Contracts contain many clauses, but just because it's in a contract doesn't mean you should accept it. Publishers differ in their willingness to discuss contract terms or to change anything. Only the author can decide whether any given term is a deal-killer. To that end, here are few "red flags" you should be aware of and think about carefully before signing a contract.
"Red Flags" -- clauses to absolutely avoid.
1. "Kill Fee" or any clause that requires the author to pay a fee to the publisher for withdrawing his/her book from distribution. Most of these clauses refer to pulling a book during the middle of the contract, but some even require a kill fee paid to the publisher by the author for failing to renew the contract at its natural end. This last requirement isn't acceptable.
2. "Evergreen" or "Perpetual Renewal" clauses. These clauses automatically renew contract terms indefinitely. Such clauses have been termed "Virtual Slavery" by the U.S. Supreme Court and are technically illegal. It can be acceptable to have an automatic renewal clause, but it should be for a finite number of automatic renewals, such as one or two, after which there should be a requirement that any renewals of term be by written agreement between publisher and author.
3. Right of First Refusal or Next Book clauses. These clauses require that you submit your next book to this publisher on an exclusive basis before you can submit it elsewhere. While it is reasonable to have a Right of First Refusal clause for sequels or series books, even these should have a definite option period, such as 60 to 90 days, with an automatic release if the publisher does not accept or pass in that period. This kind of clause is often applied to any next book, which can tie up your manuscript with a publisher for which it is inappropriate. (e.g. You normally write fantasy, but the next book you write is a cookbook, which your publisher doesn't publish. With a Next Book clause you must submit the cookbook to this publisher and not submit it anywhere else until the publisher formally passes on it.)
4. Enforced pseudonyms. No publisher should control your real name, your maiden (birth) name or your pseudonym -- nor should they force you to take a pseudonym if you want to publish your book under your legal name. You should be able to take your name or pseudonym with you wherever you go. This is even more important in epublishing because so many e-authors publish books with many epublishers rather than exclusively with one.
5. Control of characters. Unless you are writing a work for hire or a publisher-arranged series (such as the Harlequin continuity series books) where the publisher supplies the Bible and characters, your contract should give you control over the characters you create, other than their use by the publisher for publicity purposes to promote your book or the publisher during the length of your contract.
6. "Subsidy" clauses. Not total red flags. There may be reasons to enter agreements where author and publisher share some costs. (e.g. you pay to have a short print run of trade paperbacks and your publisher agrees to make them available for sale on their website--or may even supply you with an imprint and ISBN, for a percentage of the sale price--this in lieu of POD.) Also, at this time it is routine for e-authors to pay the costs of registering copyright. The red flag here is to look for hidden costs if you didn't knowingly enter into a subsidy contract. Big ones are requiring the author to pay for more elaborate covers or pay for professional editing services after acceptance by the publisher.
7. "Will not edit" clauses. Unless you are self-publishing or entering a subsidy contract (e.g. Xlibris), you should think twice before entering a contract where the publisher simply puts your book out for sale without any editorial input. Even if your book ends up requiring minimal changes, there should be some indication the book has been read and reviewed for quality and accuracy by someone other than the author.
8. Non-negotiable contracts. Any publisher who gives a "take it or leave it" contract and refuses to add or delete anything is one to avoid. This is not to say you may not have any objections to the terms of your contract and are willing to sign it as is, but if you ask for something, like a name/peudonym ownership protection clause, that has no monetary effect on the publisher, and the publisher refuses to alter his contract terms by even a word--this is probably a publisher you should think twice about becoming involved with.
9. E-pubbing as a conduit to paper publishing, i.e., "e-pub with me and I'll try to see that you get published in paper, with me acting as your agent"--but the agent part is not spelled out as such. While this may not be a "red flag" if you can get a sufficient agency agreement with the publisher, it should be considered very carefully before accepting. One wonders if an e-publisher who's trying to sell you to a traditional publisher will have time to be a good e-publisher, or a good agent.
10. Contracts that require an author to buy the books of other authors from the same publishing house as a condition of earning royalties for their own book are a DEFINITE red flag.
While it's acceptable to encourage an author to try the books of other authors who write for the publisher (at least one e-publisher gives a small discount to authors who buy the books of their colleagues), no author should be required to buy a single book, either his/her own or those of other authors writing for the same epublisher.
11. Avoid any clause which requires you to sign a release stating that you will make no claims against the publisher "in case this work or a part thereof or something similar" is published by the publisher in the future.
This is a sign that your work may be used as a basis for a "work for hire" where the publisher will pay a writer a flat-fee to produce a work similar and then be able to keep all the royalties. This is an unethical practice. Often this is predicated on the fact that you do not have an agent. An ethical agent would never suggest you agree to such a thing as, essentially, relinquishing your rights to your work for absolutely no compensation.
Following are "Yellow Flags," clauses that should be entered into with caution, but may not always be a bad deal for the author. Also includes things you should be sure are included in your contract.
1. Language release rights. Make sure your contract is language specific. In epublishing, that should be Worldwide English Language, unless the publisher has its own facilities for translation and distributes the foreign language editions through its regular website and distribution system. Some foreign publishers offer English language publishers an upfront fee to translate books into their languages and sell them on their own websites. The author should receive that upfront fee, with the original epublisher acting as nothing more than an agent and getting an agent's percentage. HOWEVER, if your contract is limited to English language, the publisher cannot sell foreign rights to anyone else without your permission and participation, including financially, because you own the foreign language rights.
2. Bookkeeping. Be sure a definite schedule for reporting royalties is stated.
3. Clarity. Does the contract read clearly? Is it in plain English? Most independent e-publishers' contracts are. You shouldn't need a lawyer to explain it to you.
4. Schedule for release. Does your contract state a date? Tentatively, at least? Are all versions released simultaneously?
5. Review copies. Are you entitled to any review copies? If paper ARCs are provided, how much will they cost you, if anything? Charging for ARCs is pretty much standard, if the publisher provides them at all.
6. Regarding translations of ebooks (or any books) for foreign markets: If your contract is for English language rights, whether North American or Worldwide, your publisher has no legal interest in your foreign language rights and should direct the company desiring translation to you for independent negotiation.
You may choose to enter into an agency deal with your publisher to negotiate the foreign language rights if the foreign bookseller is not disposed to negotiate directly with an author, but you shouldn't have to pay more than what you'd pay an agent, that is 10-15%, to do the negotiation. Also, if the foreign bookseller is paying a fee similar to an advance, that should come to you rather than the epublisher, unless they've brokered the deal, in which case they should get an agent's percentage, not a 50-50 split.
On the other hand, if the epublisher itself is doing the foreign translations, you would need an addendum outlining the royalties for translations, whether sold at the website or through other online sites. However, if you contracted ALL digital rights without specification of language, you may have given away the right to the upfront fee the translation bookseller pays and you are only entitled to royalties at the same percentage as your English language original.
In other words, make sure your contract is clear about what rights are being licensed to the publisher, i.e. e rights only, North America e-rights only, Worldwide e-rights and translation rights, etc. If you're not clear, ask questions.