Principles of Contracts: The Narrowness Principle

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Previous Chapter: The Third Cousins Rule
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“Enter through the narrow gate. For wide is the gate and broad is the road that leads to destruction, and many enter through it.” Matthew 7:13, NIV

Seldom, if ever, have the words above been truer than when negotiating a contract. In a contract, the narrower your wording, the better off you are. Why? Because (with a few exceptions which I’ll get to later) you cannot be obligated to actions that are not specified in the contract – and neither can the other party.

As we learned in The Third Cousins Rule, a well-written contract will define terms to minimize confusion.

This is its chief corollary: It’s not enough to define your terms, you must also be careful to use the correct terms. Doing so is one of the key things that makes a difference between an artist who makes a living off her work, and one who perpetually gets taken for granted.

A properly-worded contract can construe a full-cast audiobook as different from a single-reader audiobook, and both as different from a dramatic adaptation for radio. It can define internet video as a separate rights domain from that same video distributed on DVD or BluRay. It can define a non-profit enterprise (transcription for the blind or deaf, using your music as part of a fundraiser for charity, etc.) as different from for-profit enterprise (playing that same song on the radio).

How? Simple. Your intellectual property is yours to divvy up as you like.

Even if you’re not the creative force behind a project, you might have intellectual property rights to the work you help produce. Are you a model, a voice actor, an actor, a cinematographer, a lighting designer, an audio engineer? You contribute creatively to the works in which you participate, and your contract/release enumerates the terms under which the project’s producers may use the material you helped create. While it’s true that a number of industries have customs about what wording goes into a release, and in some cases there is very little you can do to alter it, in other cases negotiations present a wide range of possibilities.

In either case, narrow wording protects your interests and reserves to you the rights you do not wish to license to the other party. However, if your contract is worded too broadly, you can wind up giving away the store without intending to.

There is nothing wrong with broad wording if you understand what it implies. There are some times when it’s absolutely appropriate. The trick is to word your contract exactly as broadly as you need it to be, and no broader.

To provide some examples, I’m inventing a contract clause based on the current problems going on around e-books in the publishing world. Now that some reading devices (such as the iPad) allow for books with embedded multimedia content, the line between game, book, and movie is getting blurry. A lot of authors (and agents) I’ve talked to this year are nervous about diluting their (or their clients) film and television rights.

The problem is this: How can one word a contract so that Hollywood won’t take one look and run away screaming for fear of lawsuits? How does one avoid accidentally signing movie rights over the the publishing company who demands multimedia e-book (or “vook”) rights?

So, keeping in mind that I’m not a lawyer, that my publishing contract experience does not, as yet extend to novels,and that I am in no way giving advice on how to word e-book contracts, let’s dive in. What follows is a procedural compare/contrast of how one might go about narrowing the scope of an over-broad clause.

Example #1
Let’s start simple, with something like this:

[Author] grants [Publisher], its heirs and assignees, the right to produce electronic edition(s) of the property, from which the author shall receive [royalty rate] share of net income.

Seems fairly straightforward, doesn’t it? If you were signing a book deal that included print books, you might be tempted to sign that clause. Of course, if you did, you’d wind up regretting it.

Why?

Because the definition of an “electronic edition” is in flux. It could mean a Kindle-style book, where the contents of the print version are reproduced in a machine-readable form that includes text and graphics identical to those in the print novel. Or, it could mean an enhanced e-book, which could include sound or video extras, extra graphics, and other bonus features. This latter definition treads on the territory of multimedia rights, game adaptations, and even some kinds of film adaptations, and this could create confusion over who holds what rights.

The clause also does not limit the length of the license, and if that isn’t addressed elsewhere in the contract the publisher could assert a perpetual license (to the extent allowed by law), and that claim might stand up in court.

Finally, this clause includes the sucker-punch of all contract terminology: “net income.” You might hear that and think “oh, that makes sense. We share the profits.” Don’t believe it.

“Net income,” unless otherwise defined in the contract, always means one thing: “You’re gonna get squat.” Why? Because anyone with a Jr. High level proficiency in bookkeeping can arrange for any creative project to show no profit. I’m going to do a whole post on this subject later in the series, but for now, let’s take it as red that if you sign a contract with the otherwise undefined word “net” in it, you’re giving up your royalties.

