Chapter 3: The Contract
This chapter describes the sample contract that we'll send out to you when we've accepted your proposal. Note that the contract may vary: different situations may require different points to be made, and what's more, we add to it every time an author brings up a valid point that wasn't in our original contract.
We've made an effort to make the contract as human-readable as possible. But just to make things even clearer, in this chapter we've annotated the contract clauses. Do note that the comments are not part of the contract.
The Form of the Contract
A contract is just a mutual agreement between two (or more) parties. While it needs to cover various legal points, it doesn't need legal jargon. It just has to clearly and completely lay out the intent of the parties. To emphasize this point, our contracts are all in the form of a letter from us to you, which you countersign and return to us.
Here's how it starts:
Description of the Book
The first paragraph of the actual contract briefly describes the book:
1. You will prepare a book of approximately nnn pages. The book will be of professional quality and will include material to cover the outline attached to this letter and made a part of it.
We'll expect you to provide an estimated page count in your proposal, and that's what we'll specify in the contract. This clause is designed to keep us from paying an advance on a 600-page tome that turns into an 80-page book. But really, we believe that the size should match the subject, so if must you change your mind as the book progresses, feel free to do so, as long as you keep us informed.
Likewise, we expect the outline to change as the book is developed. The outline we attach to the contract is not a straitjacket, but simply an indication of the kinds of things we've agreed will be covered in the book. (This is not to say that we don't expect a lot of thought to go into your outline. It is a key part of your proposal, as explained in detail in Chapter 2 of this handbook. We're just saying that we expect that it will evolve as you give the subject even more thought.)
The Grant of Rights
By law, the author of a book is the owner of various rights in it. The author must assign rights to the publisher in order for the publisher to print and sell the book.
2. You grant us the exclusive right to print, publish, distribute, and sell copies of the book, and works derived from the book, in printed form and in electronic media such as CD-ROM, and to license others to do so, for the duration of the copyright in the book, in all languages, throughout the world. Your name will appear on the title page of the book as its author, but we'll obtain copyright for the book in our name. We may edit, add to, and delete from the book as we wish; however, we will submit all changes to you for approval, which you won't unreasonably withhold.
Note that we require more complete editorial control than most publishers because we consider all our books part of a series, and we want to establish a "brand identity" where people know what to expect from any of our books.
The positive side is that you'll get a lot more editorial help than you do from many publishers. And we won't do anything without your knowledge and consent. We regard the relationship between editor and author as one of two people working together to create the best possible product. If the two of you can't agree, we may give the editor the final say because we know our editors are all reasonable people! But this doesn't mean that we'll run roughshod over your material and surprise you in print.
Format of the Book
The next clauses describe how the book will look when it's published.
O'Reilly & Associates uses several standard designs for its books. If your book is part of a series, it will use the design of that series. Occasionally, a book requires special design elements. If you believe your book will need special elements, let your editor know immediately so our design group can discuss it with you.
We try to avoid design changes if possible because they are expensive and can add time to the production schedule. Also, our customers like our designs! We prefer manuscripts formatted in Word or Frame. Sometimes we will accept manuscripts in other formats, but conversion adds cost and time to the production schedule.
Our tools group will supply you with a template that matches the formats you use. The production group and your editor will give you a style guide and a list of conventions. We ask that you use these tools when writing your manuscript.
Delivery of the Manuscript
The next clause is the one where you promise to deliver a manuscript to us.
You provide the original delivery date in your proposal. We ask you to follow up with a detailed schedule that shows how you're going to get there, and to update that schedule as you progress with the book. See Chapter 2 for more information on working out a schedule. Your editor will be glad to help you.
The question of termination, and our right to continue to use any material you've provided, is a sticky one. In most cases, we'll reject your manuscript outright if we can't use it. If you miss a deadline, we're likely to extend it (with your editor's approval) if the project is moving along well. And if the material you've provided is good, but just incomplete, we'll negotiate some kind of agreement where you share royalties with the author who takes over your material and finishes the book. Timely delivery of the manuscript, however, is very important to the success of your book and we urge you to work with your editor to set realistic deadlines and stick to them.
Royalties and Advances
The meat of the matter, from your point of view. This is the longest clause in the contract, so we'll go over it in pieces.
The Royalty Rate
8. We will pay you a royalty of 10% of all net income we receive as a result of our distribution of the book, in any form, printed, electronic, or other, or from the license or sale to third parties of any rights in a derivative work. For translated editions published by O'Reilly's own subsidiaries, we will pay a royalty of 5% of net income. 9. If we include all or part of your book in another book that we publish, you will receive a pro-rata share of the royalties from that book in the proportion that the number of words used from your book bears to the whole book.
