Unfair Use

In case you haven't been on the Interwebz in a few days, mes auteurs, here's the scoop: Gawker published an excerpt of Sarah Palin's forthcoming book, America By Heart, and Mama Grizzly got super mad. She had a judge issue an order for Gawker to take down the leaked pages, and now Palin and Gawker, llc will face off in court on November 30th.

Now, according to Ben Smith of Politico, it does look like Gawker may have been in the wrong: apparently Harper & Row Publishers v. Nation Enterprises, 471 U.S. 539 (1985) establishes a precedent for this sort of thing (dealing with the then-unpublished memoir by Gerald Ford, A Time to Heal). It even seems that Palin could use the avenue of discovery to retaliate against the "lamestream media" that has been "criticizing her" for so long.

The thing is, meine Autoren, after having read the four-balance test of fair use under Title 17 of the United States Code, I really don't see why Gawker's use of Palin's words doesn't fall under the protection of fair use. (Disclaimer: I am not a lawyer.) The four-balance test for fair use basically asks these questions:

1. What's the purpose of the use? This seems, to me, to fall under news reporting/criticism, which is protected.

2. What's the nature of the copyrighted work? This is where (I think) you could make the argument that fair use doesn't apply because the work is unpublished—except that 17 U.S.C. § 107 actually says, "The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors."

3. How much of the work was reproduced? In this case, a few pages out of a 304-page book. No biggie.

4. Will reproducing this work hurt the market for the book? I can't see how it would; if anything, it will add to Palin's exposure and increase her sales, potentially with an audience who generally finds her insufferable (i.e. most people who read Gawker).

It seems to me that Gawker should be able to print those excerpted pages with or without Palin's permission, and I don't really see why they should lose their case next month. Then again, the precedent of Harper & Row Publishers v. Nation Enterprises, 471 U.S. 539 does sort of complicate things, so I may not have all the facts here.

What do you think, mes amis? (Particularly you lawyers in the audience.)

The eRights Fight

The time: the early 1990s.
The place: publishing.

About fifteen to twenty years ago, publishers began specifying the acquisition of electronic rights in their contracts. While I don't think anyone necessarily foresaw the impact e-books would have on the market and the speed with which they'd come to comprise a substantial percentage of sales, I do believe publishers were forward-thinking and wanted to keep as many avenues of revenue open as possible.

Before this switch, most contracts simply granted the publisher the right to publish "in all formats" (though this was not always true, e.g. in cases where audio rights were withheld and sold elsewhere). Ambiguous language like this is at the heart of the e-rights debacle currently consuming the industry, the most notable example being the battle between Random House and the Wylie Agency.

Wylie's questionable deal with Amazon aside, the argument looks something like this.

Wylie's Point of View

The Wylie Agency's contracts show no specific record of electronic rights sales for a number of backlist titles by Very Famous Authors. Since more recent contracts specifically mention the acquisition of electronic rights, Wylie concludes that those rights (legally speaking) were not included under the "all formats" umbrella of earlier contracts (believed only to cover formats that existed at the time the contracts were signed). The Wylie Agency, being very smart, recognizes that these rights are valuable, and so they sell them to make boatloads of extra cash for themselves and their Very Famous Authors (or rather, their Very Famous Authors' estates).

Random House's Point of View

Some of Wylie's Very Famous Authors have written bestselling books that Random House has published. Random House bought the rights to publish some of these books "in all formats," so Random House concludes that they (again, legally speaking) have the right to publish these books in an electronic (wait for it!) format.

More importantly, however: Random House's Tireless and Very Talented Editors worked on the manuscripts for these books, sometimes altering/improving them dramatically. Since Random House had substantial creative input on these manuscripts, they don't think it's fair for the Wylie Agency to turn around and sell them in e-format to Amazon. (They also don't like the exclusive deal with Amazon, but that's another post for another day.)

This is a bit of an oversimplification, but I think you get the gist of it. What do you think, mes auteurs?

A Taxing Profession

A question came up in Thursday's comments regarding the tax situation for authors. This is sort of a tricky question, and the answers will differ from writer to writer, but I'm happy to try to demistify the basics here.

First: if you are an author, you are effectively self-employed (assuming you have no day job, which is, to be honest, a bit of a stretch). This means you may have to report your earnings to the IRS on a quarterly basis and will certainly have to pay self-employment (SE) tax (15.30%) via Schedule SE of the IRS Form 1040. (You can learn more about the tax forms you'll need here.)

