Foreign Publishing Deals and The European Union

FOREIGN PUBLISHING DEALS AND THE EUROPEAN UNION

IVAN HOFFMAN, B.A., J.D.

There are potentially enormous changes coming about in the world of foreign publishing. American publishers should make every effort to stay abreast of these changes so that they may position their businesses to take advantage of the opportunity the change may bring.

In a previous article ("Foreign Publishing Deals-Further Issues") I explained about the growing phenomena in the world today called "common markets." In this article, I would like to expand upon the financial impact that such common markets may have upon American publishers, most specifically the European Union (EU).

Just to repeat some background information: there are 15 member states within EU as of today. 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.

The Territory Issue

As I also mentioned in that earlier article, the EU 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. As a result of this provision, when you contract with a licensee in one country, you must be careful to define the concept of "territory." Example: if you are making a 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.

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.

And 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.

For more information about this "open market" provision and how you should not use it in your agreements, read the above article on "Foreign Publishing Deals."

The Money Issue

Beginning on January 1, 1999 and running through July 1, 2002, the various countries belonging to the EU will phase-in the single monetary currency, known as the Euro, and some of the members will phase out their national currencies. From January 1, 1999 but before January 1, 2002, the original currencies of the individual nation will be the only legal currencies. After January 1, 2002 but before July 1, 2002, both the original currencies as well as the Euro will be legal and after July 1, 2002, only the Euro will be legal in those member nations that have chosen to make the Euro their currency.

This has a potentially major impact upon the nature of the deals United States' publishers may make with foreign publishers, as well as deals currently in existence. These deals involve both:

the publishing in the EU of either an English language reprint or a local translation of the United States book; as well as

an English language reprint of an EU country foreign language book for sale in the United States.

If you are an American publisher involved in either form of these deals, then you must be aware of the potential issues that may arise.

The primary issue comes up if your contracts provide that you are to be paid in the local currency, such as Pounds Sterling, German Marks or some other local currency, as well as if you are the subpublisher and pay your European counterpart in its local currency. And while the EU treaty provides that there should be no change in how currencies are handled under the new provisions, the provisions of your contract with the European publishers may have an impact.

If you have contracts now in existence or if you enter into contracts prior to January 1, 1999, and those contracts provide that you are to be paid or are to pay in a foreign denominated currency, the EU regulations provide that the local currency will be redenominated in the Euro at the rate of one to one unless otherwise specified in the contract. If you enter into a contract after January 1, 1999, and your contract provides either that you are paid or must pay in a foreign currency, there should be a provision included stating that payment may be made in Euros at the same rate of exchange as for the previous indigenous currency.

As with all contracts in which the American publisher is to be paid in a foreign currency, this can lead to a great deal of uncertainty as to precisely how much money the American publisher is going to receive. Each nation's currency fluctuates, often considerably, against the United States dollar. In addition, there is the cost of conversion of foreign currencies to dollar denominated currency. Thus the contract with a foreign publisher should ideally provide that all payments are to be made in United States dollars so that the American publisher receives its monies net of any such costs and in effect, gets paid on royalties computed "at the source." There are of course, often charges levied by the American publisher's bank for the cost of wire transfer if that is how monies are transferred, but those costs are often absorbed by the American publisher.

And if the deal is such that an American publisher is to pay the foreign licensor, the contract should also provide that payment be made in United States dollars and that the cost of conversion is borne by the foreign publisher.

Conclusion

In Chinese, a language whose alphabet in its origins was composed of pictograms, the pictogram for the term "crisis" is itself composed of two other pictograms-one the pictogram for "danger" and the other the pictogram for "opportunity." This means that within any situation that appears to be a crisis, we have two choices: we can see it as a danger, something to be avoided or worked around, or we can see it an opportunity, something to be embraced. The path we choose depends in part upon how well we are prepared for the change that is often at the heart of what we deem a crisis.

To the extent that you, as an American publisher, are prepared for these coming changes and your foreign publishing contracts reflect that preparedness, you may be in a good position. To the extent, however, that you, as an American publisher, have tried to cut corners and use some sort of boilerplate, pre-printed, fill in the blanks foreign publishing contract form, you may now be facing the expensive task of paying for your attempt to save money in the first instance.

Value is almost always more important than cost. Cost sees only the danger in short term expenditures. Value sees the long term opportunities of proper preparedness.

It is the wise publisher that understands the differences.

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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.

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