Steps to Take if Your Publisher Is Ceasing Business Operations or Headed into Bankruptcy
February 15, 2023
By Jon Tandler and Taylor John, Sherman & Howard L.L.C. (1)
Download the article
This Article for Romance Writers of America, Incorporated (“RWA”) sets forth steps a book author or novelist (herein, “Author”, “you” or “your”) may take to help preserve authorial and legal rights, when it appears that the publisher (“Publisher”) of your literary works is: A) going out of business — that is, ceasing (stopping) its business operations, or B) headed into bankruptcy — that is, will be the subject of Federal bankruptcy proceedings.
This Article is based on our industry research and publishing and legal experience. This Article is for readers’ general information and guidance only. Our intention is to provide readers with practical information. We also provide the Article
we prepared for RWA in 2010, updated, about steps available to an Author in the event of Publisher bankruptcy.
Each set of circumstances causing a Publisher to cease operations or head into bankruptcy is unique and requires a customized and respectful response and approach
from the Author and her representatives.
One major distinction between the two Topics — A) steps an Author may take when their Publisher appears to be ceasing business operations, and B) steps available to an Author when their Publisher becomes the subject of bankruptcy proceedings, is that the answers are much clearer for bankruptcy. Bankruptcy is a well-defined legal process. Steps to navigate a bankruptcy are also defined. In contrast, when a Publisher appears to be ceasing business operations — what happens next in the going out of business process may likely not be so well-defined; therefore, what an Author can do in response involves communications, diligence, likely some trial and error, and certainly respectful persistence.
1. An Author is well served by putting in the time and effort to stay up-to-date on the status of their Publisher and it functioning as a viable business serving the needs of its employees, authors and customers. There are various items of information which may or may not indicate an Author’s Publisher is going out of business, which you can research, gather and track.
2. It will always be helpful and important to keep your authorial house in order. Keep and maintain organized records, inventory your publishing assets, understand the terms of your publishing contract, and examine whether your publisher is in compliance with those terms.
3. Communicate with publishing industry participants to stay up-to-date and learn what is happening with your Publisher. If an Author is represented by a literary agent, absolutely tap into them for information and representation.
4. Evaluate based on diligence as to the facts and the Publishing Agreement whether you should request a reversion of publishing rights or assert a termination of the Agreement. You will likely need suitable legal counsel to help you with this analysis and to represent you.
5. Before you sign an agreement with any Publisher, do diligence and learn about certain items that will be essential to a productive author-publisher relationship for the long term.
I. Examples of Items which Indicate Your Publisher May be Going Out of Business — Items for You to Know
Examples of items which indicate your Publisher may be going out of business include the following — this list is illustrative and not exhaustive.
a) You have not received your regular royalty statements or payments as per the schedule in your Publishing Agreement;
b) Your Publisher has stopped communicating with you and others — for example, it does not respond to Author queries as to the status of titles, catalog inclusion, marketing efforts, sales activity, status of royalties and statements, or other items;
c) There are layoffs or departures of the Publisher’s employees;
d) The Publisher’s available titles as set forth on its website, in its catalog, or in the marketplace, has continued to decrease;
e) The Publisher has failed to comply with state law corporate maintenance, such as staying in good standing — this can be verified online; or
f) There is credible information from the author, agent or publishing community as to your Publisher’s lack of continued viability.
Any one or more of these items could occur, and yet your Publisher may not be going out of business at all. In the event of any one or more of these occurrences, we suggest it is time to take inventory.
In the next section, we list those items which are important for you to know about, or if you don’t know about to learn as the proprietor of your publishing assets. Some become more germane if it appears your Publisher is going out of business. Others are to collect at the onset of your contractual relationship and to keep updated throughout the duration of your book publishing relationship.
II. Keep Your Authorial House in Order — Take Inventory of Your Publishing Assets; Take Inventory of Your Rights Under Your Publishing Agreement; Talk to Your Agent
Take Inventory of Your Publishing Assets
We’ve set out below items and information we view as important to gather and maintain on an ongoing basis. Given the work, hours, diligence and effort required to write your books, these items for each book you publish are essential to know, track, and stay on top of as you manage the business part of your writing career.
