What you need to know about ‘cross-collateralization’

Magnifying Glass Over Papers and Word "Contract"in FocusIt has an intimidating name. Indeed, it takes more letters to spell it than to put it into effect. But what is it and why is it bad for authors?

Most every book publishing contract will include a provision that obligates the publisher to periodically account to the author for the publisher’s sales of the author’s work. The language will probably look something like this:

Payments to the Authors will be made semiannually, on or before the last day of March and September of each year for royalties due for the preceding half-year ending the last day of December and June, respectively. If the balance due an Author for any royalty period is less than $50, no payment will be due until the next royalty period at the end of which the cumulative balance has reached $50. Any offsets (including but not limited to any advances or grant) against royalties or sums owed by an Author to the Publisher under this or any other agreement between the Author and the Publisher may be deducted from any payments due the Author under this or any other agreement between the Author and the Publisher.

What these three words – or any other – allow the publisher to do is to recover charges against one of your books from royalties earned on your other related or unrelated books by the same publisher.

What’s wrong with this?
Each book you agree to write, and each edition you agree to prepare, should stand on its own economic legs. Part of the traditional publisher-author transaction is that, in return for the author’s creation of a work and surrender to the publisher of exclusive rights to that work, the publisher commits to publish and commercially exploit that work at the publisher’s sole cost and expense. There is no good reason a publisher should be able to shift its financial risk in a new project to the author who has, or will have, provided that publisher with more than one book or more than one edition.

Consider this admittedly extreme example. You already have one successful book with the Brooks Kno Mercy Publishing Company. That book generates approximately $100,000 per year in royalties for you. The publisher is understandably anxious to publish your next book. It signs you to a new contract including the language above and agrees to pay you a $50,000 advance on signing. You sign in December and get your advance payment. Don’t be surprised when the publisher recovers your $50,000 advance against book 2 out of the royalties it would otherwise have paid you on book 1 just three months later.

Given that this will never be an immediate problem when you are negotiating your first contract for the first edition of your first book, it’s tempting to kick the can down the road. There are, after all, many more pressing problems with the publisher’s form agreement to attempt to negotiate away. And you may be tempted to think that you can always strike these three words from your second and subsequent contracts with the publisher. But if you haven’t also struck it from the first contract you are stuck with that language in the first contract unless and until the publisher agrees to change it, and so your royalties attributable to the first book are still exposed to claims against other later books or against later editions of the first book.

Caveat Auctor: If you don’t do this right on the front end, the best publishing lawyer can’t fix it for you on the back end.

Gillen book coversSteve Gillen worked for nearly 20 years in publishing prior to entering private practice in the middle 1990’s. He is presently a partner at Wood Herron & Evans, a 150+ year-old Cincinnati law firm focused on intellectual property, where he concentrates his practice on publishing, media, and copyright matters. He is a long-time member of the TAA Council, a regular presenter at its annual conferences, and a frequent contributor to TAA publications of every sort. sgillen@whe-law.com

Steve has authored three books, Writing and Developing Your College Textbook, Guide to Rights Clearance and Permissions in Scholarly, Educational, and Trade Publishing and Guide to Textbook Publishing Contracts.