MANY UNHAPPY RETURNS
IVAN HOFFMAN, B.A., J.D.
It frequently appears that book publishers are
not in the business of selling books. Rather, it frequently appears that
they are in the business of consigning books. Although the paperwork may
be marked "INVOICE," the reality is that some or indeed all of the books
represented by that piece of paper have a way of coming back to the publisher
at the most inconvenient of times. An "inconvenient" time, by the way,
is any time. Living in dread of the United Parcel Service can make the
business of publishing a nightmare.
Different sorts of books have different shelf
lives and may find their way back to a publisher at varying times. Hard
back books in the chain stores may sit on the shelves for upwards of a
year while paper backs may last only a few months. Or visa versa. Go to
any supermarket and look at the mass market titles and you may find that
they last only a few weeks at best before they get packed back up. Only
melons rot faster!
THE "RESERVE AGAINST RETURNS" CLAUSE
In order to protect themselves as best they can,
publishers have clauses in their agreements with authors that allow those
publishers not only to deduct "actual returns" but to set up and maintain
a rolling "reserve against anticipated and future returns." The same sort
of clause exists in agreements between smaller publishers and sub-distributors,
with similar consequences but I will focus on the author/publisher agreement
for the sake of clarity.
The clause usually reads something like:
Publisher may maintain a reasonable reserve
against anticipated returns.
This type of language provides the most flexibility
for the publisher but the least protection for the writer and can only
lead to disputes. Although a bit riskier for the publisher, establishing
some numerical parameters to this open-ended language may actually help
These parameters may look like:
Let me give an example that might cover each of
these approaches. Suppose a publisher "sells" 100 books and reports them
on a royalty statement for the period ended December 31 of a given year.
Depending upon the contract, the deal may allow the publisher to hold back
payment on say 25 of those books, for example. I am assuming one category
of sale, say "normal trade channel hard back." Obviously it can get a bit
more sophisticated if the contract provides for different treatment of
different editions. However, after say 2 accounting periods, in this example,
the publisher must liquidate any such reserve so established that does
not reflect actual returns and pay the author thereon.
Establishing a fixed percentage of each amount
shown as "sold" on each royalty statement. This can be as low as say 10%
or as high as even 50%!
A different reserve for newer authors who have
not yet established themselves in the market and whose historical "sticking
power" is not yet clear.
A different reserve for different categories of
books, such as hard back, soft back, mass market or the ridiculously ephemeral
computer book. Also included in a separate category may be audio books
A fixed period of liquidation. In other words,
this clause would allow a publisher to establish a reserve, whether in
a fixed amount, a variable-by-category but otherwise fixed amount or even
the open-ended "reasonable" amount, provided that any books not "actually"
returned after a stated period of time must then be paid for by the publisher
and the reserve liquidated. This period can be as long or short as the
parties can agree to and should of course reflect some market realities,
knowing however that returns can be returned basically forever.
An additional wrinkle may arise, however. Often
the publishing agreement allows the publisher to give away for "free" copies
of the book for "promotional purposes." I am not here talking about books
to reviewers and the like. Those seem valuable in order to get the book
out and may be marked "Promotional Copy. Not For Sale." No problem exists
in respect of the issues in this article, although there may be other issues
that should be faced in that regard but which are beyond this discussion.
On the other hand, in order to encourage sales,
a publisher may often provide a certain number of "free" books for every
certain number "purchased" on a given invoice. These "free" books are not
really "promotional" books; they are additional books sold but, because
they are not priced on the invoice, serve merely to reduce the per unit
cost of each book that is priced. For example: if publisher sells retailer
10 books at $5.00 per book the cost per book is $5.00 and the invoice total
is $50.00. But if, in order to encourage sales the publisher provides 3
books "free" but the invoice price remains $50.00, the actual cost per
book to the retailer is only $3.85.
While this may be a wise business strategy,
it does present a couple of problems. One of course is how many units are
reported as "sold" to the author? Does the author get credit for 10 or
13? This may depend upon what the contract says and whether or not there
are any limits to this "x free for every x sold" policy.
The other issue concerns the "returns" question.
What happens when the bookseller returns some or indeed all of the books?
How is the author to be treated? Does the author get charged for 10 returned
books or 13? Suppose that when reported as "sold" the publisher only credited
the author for the 10 invoiced as "sold" and not the full 13 even though
in actuality 13 were sold? Is the same formula applied when the books come
back? The answer may depend upon what the agreement says and what is the
"custom" in the industry. But the author and publisher may be able to anticipate
this issue by making certain the contract reflects that returns be allocated
only in the same ratio as books "sold" bear to ones "given away."
In the end, of course, "eating" returns is a cost
of doing business and even though there may be some protection against
overpaying royalties on these units, in the end the publisher may end up
losing actual money. There are of course "remainder persons" who purchase
cut-outs and such for small pennies on the dollar. The publishing agreement
often provides that the author is not paid on these sales, although the
exact justification for this provision is not that clear. Income is, after
all, income and its source should not be that relevant. Perhaps a smaller
royalty is justified but none at all…?
These are some, if not all, of the issues respecting
returns that can arise in the contract negotiation between an author and
publisher, or between a publisher and sub-distributor. It is often a matter
of some significance and should be examined with some care.
© 1996 Ivan Hoffman
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.
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