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 this paragraph 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. (see the further discussion below).  However, there are often other parties who may have rights that may prevent the making of a foreign deal including but not limited to artists, illustrators, editors and even, in some instances, distributors and other parties.  Therefore, the publisher must carefully review all of its agreements (or the lack of such agreements) to make sure it can actually make a foreign deal.

        The advance will be applied against a royalty rate that varies and which is likely to be based 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 site.

        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 generally 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 unrecouped 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.

        By including the "rest of the world is an open market" clause (which many “form” agreements provide), the American publisher may be cutting itself 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.

        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 the concept of "territory" must be clearly defined in your agreement.

        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.

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

        Once the book is in the hands of the foreign publisher, the American publisher runs the risk that the foreign publisher might proceed to publish the work even without an agreement and without paying the American publisher.  Therefore, an American publisher should be very careful and in the ideal situation, the American publisher should not allow the foreign publisher to have the book until the American publisher receives the signed agreement and advance.

        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"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.

        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 from an attorney with experience in these areas.

Copyright © 1996, 2004 Ivan Hoffman.  All Rights Reserved.