a) Each of your Publishing Agreements for each of your books — published and under contract (to be published), including amendments; some Publishing Agreements may cover multiple books;
b) The current, in-effect subsidiary rights licenses (sub. rights agreements) for your books; if so, are the proceeds therefrom reflected on your royalty statements; do you know the terms of those arrangements; can you get copies of the license agreements from your Publisher — ideally, you could see where your books are licensed and understand the terms of these arrangements so that you can monitor compliance and make sure you receive royalties;
c) The advance and royalty payment amounts, paid-to-date attributable to each of your published books — ideally, you can get a handle on whether your publisher is fully and timely paying you amounts owed;
d) The copyright registration status for your literary work in order to confirm that the copyright is registered in your name; you can check the U.S. Copyright Office public database at https://www.copyright.gov/public-records/
(2) — you should confirm that you do not need to take steps to transfer the copyright back to you;
e) The International Standard Book Number (ISBN), for each print and e-book version of your book(s) published with your Publisher; (3)
f) The print or out-of-print (OOP) status of each book — if your book is not in print, this may trigger rights of reversion under your Publishing Agreement; and
g) The e-book status of each book — has it been published as an e-book and where — what rights have been granted and under what terms?
Gathering and maintaining the information in (a) – (g) will help you determine the detailed items you need to track, manage, monitor and as necessary correct, revise and restructure when you either take over and self-publish your books or start to consider arrangements with another publisher.
Take Inventory of Your Rights Under Your Publishing Agreement
Now is the time to re-read your Agreement(s) with your Publisher and take inventory of your contract rights. Review your Agreement for contract requirements germane to the following items and areas. There may be obligations which your Publisher has not met (has breached), which if not cured may entitle you to elect to terminate your Agreement and request a reversion of rights granted to the Publisher.
a) Timely publishing your book — typically twelve (12) to eighteen (18) months after acceptance of the final manuscript;
b) Timely delivering royalty statements not later than the calendar dates set forth in the Agreement — typically semi-annually;
c) Timely delivering royalty payments not later than the calendar dates set forth in the Agreement — typically semi-annually;
d) The Publisher adhering to its minimum sales requirements, if applicable; (4)
e) The Publisher keeping your book(s) in print, and if not in-print for the required time periods triggering out- of- print (OOP) provisions and related right to request a reversion;
f) The Publisher keeping your book(s) in its catalog and adhering to its marketing obligations;
g) Ensuring the copyright notice in the book is consistent with the copyright provision in your Agreement, and if the Publisher is required to submit an application for copyright registration of your book with the U.S. Copyright Office it has timely done so;
h) Confirming that the Publisher has not exceeded the scope of licensed rights in the Publishing Agreement; and
i) Determining if there are other unfulfilled items or obligations of the Publisher which may give rise to your right to terminate the Publishing Agreement.
No one of these items is necessarily dispositive for determining an Author’s right to terminate based on Publisher breach, and likely will not be germane if breached but the Publisher has cured. As an exclusive licensee of the Author’s copyright, the Publisher has a duty to monetize the copyright and perform its obligations under the Agreement in good faith and fair dealing with the Author. (5)
Talk to Your Agent
Publishers vary as to whether they require an Author to be represented by a literary agent. Good literary agents serve incredibly important, expert functions for their author clients and they are loyal to them, and typically know about the business status of the Publishers their clients publish with, and certainly know the terms of the Publishing Agreements to which their represented clients are a party.
Good agents make it their business to stay abreast of what is going on in the publishing industry.
If you as an Author are represented by an agent, this should be one of your very first stops for any and all information you can get about the Publisher’s status and its compliance with its obligations under your Publishing Agreement.
III. Gather the Information You Can; Communicate with the Publisher and Others While You Do Diligence and Take Inventory under Item II
In conjunction with your diligence under Item II reach out directly and respectfully to the Publisher. Here are items to ask about when you are able to communicate with the Publisher/its team:
a) Get the facts — find out what is going on — why are you seeing or experiencing some or all of the types of items which cause you to think the Publisher may be going out of business;
what does the Publisher intend to do; if you do not receive a telephone call back, send a detailed, respectful email asking for the information you want;
b) If you need additional records to augment what is in your files, ask for them in detail in writing;
c) Determine if any information you receive might correlate with the items above that might trigger a breach or right of reversion under your Agreement(s);
d) Be aware that you may not receive a response — be persistent and respectful; and
e) Keep a record of all communications sent to and with the Publisher.
In conjunction with your diligence under Item II above, reach out directly to your network to determine if you can glean useful information — your fellow authors, your literary agent, and broader author and writer community. You may need to be patient before you obtain useful information.
Your Publisher may be reluctant to communicate with authors or its employees may be instructed to not communicate. Your Publisher may be evaluating a variety of business options and may need some time to figure them out, chart a course, and communicate in a meaningful way to the community.
