign translation rights. Some agencies maintain their own in-house foreign rights departments and sell the rights directly to foreign publishers; others engage co-agents to work with them in the disposition of foreign rights.
Although there are instances when agents accept a lower percentage, an agent ordinarily receives 15% of all monies actually received from exploitation of rights in the work except with respect to foreign publication rights if they are not included in an agreement with a U.S. publisher. For the sale of those rights, the agent will receive 20%. The reason for the higher percentage from foreign sales is that the agent often splits the foreign sales commission with a foreign sales agent (10% to each). If the agent maintains its own foreign sales office, then the professed reason for the higher percentage is the additional effort and expense involved in selling foreign rights.
Although literary agents often seek to represent film, television and other rights derived from the work, most do not have the contacts or capacity to sell those rights directly. Typically they will engage a book-to-film co-agent to represent those rights and split the commission, taking 7.5% each. (Some literary agents attempt to obtain 20% for the disposition of film and television rights, but this ordinarily is resisted.) The money paid by the licensee of audiovisual rights normally will flow through the book-to-film agent, which deducts its commission and transmits the balance to the literary agent, who then deducts its commission and pays the author the remaining sum. Even when the author does not have contractual privity with the book-to-film agent, she still may negotiate for the right to approve the literary agent’s choice of one. Or, the author might seek the right to choose the film agent directly with the understanding that the literary agent will receive its 7.5% from the film agent.
The literary agent will seek to be reimbursed for expenses that it incurs during representation. The author may seek the right to approve those expenses, but more realistically the author may seek to place limits on reimbursable expenses incurred without approval, such as a cap on any single expense and on expenses in the aggregate.
Issues can arise when an author decides to terminate an agent. New York allows an author to discharge an agent at any time, notwithstanding an agency agreement, but unless the discharge is for cause, it won’t affect the agent’s contractual entitlement to compensation. At times, the parties negotiate what will occur should the agent be terminated before an agreement with a U.S. publisher is fully executed. In that instance, the agent might not be entitled to a commission unless the termination occurs after a publishing agreement has been substantially negotiated and is executed within a certain number of months following the termination of the agency relationship.
If the author and agent have a parting of the ways after a book deal is made, the agent ordinarily will receive a full commission on all payments derived under that agreement. However, a negotiation among the author, the discharged agent and the new one regarding how the commission on unsold rights will be shared, would not be unusual. For example, the prior agent and the new agent each might agree to share 50% of the commission with the new agent handling the disposition of unsold rights.
A separate author-agent agreement is likely to include a clause specifying the choice of law applicable to any claims or disputes as well as the venue for lawsuits, or for arbitration if the parties elect that route instead. New York law and jurisdiction is the natural choice for agencies located in New York, not only for convenience, but also because the state has a body of precedents that may answer questions not yet litigated in other states.
Difficult questions may be raised during the negotiation of an agreement between an author and her agent, particularly because the relationship is a personal one and the parties at the outset might prefer just to share optimism and warm feelings towards one another. But facing the issues at the start may avoid even more difficult issues later.