With all of the fast-moving changes occurring in the publishing industry, it's no surprise that some companies are unable to keep up and decide to throw in the towel. Unfortunately, the collapse of a publishing company can leave authors and their work in a state of limbo. Here's what happens when a publisher files for bankruptcy and what you can do to reclaim the right to your books and stories.
A Brief Explanation of Copyright
When a person creates an intellectual property—in this case a book—the creator is automatically endowed with certain rights. These rights allows the person to
- Copy the work
- Make derivative products from the work (e.g. video games)
- Sell, gift, rent or otherwise distribute the work to others
- Perform or display the work (e.g. make movies or stage plays)
When a publishing company purchases your book, it is actually buying one or more of these rights. These rights can be sold as a group or parceled out to multiple entities. For instance, you can sell distribution rights to a publisher and movie rights to a production company. The rights can be divided even further in some cases. A publisher may only purchase the right to distribute digital versions of the work instead of hard copies.
Regardless of the type of rights a publisher buys, those rights are essentially frozen when the company files for bankruptcy. Until the case is resolved, you can't do anything with those particular rights. For instance, you can't sell digital distribution rights to any other company until your contract with the bankrupt publisher is cancelled or your rights are legally returned to you.
Bankruptcy and Your Intellectual Property
Though there are two types of bankruptcy a company can file, the one that affects authors the most is chapter 7. In this type of bankruptcy, the company's assets are liquidated to pay off creditors. This means your contract—along with those of the other authors signed with the publisher—will be sold to whoever offers the most money. Another company purchases the bankrupt publisher's catalog, for example, and your contract is transferred to the new owner.
Sometimes a publisher will put a clause in the contract that states the author's rights will revert back to the individual should the company file for bankruptcy. Unfortunately, the bankruptcy code has provisions that negate these types of clauses and force authors to remain tied to an imploding star so to speak. The goal of the bankruptcy court is to pay off creditors and discharge any remain debt. The trustee will use any legal means necessary to avoid losing assets that could be sold to achieve this end.
Another complication that crops up in these cases is that an author will find him- or herself in the uncomfortable position of being a bankruptcy asset and a creditor. If the publisher hasn't paid you royalties on books sold, then you have a valid claim against the company for compensation. However, the two interests can play against each other. You may want the court to give your rights back to you but you also want to get paid which may require the court to sell off all the contracts including yours.
The ease or difficulty involved with extricating yourself from a publishing company's bankruptcy will depend on several factors including the type of rights sold, the time length of the contract and the terms of the agreement.
You may be able to get your rights back if you can prove your contract is executory. An executory contract is one in which each party has to complete a portion of the agreement. You see this type of contract when a publishing company asks a person to write a book in exchange for an advance royalty payment. If you have not produced the book and the publisher has not paid you the advance, you can ask the court to reject the contract on the grounds the publisher doesn't actually own the rights to your work because neither side has fulfilled the agreement yet.
Authors who have already submitted a completed work to the publisher may still be able to force the courts to revert their rights back to them. The publisher cannot resell the rights to your work if you did not give the company permission to do so. Therefore, a trustee—acting on behalf of the publisher—cannot do so either. If your contract with the publisher does not contain language indicating you have given the company resell rights, then you may be able to have your contract negated on those grounds.
Lastly, if the publisher owes you royalties then you may be able to negotiate the return of your rights in lieu of payment with the trustee. As noted previously, the trustee's job is to generate enough cash to pay off creditors. The individual may be amenable to this tactic if you can provide proof you are owed money.
Negotiating the return of your rights after a publisher files bankruptcy can be complex and messy. It's essential that you work with knowledgeable attorneys with experience in intellectual property rights who can help you navigate the process and increase your chances of prevailing in court.