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The Perils of a Foreign Rights Deal

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Question: I have been contacted by a publisher in Eastern Europe who wants to acquire the rights
to one of our books, but I cannot tell whether the offer is fair, what kind of contract I will need,
and what I can do if the foreign publisher fails to live up to his promises. How can I protect myself?

Answer: You are not alone in discovering that a book published only in the United States is
attracting attention from publishers around the world. Thanks to the ease of communication via the
Internet, recent developments in the international law of commerce and copyright, and the new global
perspective of publishers around the world, the fact is that independent publishers are enjoying
opportunities that were previously available only to those who actively marketed the foreign rights in
the books they publish. Here are some fundamental points to keep in mind when evaluating an offer from
a foreign publisher.

Do You Own the Foreign Rights
to the Book?

The threshold question is whether you own and control the foreign rights in the book you are
publishing in the United States. You need to carefully examine your contract with the author and
confirm that you are entitled to enter into a contract for a foreign edition of the book. If not, then
you must either secure the foreign rights now in a separate contract with the author or pass along the
offer from the foreign publisher to the author.

Do You Have Any Other Offers?
The question of whether an offer from a foreign publisher is “fair” depends on whether any other
publishers in the same territory are interested in the book. By definition, if you have only one offer
on the table, then the offer itself defines the market value of the foreign rights! The only way to
find out if another publisher is willing to pay more for the book is to “shop” the book to other
publishers, a task that most independent publishers in the United States are not in a position to do.
You may want to contact a foreign rights agent and see if the agent is willing to represent you in
selling foreign rights to the book. Otherwise, as a practical matter, you can try to persuade the
foreign publisher to improve his offer, but you are likely to discover that you don’t have much
leverage!

The Benefits of a Bad Deal
Even if the offer is very low, there is a distinct advantage to making a deal with an authorized
foreign publisher, especially in an exotic or remote territory. The authorized publisher will be
motivated to “police” the market to prevent infringement of copyright by a “pirate” publisher, which
is far more than you would be able to do on your own. Indeed, it is unlikely that you would ever
discover an infringement unless you had a publisher to act as your eyes and ears in the foreign
territory-and even if you did discover an infringing edition, the costs and burdens of filing a
lawsuit in a foreign country might make it impossible to do anything about it. Indeed, the contract
with the foreign publisher ought to specify that the publisher is obliged to protect your copyright
and to file lawsuits against infringers.

Prepaid Royalties by Printing
Of course, the same problem arises if you make a deal with an authorized foreign publisher and
then the publisher later breaches the contract-the cost of hiring a lawyer and prosecuting a lawsuit
in a foreign country may far exceed the damages you might recover. For the same reason, it is costly
and difficult to audit the books and records of the foreign publisher to make sure that you have been
paid what you are owed. The single best way to solve these practical problems is to ask for prepayment
of royalties for each authorized printing.

Prepayment of royalties is a different mechanism than the more familiar advance against royalties,
but it makes good sense when doing business with a publisher in a foreign country. Under this
approach, the contract will require the foreign publisher to pre-pay the royalties that would be due
if the entire print run sells out. For example, if the foreign publisher is obliged to pay a royalty
of $1.00 per book and prints 2,000 copies, then you are owed $2,000 regardless of how many copies are
actually sold. If the first printing sells out and the foreign publisher goes back to press, the
contract will require the publisher to pre-pay the royalty on the next printing. Obviously, a pre-paid
royalty must be defined as a fixed amount per copy or a percentage of a stated retail price rather
than as a percentage of net revenues. The advantage of a pre-paid royalty, of course, is that you have
money in hand when the book goes to press, and your risk of underpayment or non-payment is reduced, if
not entirely eliminated.

Currency Conversion
Whatever payment mechanism is specified in a foreign rights contract, you must clarify the
currency in which it will be paid. Under some circumstances, depending on the rate of exchange at the
time of payment, it might be in your best interest to be paid in foreign currency rather than U.S.
currency. But, unless you like to speculate in foreign currencies, it is always simpler and more
straightforward to require the foreign publisher to convert the payment into dollars before making
payments. Ideally the contract will require that such payments will be made by wire transfer to avoid
the delays and difficulties in negotiating a foreign check.

Withholding by Foreign Governments
Some foreign governments will require the withholding of a significant portion of payments to
foreign individuals and companies. You need to satisfy yourself in advance whether the payments will
be subject to withholding taxes imposed by a foreign government, and, if so, how much will be
withheld. You also need to know whether and how you can secure the release of amounts that have been
withheld by a foreign government. The commercial attach‚ of the embassy or consulate of the foreign
country may be able to assist in answering these questions, and so can the U.S. branch of a bank that
is based in the foreign country. It is also a good idea to ask the foreign publisher to specify in
the contract what withholding will apply and to promise to cooperate with you in securing release of
any withheld moneys.

The Importance of a Contract
As with any publishing transaction, it is essential to negotiate, draft, and sign a formal
contract with the foreign publisher. And, as with any contract, it makes good sense to consult a
lawyer who is experienced in international publishing transactions to draft an appropriate contract or
to review the contract offered by the foreign publishers. The contract should include a great many
specific procedures and protections, including a “choice of law” clause, an arbitration clause, an
appropriate definition of the rights that are being granted or licensed, the number of copies that the
foreign publisher is authorized to print or the number of years during which the contract will remain
in effect, the copyright notices that must appear in the foreign editions, and the approval and
ownership of the foreign-language translation.
Jonathan Kirsch, an attorney specializing in publishing law, serves as pro bono general counsel for
the Publishers Marketing Association. He is a partner in the firm of Kirsch & Mitchell in Los Angeles,
and author of “Kirsch’s Handbook of Publishing Law” and “Kirsch’s Guide to the Book Contract” (Acrobat
Books). Kirsch’s e-mail address is kmlegal@pacbell.net.

Contact the PMA office at <A
HREF=”mailto:pmaonline@aol.com”>pmaonline@aol.com for a copy of a brochure describing the Dispute
Resolution Program. For more information about mediation and arbitration, contact Phil Tamoush at <A
HREF=”mailto:oakwoodpub@juno.com”>oakwoodpub@juno.com.

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