Publisher Bankruptcy

Q.  My publisher just went out of business. Can I get my rights back?

A. You may be able to terminate your publishing agreement and – perhaps — get your rights reverted to you. The keys words are “may” and “perhaps.”  A lot depends on whether the publisher just became insolvent or actually filed for bankruptcy protection.

First, look at your publishing agreement to see whether you have a termination clause.   For example, here’s the clause in the MWA Model Agreement:

In the event of the bankruptcy, insolvency or liquidation of the Publisher, this Agreement shall terminate and all rights granted to the Publisher shall revert to the Author automatically and without the necessity of any demand or notification.

Sounds good, right?  If you have this clause in your agreement, or one similar, you could regain your rights.  (To help verify your claim, you should record your agreement with the copyright office – this gives notice to the world of your claim of reversion.)

If you don’t have a termination clause, however, you must rely on your “out of print” clause, which typically will require you to give certain notices to the publisher (which may be difficult when it is out of business entirely) and then wait a period of time to fulfill the clause’s requirements.  Not a good option, but it may be all you have.  Once again, to help verify your claim, you can record a copy of the applicable agreement page with the copyright office.

But is a termination clause enforceable if the publisher filed for bankruptcy protection?

Maybe not.  Section 541(c) of the Bankruptcy Code provides that an interest of the debtor (the bankrupt publisher) becomes “property of the estate,” meaning that the publisher does not lose the property or contract right, despite this termination provision.  A clause that terminates a contract because of the “insolvency” or “financial condition” of the debtor, or due to the filing of a bankruptcy case, will be unenforceable once a bankruptcy case has been filed – and the bankruptcy court could than dispose of the author’s copyright as part of the bankruptcy proceeding, without the consent of the author.

So why include a bankruptcy clause in a publishing agreement?

First, the rule against enforceability applies only if a bankruptcy action actually is filed by the publisher.  If, as the above recommended clause state, your publishing agreement provides that it terminates merely upon the publisher’s insolvency or liquidation — and no bankruptcy case is ever filed—the clause is enforceable.

Second, there is an exception to the rule against enforceability — at least in some federal appellate circuits — when copyright licenses and assignments are involved.  Legalese alert!  Section 365(c)(1) of the Bankruptcy Code (dealing with “executory” contracts”) has been interpreted by a number of courts to apply to contracts involving intellectual property.  Courts have ruled that federal intellectual property laws excuse a non-debtor party to an IP license from accepting performance from, or rendering performance to, an entity other than the “debtor in bankruptcy” (the publisher).  As a result, these courts have held that an IP licensor who does not consent to an assignment can successfully block a debtor – via the bankruptcy trustee — from assigning a patent, copyright, or trademark license to a third party during a bankruptcy case.  This rule applies with greatest force to non-exclusive IP licenses but may also apply to certain exclusive licenses – such as the typical copyright assignment to a publisher.

© 2019 Daniel Steven