Second: you're eligible for a lot of deductions as an author, particularly those that pertain directly to your writing career. Office supplies, use of your car for travel (e.g. author tours), books, magazine subscriptions, writing workshops/conferences, and dues to professional organizations (such as MWA or RWA) are all deductions you can make. You may want to look into getting an accountant to help make sure you get the greatest number of deductions possible.

Third: some authors are under the impression that royalty payments fall under the capital gains tax (rather than income tax) and are subject to the lower capital gains rate (15%). This isn't the case. (Even if it were, the capital gains tax is set to revert to pre-2003 levels—around 28%—next year, so you wouldn't be saving all that much regardless.)

Finally: speaking of royalties/payment, you need to budget effectively. Publishers take several months to calculate royalty payments, meaning you'll probably only get a handful of "big" paychecks per year. If you've got a day job, it might make sense to keep your writing income in a separate savings/checking account and rely primarily on your day job's salary to budget, pay rent, and so on. If not, you'll have to be careful to budget your money so as to live comfortably year-round, pay your taxes, and (hopefully) set some aside in savings. Again, hiring an accountant to help you go through your finances and construct a budget might make sense.

Questions? To the comments!

Terms to Know: Embargoed Title

Those of you who have worked in book publishing or journalism will know what I mean by "embargo" (hint: it has nothing to do with Cuba), but for those of you not privy to the strange ways of the print media/publishing industries, an embargoed title is one that contains information (usually time-sensitive or previously confidential) that cannot be disseminated to reviewers, buyers, or (sometimes) even the sales force for fear of a premature leak.

Some embargoes are stronger than others: for example, a title might be available as a galley or ARC only to those industry professionals who have signed non-disclosure agreements, legally binding contracts prohibiting readers from discussing the contents of the book to anyone who hasn't also signed the agreement. Others are so colossally secret that galleys and ARCs are never produced, and virtually no one knows the contents of the book until the on-sale date. (An example of the latter would be the later Harry Potter novels.)

Now, embargoes are routinely broken, and I've actually never heard of a book that made it all the way to the on-sale date without having something sensitive leaked by a media outlet. The reasons for this are myriad, and range from the occasional errant bookstore that puts the title on shelves too early to the unscrupulous reviewer to the intentional-but-made-to-look-accidental leak by the publishers themselves. (This last measure can be surprisingly effective in terms of garnering additional media attention.)

If you're wondering if any of your titles have or will ever be embargoed, cats and kittens, the answer is: unlikely. Unless you're a corporate whistleblower, former Michael Jackson bodyguard, former CIA agent, or J.K. Rowling, publishers probably won't worry enough about the content of your book(s) to keep everything under wraps. Yes, they'll probably be miffed if a book store puts your title on shelves too early, but that generally has more to do with the timing of reviews, co-op, &c than fear that something groundbreaking will accidentally be released too soon.

Copyright, Schmopyright

Yes, copyright, that fancy set of U.S. laws (other countries have them, too) that protects you (and your publisher) from having all your (their) intellectual property stolen by some crazy hack. In case you haven't been keeping up with all the PubHubbub this week, the question of copyright has once again been raised in the mini-debacle over the third installment in the late Stieg Larsson's bestselling mystery series. The Girl Who Kicked the Hornet's Nest is already available in Ye Olde United Kingdome, but won't be released in the United States of Awesome until May of next year. In order to compete with on-line retailers like Amazon.co.uk, independent retailers in the U.S. have begun importing and re-selling the U.K. versions. The problem is that the U.S. publisher (Alfred A. Knopf) has already paid for the right to do this, and so anyone who imports the U.K. edition and sells it here in the States is in violation of U.S. copyright law.

Now, I'm all for independent book stores and applaud virtually any means by which they can stick it to The Man (whoever that actually is). However, I am also a fan of the law, and while I sympathize with the situation independents like Murder by the Book are in given the encroachment of Corporate America onto their turf, I can't condone illegal actions. If we bend the copyright rules to level the playing field for indies just this once, what's to stop us from doing so in the future? It's the slipperiest of slopes, bros and she-bros, and I think the eventual solution will have to be a greater international awareness in copyright (and other) law as The E-pocalypse draws ever nearer. Questions on everything from first print rights to electronic distribution will have to be re-thought in the coming decade, and I think cases like this one are an indication of how complex the issues involved will be. What do you think? Will we need some kind of international copyright law to police international sales/Teh Internets? Will e-books make this easier or harder? (I tend to think harder, but then again, I'm afraid of pirates.)

