Continued from 23 May
And so — having stretched out this SNL-sketch's worth of material to three full blawg entries (somewhat like all but two of the feature films made from SNL sketches, and both of them generated less-than-worthless sequels) — we come to the third (actually, first!) set of alternate circumstances: "the license makes a noncontinuation of use a material breach." The actual "solution" to this requires reading the whole contract, and focusing on a part that on first blush is entirely away from any clause relating to either "bankruptcy" or "transfer of the license." And, naturally, there's room to disagree… but because the bankruptcy processing aspects of the clause are an intended side effect, that there's an argument to be had is what matters most, because that's what will ordinarily convince the Trustee to abandon things back to the author.
At first blush, the obvious place to look would be the royalty-payment clause, but that's not quite right. Although the obligation to account for, report, and pay royalties is certainly a continuing obligation of a publisher (however often they fail at it…), that obligation is essentially discounted by the bankruptcy system. First of all, it's only a matter of money — that is, a claim, that will be handled where relevant in the claim-processing system of bankruptcies.3 Second, anything that arises after the filing date of the bankruptcy proceeding, but during the process, gets different treatment anyway.4 Third, and perhaps most important, as independent licensors authors are behind most of the other claimants in the priority scheme anyway — certainly behind any secured interests,5 tax authorities, landlords, utility companies, and even statutory employees and certain holders of preferred stock! So we're going to need to look elsewhere; somewhere that might provide grounds to end the license.
Like the "out of print" or reversion clause.
A properly constructed, reasonable-but-author-friendly reversion clause will create on ongoing obligation to actually keep the work earning for the publisher and the author. Here's an example:
Out of Print. The Work shall be treated as "out of print," and Author may terminate this License (but not any sublicenses properly entered into by Publisher prior to Author's written demand under this § __), upon written demand if, at any time thirty-six (36) months after the initial publication date of the first Publisher's edition of the work or thereafter:
(a) The Work is not available to the trade for immediate fulfillment (for avoidance of doubt, print-on-demand and similar generated-upon-order availability of physical editions is defined as not so available); or
(b) For each of two consecutive royalty reporting periods, sales of all editions of the Work by Publisher (excluding sublicenses and related income) fail to generate $250 in royalty credit to Author under the terms of this License.
Upon Publisher's receipt of Author's written demand under this § __, this License shall be terminated with immediate effect; all rights provided under this License shall revert to Author, excepting only already-executed sublicenses; Publisher shall provide, within ten (10) business days, a written acknowledgement of reversion; and Publisher shall, within thirty (30) calendar days, provide a final and accurate royalty statement to date and all payments thereby due, together with full release of all reserves against returns (see § __ of this License).
So if, during the bankruptcy proceeding, the author's work is not being sold… Author has an independent right, completely distinct from bankruptcy, to force reversion. And not an awful lot of publishers or Trustees ensure that continued business is sufficient.
Admittedly, the reversion-clause issue is a licensee matter that is seemingly not relevant. My point is that this is another part of the publishing relationship that establishes continuing duties that have actual consequences… and further demonstrates that publishing licenses should be treated as executory contracts. Unlike most licenses — especially "bare" trademark licenses as were at issue in Mission Product Holdings — there really do remain substantial responsibilities on both sides of the publishing relationship that make the license "executory." This is one of them. There are others.
Naturally, we've ended up in a different place than y'all thought. And the post titles probably led you to think I'd be suggesting something completely different, although they're accurate.
- Bankruptcy doctrine has long denied the value of information to creditors — even in the context of licenses. There's considerable case law holding that the sales figures (etc.) do not have any independent value to a creditor, so long as the Trustee (or debtor-in-possession) accurately calculates the end result and remits it properly. That this completely undermines an author's negotiating posture with other publishers who are not involved in the bankruptcy, while trying to find a new home for their works, is beneath the bankruptcy system's notice — even though the bankruptcy system is primarily equitable and not legal in both foundation and operation.
- Widely varying treatment depending upon, so far as I've been able to determine, the whims of the particular Trustee handling the matter. And it's not just a matter of different circuits, either; even within circuits, and even within major publishing districts (in particular the Southern District of New York, the District of New Jersey, the Northern District of Illinois, and the Northern District of California), there's little uniformity in treating royalties due to authors arising after the filing date. In all probability, the common thread is that other debts and circumstances were so much larger than the royalties due that the royalties due got insufficient attention; of course, to the authors "larger" is entirely the wrong concept.
- This is not veiled advocacy for turning publishing licenses into secured transactions. It's theoretically possible to do so, but even choice of law would be problematic at best.