One of the reasons I became a lawyer was self defense.
As a 24 year-old aspiring writer, transplanted from Akron, Ohio, to New York City, having recently dropped out of an MFA program, I signed a contract with a literary agent to co-author (with a friend of mine) a book of purported humor. A first book for both of us, it was unexpectedly successful. Only when a sizable advance came in from the paperback publisher did I pay any attention to a key clause in my contract with the agent. The contract provided that my co-author and I would receive the revenues from the book, less the agent's commission, and less a "pro rata share of [the agent's] cost of operations." When I signed the contract, I was clueless about what that clause meant. If I read the same clause today, I still would not know what it meant, but I would surely realize that its ambiguity spelled potential litigation.
When the check from the paperback publisher arrived, the agent first deducted what he regarded as the "pro rata share of [his] cost of operations," then he applied his commission against the remainder, and, finally, he split the remainder two ways between me and my co-author. He calculated his "pro-rata share" as follows:
as the numerator he took all of the revenues earned by our book in that six-month accounting period; as the denominator he took all of the revenues earned by all of the books his agency represented during that period. He then multiplied that fraction times all of the expenses that his agency had incurred during that period. Because he was a young, start-up agent himself, only a few years out of law school, he did not represent many authors, and the ones he represented did not make much money. Ours was, in fact, by far his most successful book. I do not recall the exact numbers, but roughly the agent's calculation went something like this: $80,000 in total revenues from the paperback advance for Fowler's book divided by $160,000 in revenues earned by all of the agency's books equals "1/2." $100,000 in total cost of operations times 1/2 equals $50,000 (i.e., the pro-rata share of the cost of operations attributable to Fowler's book). $80,000 advance less $50,000 equals $30,000 in gross authors' earnings. $30,000 less 15 percent agent's commission equals $25,500 for the authors. Divided between the two co-authors, that came to $12,750 apiece. Not much left over for the authors from an $80,000 advance.
Now the "pro-rata clause" was a pig in a poke, no matter how it was applied. I should have realized that even then. But my co-author and I thought it should work like this. The agent represented 10 books, so 1/10th of the total cost of operations of the agency would be applied to each book. $100,000 times 1/10th equals $10,000 (the book's "pro-rata share"). $80,000 less $10,000 equals $70,000. $70,000 less the agent's 15 percent commission leaves $59,500. Divided between the two co-authors, that would mean $29,750 for Fowler and $29,750 for his co-author. Let's celebrate.
Actually, neither my interpretation nor the agent's was necessarily right. As I recognize now, the clause was so hopelessly ambiguous as to be incomprehensible. But a $17,000 difference for each of us seemed worth fighting for; it's folding money even in 2010, and it was a vast sum to me and my co-author in the 1970s. So we hired a lawyer, spent $10,000 on legal fees, and . . . we ended up getting nothing from the lawyer's intervention, except somewhat better and clearer terms on the contract for a sequel that the publisher commissioned. The amount at stake, though colossal to us, was too small to sue over and ever hope to achieve a net gain from the suit (after paying the lawyers), particularly because the clause at issue was completely, totally, maybe even intentionally ambiguous.
I took away from the "pro-rata share" dispute a resolve never to be screwed by an agent again. You, the writer, might take away the more fundamental moral: do your utmost to read and understand every term in a contract before you sign it. You may still get screwed, but at least you won't be surprised when you are.
Indeed, I was 24 years-old when I signed the agent's agreement. I would have signed any agreement at that stage, no matter how unconscionable, to get a first book published. Even if I had known that I would only get $12,750 from a book that sold a lot of copies, I probably would have signed with the agency; it was my best prospect for publication at the time. But I wished that I could have gone into the deal with my eyes open. And I wish the same for all first-time authors.
Now the contract my co-author and I signed was far from standard. In fact, I have never seen another agent's agreement with a similar clause. So this is not a lesson about the evils of "pro-rata clauses." It is instead a parable about the imperative of understanding a book contract, an agency contract, or any contract before signing it. If you need help to understand the terms, get it if you possibly can.
Afterword: years later, I attended the same law school my agent had attended.