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Literary Agent’s Entitlement to Commission

Co-author, Gerald M. Levine

Literary agents stand in relation to authors as adventurers to booty: payday depends on placing literary works and licensing rights. Their entitlement to commission is contingent. They earn their commissions by placing authors’ works with publishers and promoters capable of exploiting their economic value. Commission is spread over the economic life of the publishing contracts or option agreements their efforts bring into being. A literary agent has no ownership rights in the author’s work.  What exactly is promised and performed and the commission the literary agent is entitled to is set out in the parties’ agreement. A literary agent typically receives a commission of 15% of the publisher’s gross revenues from book sales or licenses of subsidiary rights. Authors are not captive to their agents.  Author/agent agreements are terminable, but an agent’s right to commissions for services performed survives.

We put stress on not “captive” and “services performed” because these issues arose in Lampack Agency v. Grimes, an unreported New York case decided in October 2010, and further reviewed in an appellate decision dated March 1, 2012 (1st Dept.)  The appellate division affirmed the trial court’s judgment dismissing the literary agent’s complaint that it was entitled to commissions from contracts negotiated after it was discharged by the author.  The questions raised and the answers given in this case contain significant markers as to an agent’s right to share in revenues after his connection with the author has ended.

The arrangement between author and agent may be expressed in a written agency agreement (not all agents use one), but the agent’s commission right is always incorporated into the publishing agreement in an “Agency Clause,” which protects the agent’s rights.  I reviewed the basic terms of an agency agreement in an earlier Note (which this Note replaces) when the trial court issued its decision in Lampack.  The agent’s theory in that case rested on the inclusion in the publishing agreement negotiated by the Lampack agency of an option provision for the author’s next work of fiction.  The publishing agreement for the “option” work was negotiated by the author’s new agent.

The Lampack Agency included the following “agency clause” in the publishing agreement:

The Author hereby appoints [PLA] irrevocably as the Agent in all matters pertaining to or arising from this Agreement. . . . Such Agent is hereby fully empowered to act on behalf of the Author in all matters in any way arising out of this Agreement. . . . All sums of money due the Author under this Agreement shall be paid to and in the name of said Agent. . . . The Author does also irrevocably assign and transfer to [PLA], as an agency coupled with an interest, and [PLA] shall retain a sum equal to fifteen percent (15%) of all gross monies due and payable to the account of the Author under this Agreement.

If a discharged agent has negotiated a publishing agreement that includes an option on the author’s next work, is he entitled to receive a commission on the publishing agreement for the option book?  Both courts in the Lampack case made it clear that if such a right exists it would have to be expressly stated in the agreement between the author and the agent.

What does it mean for the author to have “irrevocably assign[ed] and transfer[ed] to [an agent] … an agency coupled with an interest”?  What an author “irrevocably assign[s] and transfer[s]” is limited to commissions paid as a percentage of the author’s earnings.  “An agency coupled with an interest” (the trial judge citing a case from 1896) “[means that] as a part of the arrangement with the principal, the agent received title to all or part of the subject matter of the agency.”   The trial court stated:

In this case, the commission provision grants PLA a 15% commission in the proceeds from its sale of rights in Grimes’ literary works and not an interest in those literary works themselves…. (Emphasis added).

The appellate court went a step further:

It is not reasonable to interpret the phrase “this Agreement” to include either extensions of the 1999-2003 agreements or an agreement for the future work mentioned in the 2005 agreement ….  If Grimes and Penguin had meant to give plaintiff commissions on such extensions and future agreement, they would have said so, especially since the 2005 agreement had a specific Option on Next Work clause.

Indeed, to interpret otherwise (in the Court’s words) would produce an “absurd result.”  Rather,

Interpreting “this Agreement” to mean only the actual contract signed by the parties, not future agreements or extensions, is consistent with the doctrine that “[a]n at-will sales representative is entitled to post-discharge commissions only if the parties’ agreement expressly provided for such compensation.”  (Emphasis added).

An agent engaged for an unfixed period is entitled to commissions on future contracts for services performed during his agency.  The appellate court in Lampack reached back to a 1900 case to explain why an agent is not entitled to commissions received for contracts entered into after discharge with customers he originally secured.  In that earlier case the Court held:

He was to have his commission upon all such business, not merely because he had secured these original contracts, but because he was there to aid, if necessary, in securing renewals or additional contracts, and in keeping his customers in touch with the defendant …. contracts. He was consequently entitled to commissions upon renewals or additional contracts which came in during his period of employment….  The customers were … not his when they chose to contract directly with the defendant after his connection with the latter had ceased.

The legal principle is clear.  The agent’s right to commissions is for services that result in one or more contracts.  The “interest” agents have which survives termination of their agency accrues from their having completed services.  The expectancy, if there is any, comes from fulfilling the purpose for which the agent is engaged.  The phrase “an agency coupled with an interest”, which refers to ownership of a literary property, does not belong in an Agency Clause because that is not what the agent has. In Lampack the phrase served only to invigorate a dispute.In Lampack the phrase served only to invigorate a dispute.  And, who wants that?

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