Posted in General on April 13th, 2011 by Guest
Thank you very much for having me to blog today. My name is Jeff Mehalic, and I have a law practice in Charleston, West Virginia and will soon be opening an office in New York. In addition to my litigation practice, I also negotiate on behalf of writers and authors, and represent them in disputes arising from their contracts. I have a blog called The Write Lawyer, which may be of interest to readers here, and another called the West Virginia Business Litigation blog.
Before I talk about why you need to know and understand what’s in your publishing contract, let me add a disclaimer. My opinions here are general in nature and should not be interpreted as legal advice for any particular situation. Any recommendations or advice would depend on the specific facts.
As a writer or author, perhaps the most important document you will work with — after your manuscript — is your publishing contract. I’m sure each of you knows someone — hopefully not you — who has signed a publishing contract without consulting an agent or lawyer and been taken advantage of in the process.
Let me give you three recent examples where sophisticated and experienced parties entered into contracts or other agreements that came back to haunt them, and in two of the examples, caused substantial financial or professional harm.
The first example involves Conan O’Brien, who was involved in a widely publicized separation from NBC last year, after it decided to move The Tonight Show to 12:05 a.m. from its traditional starting time of 11:30 p.m. During O’Brien’s negotiations with NBC, in which he opposed any effort to move the start time of the program so that Jay Leno’s program (The Jay Leno Show) could take over the slot, his reps discovered that his contract with NBC did not provide for time-slot protection, meaning that NBC could air the show at whatever time it chose (within reason — it probably couldn’t air The Tonight Show in the middle of the afternoon opposite Oprah or Dr. Phil), and wasn’t obligated to air the show at 11:30, even though that was the time it had always aired, at least since Johnny Carson took over from Jack Paar in the early 1960s.
Without time-slot protection, O’Brien had little in the way of leverage to negotiate with NBC. The obvious question is why didn’t O’Brien’s transactional lawyers — who negotiated his contract with NBC when NBC agreed to give him The Tonight Show in 2009 — ensure that The Tonight Show’s time slot at 11:35 p.m. was guaranteed in his contract? Without knowing for sure, my best guess is they thought he didn’t need it. Who would think that NBC would be willing to move a show from the time that it’s been aired for more than 40 years?
But you know who had a time-slot protection provision in his contract with NBC? Jay Leno. And he’s also the subject of my second example. Most entertainment contracts have a “pay or play” provision, which means that management, such as a studio, network, or television station, has to let the talent work or, if management doesn’t want the talent to work, to pay him or her anyway. But, as NBC discovered to its dismay, Leno’s contract had a “pay and play” provision, which meant that NBC had to let Leno work; it didn’t have the option of taking him off the air and then paying him under his contract.
That provision complicated NBC’s negotiations with O’Brien, because it meant that NBC couldn’t cancel The Jay Leno Show, and find something else for Leno to do or pay him until his contract expired. Leno’s “pay and play” provision, coupled with the absence of time-slot protection in O’Brien’s contract, were largely responsible for the turn of events that led to O’Brien leaving NBC in January 2010.
The third example is one that was concluded — apparently — a couple of days ago, when the Ninth Circuit Court of Appeals ruled against Tyler and Cameron Winklevoss in their effort to undo their settlement with Mark Zuckerberg over the creation of Facebook.
Here’s a story from The New York Times from the end of last year that described the Winklevosses’ history with Zuckerberg and what was at stake in the litigation. Essentially, the Winklevosses claimed that the settlement they reached with Zuckerberg turned out not to be worth nearly as much as they believed, in that they thought a share of Facebook stock was worth $39.50, when in actuality each share was worth $8.88. Considering that the Winklevosses had received 1.25 million shares of Facebook stock as a settlement, the difference in the stock’s valuation was huge.
But in Facebook, Inc. v. Pacific Northwest Software, Inc., 2011 WL 1346951 (9th Cir. 2011), the appeals court disagreed with the Winklevosses, and placed the burden on them to have ensured that they received what they had negotiated:
The Winklevosses are sophisticated parties who were locked in a contentious struggle over ownership rights in one of the world’s fastest-growing companies. They engaged in discovery, which gave them access to a good deal of information about their opponents. They brought half-a-dozen lawyers to the mediation. Howard Winklevoss—father of Cameron and Tyler, former accounting professor at Wharton School of Business and an expert in valuation—also participated. A party seeking to rescind a settlement agreement by claiming a [Securities and Exchange Commission] Rule 10b–5 violation under these circumstances faces a steep uphill battle.
The court concluded its opinion with this summary of the Winklevosses’ predicament and explained why they weren’t entitled to relief:
The Winklevosses are not the first parties bested by a competitor who then seek to gain through litigation what they were unable to achieve in the marketplace. And the courts might have obliged, had the Winklevosses not settled their dispute and signed a release of all claims against Facebook. With the help of a team of lawyers and a financial advisor, they made a deal that appears quite favorable in light of recent market activity. See Geoffrey A. Fowler & Liz Rappaport, Facebook Deal Raises $1 Billion, Wall St. J., Jan. 22, 2011, at B4 (reporting that investors valued Facebook at $50 billion—3.33 times the value the Winklevosses claim they thought Facebook’s shares were worth at the mediation). For whatever reason, they now want to back out. Like the district court, we see no basis for allowing them to do so. At some point, litigation must come to an end. That point has now been reached.
What lessons do these three situations teach? First, make sure that you have representation, whether with an agent or a lawyer. The publishing company will be represented, and the contract you’re offered has been drafted and reviewed on multiple occasions by lawyers. You will always be at a disadvantage if the other side is represented and you are not.
The next lesson is to make sure you understand what you’re agreeing to. If you have an agent or lawyer and you have a questions about the contract language or a particular provision in the contract, ask what it means and why it’s there. Remember that what one provision may give, another provision may alter or modify. The contract has to be read and understood in its entirety, not as a collection of separate clauses.
The third lesson is that everything in a contract is negotiable. That doesn’t mean you’ll get your way on every provision; you won’t, especially if you’re trying to do it yourself. But an agent or lawyer who deals with publishing contracts on a regular basis will know what you can successfully negotiate and how far the publisher can be pushed. On some items, there’s no leeway at all. But you won’t know unless you ask.
And finally, don’t let your desire or enthusiasm to be a published author override your professional well-being. If you can’t reach an agreement with a publisher on the terms of a contract, you will be better off to walk away and pursue publication elsewhere than to obligate yourself to a contract that is heavily weighted in the publisher’s favor.
Casey, thanks again for having me, and I will be happy to answer questions and comments.