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Old 11-26-2012, 06:39 PM   #87
fjtorres
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The complaint has been amended with more detail and backing for the claims:
http://legalminimum.blogspot.com/201...bring-new.html

Quote:
The one that looks big on paper, and has gotten a lot of attention, is the inclusion of more allegations to back up the argument that HS is nothing more than a shell for HE. The result of this argument, if the authors win, is that HE will be considered to be the Publisher under the contracts. That would make the 50% royalty payable on the amounts received by HE. Imagine an e-book with a $5.00 cover price. Amazon takes 30% or $1.50, leaving $3.50 per copy. If the authors are successful, they would get $1.75. Up to now they've been getting about $0.12. So that's a big difference.

They are arguing a doctrine called "alter ego" to make this claim. Unfortunately Batman is not involved. The alter ego argument basically holds that where you have two companies but one is basically a shell that has no independent operation, it's only fair to treat them both as the same company so that they can't do inter-company contracts that operate to deprive you of money you're owed. In order to make that argument, the authors basically have to show that HE acted as though HS was under its control. And they make some pretty compelling claims to this effect, including:


HE referred to HS as being one of its "offices"
HE referred to HS's accounting department as being "our accounting department"
HE told the authors that it was asking them to sign contracts with HS in order to rationalize its business procedures and wouldn't prejudice them or put them in a worse position contractually.
HE handled all administrative tasks for HS, including contract drafting and administration. Although HS sent the royalty statements, HE handled all followup questions.
When authors wanted to obtain reversion rights for their books, which would terminate the publishing contracts and allow the authors to resubmit them elsewhere, authors had these discussions with HE. If HE's staff approved of the decision, they would prepare the documents for HS to sign.
Quote:
But to me, the bigger issue is the one that isn't really fleshed out in either the old or the new Complaint: that the 6-8% royalty itself isn't equitable. That is, the authors are contending that even if the court decides that the HE-HS contract gets to be upheld, that doesn't end the conversation. Instead, they would have the court determine whether the 6-8% rate in that contract was fair to the authors, on whose behalf HS was negotiating when it licensed those rights.
That second one *is* big.
When a company negotiates for somebody else, they are (legally) expected to get reasonably fair terms. Courts tend to look to comparable deals in the same industry as benchmarks and there are a *lot* of other benchmarks to look at; Smashwords, Amazon, Apple...

The court might decide that HE should have been paying HS something closer to 70% (netting the authors 35%) instead of 6-8% (netting the authors 3-4%). So even if the contracts between HS and HE are upheld, the authors may still have a legal path to victory.
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