Continued from 21 May
The second of our three circumstances — or, at least, second in the order I'm discussing them — is the most common one to authors: That the licensee is the debtor. There have been just a few instances in which publishers have gone through bankruptcy over the years. Two of the three examples I listed last time involved long-running schemes to defraud with hundreds (or more) author-victims, for which the con artists attempted to use the bankruptcy system… and went to jail. (Notice that I didn't even have to cite Dorothy Deering?) The third was much more convoluted and has not (yet?) resulted in criminal proceedings. There will be more; it's the nature of publishing, whether of text or music or film/tv or whatever.
However, neither criminality nor civil fraud, nor even just bad luck or carelessness or whatever, is what's most important here. Look at this from the perspective of the United States Bankruptcy Trustee who is administering the bankruptcy estate of the publisher. Leaving aside that publishing licenses are seldom — if ever — properly characterized in the bankruptcy filings, both inventory and licenses are assets of that estate that the Trustee is obligated to try to turn into money to pay off creditors. The proper characterization of a publishing license is as an executory contract (Schedule F), though, because both sides have incomplete obligations and rights that remain to be performed/used/waived during the term of the license… and that's what the publisher has under ordinary circumstances, not an ownership interest.1 So the publisher-debtor is the flip side of Tempnology — the licensee.
Remember: What the Trustee is obligated to do is try to find a way to turn these licenses into money. The Byron Preiss situation is an excellent example: An offer was put on the table by Brick Tower Publishing to buy up all of the licensee rights held by Preiss, with the buyer expecting to profit through publication of e-books and other formats. The Trustee — because bankruptcy trustees have exactly zero experience with or knowledge of the peculiarities of publishing, except what they're being told by bankruptcy lawyers involved in the process (who usually have even less, although they won't admit it) — accepted the offer and sold off the then-remaining inventory to Brick Tower, and in turn distributed the cash to creditors of the debtor. That is exactly what the bankruptcy process contemplates. It is also inconsistent with the values of and revealed in the constitutional Intellectual Property Clause (Art. I § 8 cl. 8) and Copyright Act.2
So what is an author to do when the publisher declares (or is forced into) bankruptcy? At minimum, read the publishing license (but ignore the ipso facto clause — the one in many, even most, publishing contracts that says all rights are returned to the author upon publisher bankruptcy — because such clauses have been unlawful since 1978). In almost all instances, each author should file a claim in the bankruptcy proceeding; this is relatively simple, costs nothing, and can be done online (but nobody is going to tell the authors to do so). That claim should demand both all moneys due, even if that amount is unknown, and the return of the intellectual property owned by the author but licensed to the publisher. Then the fun begins, because there are far too many variables to even hope to describe them… the primary one being how well the publisher's bankruptcy filing and schedules were prepared and getting more and more esoteric from there.
- By force of law and bad writing, the Copyright Act of 1976 makes every publishing transaction a mere license, except if the author sells the entire copyright to the publisher. Without ever using the term "license." Inconsistent with the then-prevailing common law of the Second Circuit that held that a "mere license" was insufficient to confer standing to sue for copyright infringement under the 1909 Act (and that the Second Circuit has never repudiated, but that's for another time). The form of a publishing transaction is a "license," even though the industry, and agent and author communities, say "sale"… and the reasons that it's in the industry's self-interest to keep that mischaracterization are worthy of a law-journal essay, or perhaps even full-length article, in themselves. tl;dr a "sale" of "rights" is a license and not a sale, especially when the transaction can be terminated of right in 35 years, and both common and statutory law give a licensor rights that the publishing industry doesn't want authors to understand they have or potentially have or need to be reflected/excluded/considered in the contract.
- The very existence of §§ 304(c) and 203 of the Copyright Act demonstrates the inconsistency. Details, again, warrant a law-journal piece; the issues are nuanced enough that I can't even do a worthwhile tl;dr that doesn't presume some pretty extensive and sophisticated knowledge of publishing history, copyright history, and the common law of contracts (not to mention the UCC!), so I'm not even going to try. Although you probably regret reading to the end of this footnote by now.