Power to the People

Due to an unforeseen Internet outage, Laura and I were unable to bring you your Saturday round-up here at PMN. A thousand apologies, dear readers, and I promise to make it up to you this week with some additional content (as well as answers to your questions).

Since we were round-up-less last week, we weren't able to give our scheduled shout-out to Lit Drift, so I'll do it now: Lit Drift (http://www.litdrift.com), a "brand-spanking new blog, resource, and community dedicated to the art & craft of fiction in the 21st century," is now open for business. They've got all kinds of awesome content, including daily creative prompts and (get this!) FREE BOOKS on Fridays, so be sure to check them out post-haste.

Oh, and before I forget—they also accept reader submissions, so if you'd like to contribute anything (fiction, bar napkin doodles, manifestos, original power ballads to your grandma, &c), send it along!

Now then. As you may recall from last week, I mentioned the price war between Amazon, Walmart, and Target being a source of worry for many of us here in the book publishing industry. Well, on Thursday of last week, the American Booksellers Association drafted a letter to the Antitrust Division of the United States Department of Justice, asking that the USDOJ investigate these practices to be sure they don't break all sorts of laws. I applaud the ABA's move because I agree that these price moves are predatory, that they are harmful to the market, and that, to quote John Grisham's agent, David Gernert, "If readers come to believe that the value of a new book is $10, publishing as we know it is over."

To be clear: I do not think Walmart will single-handedly kill publishing. But I think that if Walmart economics are applied to the book publishing industry, the speed and the immensity of the changes that will be involved will almost certainly change it for the worse. Nobody's going to bail out the book publishing industry if it starts to founder. E-books will soon totally and permanently alter its landscape, and if we add the financial stress of a major bidding war among Walmart, Amazon, and Target for control of the bestseller marketplace—and remember, gentle readers, that's where the money is made—we could see a drastically different book market in the next five years.

Arrr Ya Worried?: E-Piracy Returns

I've mentioned this before (indeed, more than once... or twice), and though I missed International Talk Like A Pirate Day by a fair margin, it nonetheless seems that the topic of e-piracy remains timely. The New York Times reports that the incidence of stolen e-books is on the rise, with sites like RapidShare serving as cyberspace versions of the Somali coast. The article ends:

Ms. Scheid, of RapidShare, has advice for [authors and publishers] if they are unhappy that her company’s users are distributing e-books without paying the copyright holders: Learn from the band Nine Inch Nails. It marketed itself “by giving away most of their content for free.”

I will forward the suggestion along, as soon as authors can pack arenas full and pirated e-books can serve as concert fliers.

I find this interesting. On the one hand, it's true that authors don't always have the same rabid fans as musicians, so every lost sale is a higher percentage of total sales. Then again, if the audience isn't that big, the pirate audience won't be either, right? Or has the age of mega-bestsellerdom (e.g. Stephenie Meyer, J.K. Rowling, Dan Brown) ensured that some authors are that popular and will suffer that badly in terms of lost sales?

Prithee, inform me, dear readers: are you worried about e-piracy, especially now that it looks like it's at our front door? What do you think we can do to stop it, if anything?

Speaking of Our Benevolent Overlords

Hot on the tail of our discussion of Oprah yesterday—which confirmed my theory that, just as you are not largely controlled by Dan Brown, neither are you totally swayed by the powers of Oprah Winfrey—is the news that the DOJ has rejected Google's book deal.

For those of you just tuning in, some background may be in order. You can find a good rundown here and a timeline here, but I'll provide it in trademark Bullet-O-Vision™ for the link-averse:

• December 2004: Google conceives the Google Print Library Project, the precursor to today's Google Book Search.
• September/October 2005: the Authors Guild of America and Association of American Publishers independently sue Google, citing copyright infringement. Google objects, citing fair use.
• August 2006 - July 2007: Over the course of a year, a bunch of university libraries announce they'll be partnering with Google in the Book Search venture.
• March 2007: Microsoft jumps on board the litigation bandwagon. This isn't surprising, since Google and Microsoft are rivals (Chrome vs. IE, Google search engine vs. Bing, &c.)
• October 2008: A settlement is reached in which Google agrees to pay $125 million to remunerate all copyright holders whose rights were infringed, cover all legal fees, and create a public Book Rights Registry. Ever since, the terms have been under negotiation, with a ruling expected next month. However, as mentioned above, there's been a bit of a setback.

The main problem, at least as far as I can see, is this: Google believes they are allowed to keep full scans of any book—even those still under copyright—in their database, so long as they only permit public access to books that are already in the public domain; most copyright holders disagree, particularly publishers who are 50% legitimately worried that permitting one private company to effectively control the majority of the world's printed word is dangerous and 50% terrified of technology in general.