IV. What Does Your Diligence under Items I-III Tell You? Should You Request a Reversion of Your Publishing Rights or Assert a Termination of Your Publishing Agreement?
Competently evaluating whether or not there are solid contractual grounds upon which to request a reversion of rights or assert a termination of your Agreement requires contract review and the facts germane to reversion and termination. We suggest this is best done by a business attorney experienced in book publishing and copyright licensing and the related contractual aspects of that field.
Moreover, even though there might not be clear contractual bases upon which to request a reversion or assert a termination, you may still determine that a reversion is appropriate under the current circumstances and decide to request a contract termination and a reversion of your rights.
Best Path Is to Work Mutually and Cooperatively with Publisher; Alternative of Invoking Termination and Reversion Unilaterally Is Far Less Reliable.
Bi-lateral (Mutual) Path
If you would like to terminate your Agreement and achieve a reversion of rights, and are able to communicate with your Publisher and document the reversion in a mutually prepared agreement, that is an excellent path to take. Properly doing so will tee you up to granting rights to a new publisher or to self-publish, in either case knowing that you have all of the necessary rights without the potential for conflict or interference from your Publisher.
It is essential for you to know the status of: (i) your statements and royalties to get them paid in full; (ii) subsidiary rights licenses and agreements and their respective terms so that you understand how the reversion will impact those arrangements, and whether if you determine to self-publish your book you should take over those agreements; and (iii) books in print so that if you effect a reversion you can determine how the Publisher and you can fairly manage sales of books still in inventory, which might include you purchasing them at cost for your own personal sale. Royalties which accrue to you as an Author for remaining Publisher sales after the reversion should certainly be paid.
A well-prepared termination and reversion agreement should at minimum:
a) list all of your books, both in print and e-book, with their respective titles and ISBNs;
b) list all of your agreements with the Publisher;
c) provide for a clear, express termination of the agreements and related reversion of the publishing rights granted thereunder;
d) provide for the Publisher to deliver to you from its archives the final digital files used for publication of the book;
e) state how any extant subsidiary rights license agreements will be treated, including whether they can be assigned directly over to you as the Author or otherwise managed;
f) provide for the current payment of all accrued and unpaid royalties owed to you, both primary and subsidiary;
g) provide for the removal of the Author’s works from all distribution channels where the Publisher currently has the Author’s works for sale, and the continued payment of royalties which accrue to the Author’s account after the reversion; and
h) provide for further assurances that the parties will sign and deliver such necessary additional documentation to effect the purposes of the termination and reversion agreement.
Again our recommendation is that an Author is represented by suitable counsel to represent her in this process, in order to make sure all of the necessary documentation and provisions therein are in order.
In the event your Publisher is uncommunicative or uncooperative, and you want to do your best to lay the groundwork for a termination of your Agreement and a reversion of your rights, we recommend that you also seek the advice of a business attorney who is familiar with publishing, intellectual property and related contract and licensing matters.
Their review of your matter should encompass your Publishing Agreement(s) and what provisions your Publisher has or may have breached which give rise to termination, along with assessing the clarity and strength of the facts to support your claim of breach. And likewise, the most effective way to communicate with the Publisher and assert breach which successfully effects a termination and reversion. (6)
V. Distribution Relationships
Publishers enter into contractual arrangements with third party print and e-book distributors to market, sell and distribute their books. Distributor arrangements with Publishers vary. The essential component of these relationships is that rights are granted by the Publisher to the distributor to market, sell, pick, pack and ship the Publisher’s books. The legal construct of these relationships is that the Publisher and the distributor have a direct, one to one contractual relationship. In the law, we call this “privity of contract.”
By reason of a Publisher’s privity of contract with its distributor, absent circumstances that would support a different view, we do not see as a reliable or productive remedy an Author taking steps to interfere with that relationship, such as asking the distributor to stop selling the Publisher’s books because the Author is not receiving royalties. In our experience, the distributor likely has more information on the Publisher’s status than the Author. Nor would the distributor pay heed to the Author’s request.
Amazon® has a take-down procedure for both print and e-books which an Author can evaluate for purposes of stopping their books from being sold on Amazon yet not receiving royalties from the Publisher. Authors may request that their books be removed from Amazon by filling out Amazon’s Report Infringement Form at: https://www.amazon.com/report/infringement
. The form allows a rights owner to report an alleged copyright infringement and requires the individual to attest that they have the right to remove the book. At the least the predicate to the use of this form is the legal determination that the Publisher has breached its agreement with the Author, and thus the continued publication of the Author’s book is a violation of the Author’s copyright. A discussion of this involved body of law is beyond our scope here.