If you shop around, you'll find publishers that offer higher and lower royalty rates. We've gotten some pressure from authors who've heard higher numbers elsewhere. But keep in mind that the money that ends up in your pocket is the product of the royalty rate times the number of copies sold. We believe that in the long run, you'll make as much money or more with us as you will with any of our competitors, regardless of what royalty rate they pay you.
Why is this?
Most publishers produce many books on the same topic and let them fight it out in the marketplace. In addition, most of their sales and marketing efforts are loaded onto the front end, designed to get heavy initial buys from bookstores. If the book catches on and sells out, great! The bookstore reorders and you're on your way. But if not, the publisher is on to their next book. And it's surprising how many bookstores won't reorder, even if the book sold moderately well. Hundreds of thousands of books are published every year, so bookstores aren't very forgiving. New books typically have a few months in the sun. They either become perennial bestsellers or fade from sight as newer titles push them off the shelves. There isn't much of a middle ground.
By contrast, at O'Reilly & Associates, we publish only one book per topic, and we promote it as long as there is still a need for it. Our books complement each other, so the sales of one book help the sales of others on related topics. While we do sell a lot through bookstores, we don't think our job is over once the bookstore has ordered. We continue to support the book with clever promotions, advertising, and publicity.
One important aspect of our marketing strategy is that we work to create demand with the ultimate consumer--the reader--rather than just with the bookstore. Mail order advertising through pieces like our award winning catalog, ora.com, is an important part of that demand creation.
Most publishers don't sell by mail order because it's expensive. We may actually lose money on some single-copy sales, especially of lower-priced books. Fortunately, most of our customers buy more than one book at a time, so this works out overall! And it makes it possible for us to continue to support books that other publishers would just have stopped selling because they couldn't get bookstore shelf space for them. The odd thing is that because customers keep hearing about the books via mail order (and other forms of outreach such as our website, www.ora.com), they keep going back into bookstores for them as well.
The net result: with most publishers, you can expect to see strong initial sales followed by a steep decline. If your book is still selling at all one or two years after it's published, you're extremely lucky. By contrast, just about every book we've ever published is still in print, and selling. We've had books that are five years old sell more copies in 1996 than in the year they were published.
One other important factor in our royalty rates is the amount of editorial attention we lavish on our books. We know that an important part of our success is our consistent approach--the style, tone, level of detail, and attention to solving our readers' real information problems rather than just writing in an unfocussed way about "the subject"--and so we spend a lot of time working with you on the organization and presentation of your material, and the positioning of your book relative to our other books.
As a result, not only is each specific book made stronger and more successful than you might have been able to make it on your own, but it also become an integrated part of our overall publishing strategy, drawing strength from the success of our other books. Bookstores tell us that the thing they find most remarkable about our success is how consistently all of our books sell. In fact, Borders, the most respected and successful bookstore chain in the country, reports that ORA is their top publisher, in any category, in terms of consistent sell-through of our entire line of books. Other bookstores tell us that their customers often ask them for the "O'Reilly book" on a topic. Our reputation will help sell your book.
Of course, the additional editorial attention and the lifetime marketing support both cost money. We can't give the same royalty rates as publishers who take pretty much what you give them and throw it out into the market to sink or swim. But in the long run, we both make more money with our long-term approach.
The portion of the royalty clause that discusses "derivative works" primarily refers to customized versions of the books that we might provide to corporate customers. It is a big plus for your sales, even though in some cases, we'll license the derived version for less than we'd get if we sold the actual book.
The reduced rate of royalties for translated editions reflects the additional expense of translating the book. Remember that we sell the English language version internationally as well. We've been told that some international customers buy a copy of the English-language versions and the translated versions!
The clause continues with a discussion of advances:
Note that each advance payment corresponds to a delivery milestone.
We're willing to work out a different payment schedule if it seems appropriate, but this works out pretty well most of the time.
Be sure to check in with your editor when you think the next advance payment is due, so that there is no confusion. At times, editors and authors have a different view of the state of the book, and this is a good way to make sure you're in agreement!
There is a reason for this
What if You Don't Come Through?
The next part of the royalty clause deals with the possibility that you never finish the book. What happens to the advance?
If any of these submissions are not satisfactory to us, in our sole judgment, we'll notify you within 30 days of the respects in which the manuscript is unsatisfactory. You'll have 30 days to make changes. If we still aren't satisfied, we can terminate the contract without any further payment to you.
There is a reason for this strong language. Because we sign only one book on each topic, we sometimes turn down proposals in favor of yours. If you don't produce, we have to start over. In practice, however, we will take the amount of effort you made into consideration before deciding whether to ask for the return of an advance.