My take: I am 100% in favor of Google maintaining a database of public domain works, as are, I think, most people—except possibly public libraries, who may go by the wayswide if and when e-books come to power, meaning Google + Amazon = Your Reading Experience™. (In case you couldn't tell, I really love that little "™" symbol.) However, I am not in favor of Google maintaining a database and book registry for copyrighted material for the following reasons:

• Security. Book piracy isn't really a problem yet, but once e-books are commonplace and Google's got a massive (ostensibly private) database of copyrighted material all in one place, it will, I think, be very attractive to e-pirates who don't want to pay full price for electronic books.
• Accountability. Depending on the nuts and bolts of your contract, the copyright is either in your name or your publisher's, yet Google's holding onto it without your permission. But don't worry, they'll pay you if people are accessing your copyrighted material through them.
• Destruction of competition. With everything centralized and controlled by one entity, it seems to me healthy competition (e.g. from publishers, other electronic book databases, libraries, &c) could be stifled.

Then again, I'm the cautious (some say conspiracy theorist) type, so it could all be unnecessary hand-wringing. But I know if it were my copyright and my livelihood involved, I'd be damned sure no one was exploiting my work or stealing from me while citing free exchange of information.

Hammered by Thor

Once upon a time in Washington (it was 1979), the United States Supreme Court decided 439 U.S. 522, Thor Power Tool Company v. Commissioner of Internal Revenue. In a nutshell, the Supreme Court decided that the Commissioner didn't abuse his power by denying Thor Power Tools a write-down of "excess" inventory. As a result, book sales for midlist authors (i.e. most of you, gentle readers) have suffered ever since.

Wait, what?

For an in-depth treatment, I'll direct you to Kevin O'Donnell, Jr.'s excellent article on the subject, but what happened is this: in the 1970s, Thor had a bunch of inventory that they were having difficulty moving. All companies—Thor included—pay income tax on their profits, which they pay after making all legally deductible expenses from overall revenues. One way, then, of increasing overall profitability is to pay income tax on a smaller percentage of gross income. Thor decided to do this by increasing their deduction in one field, cost of goods sold (COGS).

Now, there are legal ways of doing this. Say you have $1000 worth of inventory in your warehouses, but by the time taxes are due, the market value of said inventory has dropped to $800. The IRS will let you write down the value of your inventory, i.e. pay taxes on the lower of the two numbers (in this case, $800 instead of $1000). By the end of the 1970s, however, businesses had started writing down the cost of inventory that hadn't yet realized a drop in market value; in the above example, it would be as if your inventory were still technically worth $1000, but you knew (based on the rate you were selling it) that you would only sell 800 units at $1.00 per unit before Inventory 2.0 would come out, rendering your current merchandise obsolete and unsalable. Before Thor v. Commissioner, you could claim $800 in inventory due to slow rate of movement (ROM) and not due to actual depreciation in value; after 1979, you couldn't.

Now, as you may know, the book industry operates in two weird ways. One, it automatically renders huge quantities of its stock obsolete (i.e. hardcovers) every year by printing trade paperback/mass market editions, and two, it allows accounts to return unsold stock to publishers for full credit if those accounts can't move their inventory.

You might already see the problem: each year, thousands upon thousands of books are returned to their respective publishers, generating high levels of nigh-unsellable inventory at their warehouses. Because publishers can no longer write down the cost of their inventory based on inability to sell, they have to do one of two things: remainder the books, i.e. sell them for pennies on the dollar in order to get rid of them, or pulp (destroy) them. (This is the case for hardcovers and trade paperbacks; mass market editions are generally stripped. In case you were having a good day thus far, please note that 40% of books suffer this fate.)

Because publishers lose money on returns/remainders/pulping (and face losing even more money if they don't do this), they compensate by ordering smaller initial orders than they used to and allowing titles to go out of print faster. For a midlist author, this means fewer copies of your book are sold/shipped to stores and remain in print for less time than they would have pre-Thor. While there are potential missed sales here, the publishing houses generally come out on top by doing this, whereas most midlist authors get the hammer.

I've said it before and I'll say it again: I don't want to discourage you from writing or make you cry yourselves to sleep at night. I just want to help you figure out what you're up against in this crazy industry. At this point, we've been operating under the post-Thor tax code for thirty years; there's no going back, and I'm honestly not sure there's a way to remedy the problem of smaller initials and shorter shelf life across the board. Any ideas you might have, however, are (as always) more than welcome in the comments.