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publisher (either Random House, Knopf, or Ballantine, hereafter
generally referred to as Random House) agrees to pay the author a
royalty based upon sales less "actual returns" and less "a
reasonable reserve for [future] returns". The contracts require
semiannual royalty payments and accompanying "statements of
account" or "accountings". An examination of the manner in which
the semiannual royalty payments were determined pursuant to the
contemporaneous statements of account reveals, however, that the
royalties owed by Random House to its authors at any given point
in time were, as urged by petitioner, based upon book sales less
actual returns.
As noted above, the royalty statements of account furnished
by Random House itemize the royalties due the author on the basis
of total books sold less total books actually returned through the
beginning of the statement period. In addition, an adjustment is
made for the excess, if any, of the prior period withholding of
royalties based upon the reasonable reserve for returns over the
royalty reduction justified by actual returns during the statement
period, i.e., the statement reflects an additional amount for
refund of reserves, and such amount is included in the royalty
payment for the statement period. The balance of the payment for
the statement period is based upon sales of books less actual
returns for such period, and less the current reasonable reserve
for returns.
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