Thus, although we note this procedure because we are aware of its existence, we do not recommend utilizing it without the necessary diligence in each particular circumstance. It is a legal determination to state that it is copyright infringement when it may not be clear that the Publisher is in breach or may not have had the opportunity to cure the breach. Utilizing it could bring a counterclaim claim from the Publisher. We understand the frustration of an Author who is seeing their books sold without receiving compensation from the Publisher.
VI. Publisher Bankruptcy and Author Assertion of Legal Rights.
For an extensive, detailed discussion about Publisher bankruptcy in the context of book publishing and book publishing agreements, we attach an Article first written for RWA in 2010, which we have updated to provide with this Article.
VII. Items Authors Should Learn About and Evaluate about a Prospective Publisher.
Below we’ve set out certain items we believe Authors should learn about and evaluate as to a prospective Publisher from diligence and financial perspectives. This information might be obtained from the Publisher, other Authors who publish with the Publisher, literary agents, and Author trade organizations:
a) the Publisher’s overall publishing activity, number of front list titles each year and depth of active back list titles;
b) the Publisher’s subsidiary rights licensing activity;
c) the Publisher’s overall financial condition — is it paying Authors and other vendors on time;
d) timeliness and clarity of Publisher’s royalty statements and royalty payments;
e) the Publisher’s internal profit and loss statement (p & l) for your book as proposed to be published by that Publisher;
f) level of marketing and promotional dollars the Publisher will spend for your title;
g) the Publisher’s form of royalty statement along with a sample publishing agreement, in order to understand how the Publisher works with its Authors financially and contractually;
h) with whom the Publisher prints and distributes its books, in order to get some sense of the financial soundness of the distributor — if a distributor has financial troubles that could impact payments to the book publisher and thus payments to the Publisher’s authors; and
i) generally the Publisher’s processes so that you can make informed decisions about your book and the best platform for it and signing with a particular Publisher.
Do diligence on Publishers who are adopting subsidy (hybrid) models and require payment of monies up front for the Publisher to layout, print and market your title; obtain the above types of information on the prospective Publisher, have experienced publishing or business counsel read the proposed agreement and advise on same, and do careful diligence before you sign an Agreement or send money.
Listen to your instincts about with whom you do business. The contractual and operational relationships between Author and Publisher become quite prominent after contract signing when work is being done and shared, and dollars to move a project forward are being spent. It is more prudent to not enter into an agreement with a Publisher one has hesitations over, rather than to try and extricate from a contract where the Publisher might be in financial straits or the Author’s options are limited by a Bankruptcy Court.
(1) ©2023 Sherman & Howard L.L.C. Jon Tandler and Taylor John are attorneys at Sherman & Howard L.L.C. in Denver, Colorado and prepared this Article on behalf of Romance Writers of America® (RWA), a nonprofit trade association representing the professional interests of romance writers. This Article is not to be relied on as legal advice, is for general information, and contains the views of the writers only. Readers should consult with their own legal counsel and advisors to obtain an informed analysis of their individual circumstances.
(2) For a romance novel, it is most typical for you as the Author to own
copyright; it is atypical for the Publisher’s agreement to provide for
the Publisher to own copyright.
(3) ISBNs provide unique identification for books and simplify the
distribution of books throughout the global supply chain. Without an
ISBN, a book will not be found in most bookstores, either online, or
elsewhere. See https://www.bowker.com/. Self-published authors purchase
and own their own ISBNs.
(4) As a collateral note, as an Author, when entering into a publishing
Agreement either on your own or with agency representation, minimum
activity requirements should be considered and requested; these
provisions are intended to ensure that the book achieves and maintains a
certain level of sales and thus royalty income or if not the Author may
elect to terminate and revert the rights.
(5) Publishing Agreements are most often not prepared to contain express
rights of termination for an Author, and thus termination may not be an
available remedy in the event of Publisher breach. Making a
determination that an Author has a right of termination based on
Publisher breach requires a careful review of the Agreement itself, the
facts constituting breach and non-cure, and determining that an
available remedy is termination. This requires an assessment by
experienced legal counsel.
(6) As noted above, working to effect breach and termination unilaterally
without the cooperation of the Publisher is an uncertain process and can
be unreliable when an Author wants to move forward with her literary
works, because the Publisher may ultimately disagree that contractual
grounds for breach and termination exist.