Example #2
Moving on, let’s assume that your intent as an author is to allow the publisher to make an e-book in the Kindle fashion (i.e. text and illustrations only). To accomplish this, you’d want to define the clause more narrowly, like so:

[Author] grants [Publisher], its heirs and assignees, the right to produce editions of the book consisting of text and any supporting graphics that appear in the print edition, for use on e-reading software and hardware devices. [Author] shall receive from [Publisher] royalties totaling [x%] of the list price, payable quarterly. [Author] shall also receive from [Publisher] a quarterly report on sales.

This second formulation limits the right granted in a clear fashion, so it’s a superior clause. But it still has a few problems.

First it still doesn’t limit the length of the license, and that’s a problem. For a writer in a non work-for-hire situation (independent screenwriter, musician, songwriter, freelance nonfiction, short story, novel), every grant of rights should be accompanied by a reversion clause (though contracts are often organized so that the reversions are in one section and the rights grant is in another).

Second, it doesn’t specify geographic scope. Even if you’re selling world-wide rights, you should specify this to eliminate a potential point of ambiguity later on.

Third, it doesn’t include a grant of exclusivity. Although the lack of presence of the term usually implies non-exclusivity (in many jurisdictions, this is what the law defaults to), it is this kind of technicality that can wreak havoc in a relationship between creative partners. It’s best to state outright whether the clause is an exclusive or nonexclusive grant, to prevent problems in the future. It also hedges against objections by other potential partners, as we will see in our next example.

Example #3
For this one, let’s say you want to sell rights for a multimedia-enhanced e-book. You’re excited, because your publisher is going to throw the kitchen sink at the project, commissioning embedded audio, video, and additional artwork. In the end, they essentially turn the book into something resembling an immersive reality game.

At this point, “e-book” is a paltry description. What’s really going on is that they are creating derivative multimedia works based on your property. Your contract should be worded in a way that clearly grants this right, while being careful to limit the license so that it can’t be construed as a license to create a dramatic adaptation. For example:

[Author] grants [Publisher], its heirs and assignees, the right to produce editions of the book for e-reading devices and software, consisting of text and any supporting graphics that appear in the print edition. Additionally, [Publisher] may, at its own expense, produce value-added derivative materials for such an addition consisting of music, puzzles, and video segments not to exceed ninety seconds in length. This right is non-exclusive and shall be construed to apply only to materials bundled as an integral part of the e-book. Such derivative materials may not be sold or made available in any other format, or marketed in a manner separate from the e-book, or as independent works or products, except for marketing purposes. This clause constitutes the sum total of e-book rights granted, and shall serve as the definition for the terms “e-book,” “vook,” “enhanced e-book,” and “electronic edition” found elsewhere in the contract and in relevant correspondence. This rights grant is subject to conditions in the reversion section of this agreement.

Notice how the above clause grants the publisher precisely the rights she’s seeking, and no more. It references the section of the contract that provides for reversion, specifies acceptable formats, grants the right to promotional use, and it contains all the relevant definitions for the contract and supporting documentation so that the potential legal gerrymandering is minimized (in this way The Narrowness Principle dovetails nicely with the Third Cousins rule).

Also, by strictly limiting the terms of the contract it ensures that rights not specifically granted can’t be later construed as implicit (this is a regular problem with contracts, and publishing and music companies are particularly bad about making post facto rights grabs based on vague language).

Wrap-up

Please bear in mind that I am not recommending the above clause for your publishing contract – I am not a lawyer and you should never accept legal advice from Internet weirdos like me (it also doesn’t conform to most of the structural traditions I’ve seen in publishing contracts). I’m using a made-up example to show you the sorts of things you need to watch out for when negotiating your contracts, whether you’re doing a book deal, a film deal, a record deal, a rental agreement, or a franchise agreement for pet rocks.

Also, as mentioned earlier, the law places certain limits and definitions on some contractual terms. You must know the relevant law in your field to know what’s worth fighting over and getting nit-picky about. Look for more about this in an upcoming post in this series.

So, in summary: Keep the terms narrow, use as many clauses as you need, follow the Third Cousins rule (this means defining your terms within the contract, particularly when they are terms without an established body of case-law behind them). Doing this will keep your obligations clear, your expectations reasonable, and put you ahead of the game when it comes to negotiating deals that lead to mutually beneficial, profitable business relationships.

Next time: Self-Interest

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