When Will Your Royalties Come to You
The last part of the royalties and advances clauses discusses the timing of royalty statements:
11. After the advance has been repaid, we will make royalty payments to you quarterly, within 90 days after the end of the quarter in which the royalties were accrued.
Many publishers pay twice a year, with six month lag between the close of the reporting period and the actual payment, and with a big reserve against returns to boot. Some publishers hold as much as 25% of your royalties in reserve.
You Get to Audit our Books
We hope that we'll give you reports often enough that you never feel the need to invoke this clause, but for your protection, we give you the right to check up on us:
12. You or your qualified representative may examine our books or records pertaining to this agreement at our principal place of business, during normal working hours, not more than once each year, on reasonable written notice.
Free Copies of the Book
When your book comes out, its always nice to have copies to give to friends and family. We give you a generous allowance (industry standard is ten copies):
13. You will be given 10 free copies of the book, and you will have the right to purchase additional copies at 50% off the cover price.
We'll also give you 50% off any of our other books.
Some authors ask if they can resell books that they buy from us. The answer is "sure." But we doubt you'll want the headache!
Revised Editions of the Book
Most technical books need frequent revision if they are to stay salable. Even if you lose interest in the subject, we may want to maintain the book, so the contract includes the following clause:
14. If we want you to revise the book, we will agree on a delivery date and compensation, both of which will depend on the nature and extent of the revisions. The other terms will be the same as those for the original version of the book. If you are unwilling or unable to do the revision, after we offer you the first opportunity to do so, we may arrange for others to do it, and may credit the reviser as editor, contributor, or co-author of the revised edition, and may arrange for the reviser to share the royalties in proportion to the extent of the revision.
Most of our authors revise their own books, but this clause allows us to keep a book alive even if you don't do your part to maintain it. For small updates, we might just charge your royalty account for reasonable costs. If someone else does major revisions, though, we may reduce your royalty percentage and give them a share in the ongoing success of the book.
You Didn't Plagiarize Anything, Did You?
The next paragraph sounds scary, but really just means that you didn't plagiarize or slander anyone. You have to take responsibility for this, because we have no way of knowing what sources you might have used.
15. You warrant to us that the material you provide is original, except that for which you obtain permissions acceptable to us, and that it won't impair anyone else's rights, and that you have the power to make this agreement. You will indemnify us, our agents, and our employees, and hold us and them harmless, against any loss or cost, including reasonable attorney's fees, arising out of a breach or claim of breach of these warranties.
If you use someone else's material by permission, be sure to request and receive that permission in writing! Send us copies of all permissions letters for our files. I once had a scare (in a collection of Frank Herbert's essays I edited) when an elderly English professor forgot that he'd given me permission to use an interview he'd done with Herbert. Fortunately, I was able to fax him a copy of his own letter granting permission.
While there are "fair use" rules covering free use of small excerpts from published work (at most a paragraph or two, and in support of your own discussion), anything unpublished cannot be reproduced without permission.
If you're requesting permission from a publisher to use material published elsewhere, they will most likely have a standard permissions letter that they will send out. They'll want a letter from you stating exactly what material you plan to use. But if you're requesting permission from an individual, or from an institution other than a publisher, you might save yourself time and effort if you do a bit more of the work up front. Send them a letter which has something like the following format:
Legally, a document must be signed to be effective, but in a couple of cases (where I don't expect there to be any controversy), I've taken the aggressive position that e-mail is an acceptable alternative.
Send copies of any permissions letters to us. Keep a copy for your own files as well.
If you're not certain whether you need to obtain permissions for something you want to include, check with your editor.
Well, I guess it wasn't quite true that there's no legalese in this contract. The last couple of clauses are mostly for the lawyers:
16. Neither of us may assign this agreement without first getting the other's written consent, unless we sell or transfer substantially all our assets or ownership interest to the assignee, when no consent will be needed.
This means that if you've signed the contract, you (not your friend or co-worker) will actually write the book, unless we agree otherwise. (We have negotiated several agreements for a new author to take over someone's unfinished work, by the way.) What the rest means is that if (God forbid!) we ever sold our company to a bigger publisher, that publisher could continue to publish your book.
17. Our agreement is subject to the laws of California governing contracts made and to be performed there.
Copyright laws are the same everywhere in the U.S., but this means that if we had a disagreement, any court proceedings would be held in California, where our main office is. But if we had a disagreement, we'd like to think that any discussions would be far more likely to take place over the phone or via e-mail!
Finally, we return to the letter format to close the contract:
The contract will be signed by your editor or the managing editor on behalf of ORA. We need your social security number so we can send you a 1099 form each year for royalties received.
If you have any questions about the contract, please be sure to ask your editor.