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Old 07-19-2012, 10:40 PM   #1
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Authors Sue Harlequin Enterprises for eBook Royalties

http://www.mediabistro.com/galleycat...yalties_b54677

Excerpts:

Quote:

A few authors have filed a class action suit against the romance publisher Harlequin Enterprises and two European corporations it created. We’ve embedded a copy of the complaint below.

UPDATE: Harlequin publisher Donna Hayes responded: “Our authors have been recompensed fairly and properly for their work, and we will be defending ourselves vigorously.” The company added that “this is the first it has heard of the proceedings and that a complaint has not yet been served.”

The suit alleges that the publisher owes some authors eBook royalties from contracts signed between 1990 and 2004. During those years, these authors “entered agreements” with a Swiss corporation created by the romance publisher.

The lawsuit outlined the problem: “However, Harlequin, before and after the signing of these agreements, performed all the publishing functions related to the agreements, including exercising, selling, licensing, or sublicensing the e-book rights granted by the authors. Instead of paying the authors a royalty of 50% of its net receipts as required by the agreements, an intercompany license was created by Harlequin with its Swiss entity resulting in authors receiving 3% to 4% of the e-books’ cover price as their 50% share instead of 50% of Harlequin Enterprises’ receipts.”
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Old 07-19-2012, 11:06 PM   #2
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Sounds like Harlequin may have been recruiting some accountants in Hollywood.
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Old 07-20-2012, 12:56 AM   #3
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Wonder who spilled the beans on this lucrative earner by Harlequin .....
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Old 07-20-2012, 01:04 AM   #4
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The problem with disgruntled employees, is that sometimes they have a legitimate reason to be disgruntled.

Biggest likelihood: an employee blew the whistle.
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Old 07-20-2012, 07:35 AM   #5
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Originally Posted by Phogg View Post
The problem with disgruntled employees, is that sometimes they have a legitimate reason to be disgruntled.

Biggest likelihood: an employee blew the whistle.
Most likely.
Or maybe, since there are multiple filers, they pooled their funds to hire a good PI. They certainly hired a (reportedly) good lawyer.

I wonder how many other BPHs cook their books to cheat their authors...
(As oposed to cooking the books to cheat on taxes. )
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Old 07-20-2012, 11:15 AM   #6
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If you actually read the article, it's not what y'all are making it out to be.

Some of the contracts signed between 1990 and 2004 were made with a Swiss subsidiary of Harlequin, and did not specify royalty rates for ebooks. Harlequin paid royalties for those ebooks in the 6-8% range. The attorneys are claiming that the authors didn't really sign with the Swiss subsidiary, but actually signed with Harlequin, and should get a 50% royalty rate for ebooks.

Considering that Harlequin cranks out a ton of books every month, that back catalog sales are small, and that ebooks weren't very big in that time period, I doubt we're talking about trillions of dollars. It's also impossible to say who is right without thoroughly reviewing the contracts, which is the job of the court.
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Old 07-20-2012, 11:36 AM   #7
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There's a wonderfully complete web site at http://www.harlequinlawsuit.com/ -- it has a summary and it has the actual complaint (which is remarkably clear even for those of us who aren't lawyers). 8)
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Old 07-20-2012, 11:36 AM   #8
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Quote:
Originally Posted by Kali Yuga View Post
Some of the contracts signed between 1990 and 2004 were made with a Swiss subsidiary of Harlequin, and did not specify royalty rates for ebooks. Harlequin paid royalties for those ebooks in the 6-8% range.
Quote:
Harlequin publisher Donna Hayes responded: “Our authors have been recompensed fairly and properly for their work, and we will be defending ourselves vigorously.” The company added that “this is the first it has heard of the proceedings and that a complaint has not yet been served.”
How is 6-8% fair?
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Old 07-20-2012, 11:51 AM   #9
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Quote:
Originally Posted by Doranna Durgin View Post
There's a wonderfully complete web site at http://www.harlequinlawsuit.com/ -- it has a summary and it has the actual complaint (which is remarkably clear even for those of us who aren't lawyers). 8)
It does, indeed, clearly explain one side of the issue.
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Old 07-20-2012, 11:54 AM   #10
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Jane at Dear Author has an excellent analysis of this.
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Old 07-20-2012, 11:56 AM   #11
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Originally Posted by Sil_liS View Post
How is 6-8% fair?
If the contract specified that H were to pay the author 50% of what they received, and 6-8% of retail did indeed represent 50% of what H were receiving, then it perhaps is fair (or at least, in accordance with the contract, which may not be the same thing). That's for the court to decide.
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Old 07-20-2012, 12:47 PM   #12
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Originally Posted by BeccaPrice View Post
Jane at Dear Author has an excellent analysis of this.
Indeed.
The suit claims that Harlequin's swiss operation is not a real publisher but merely a tax-dodge (and author rip-off) front and that the real party to the contract is Harlequin enterprises.

To prevail, they need to prove that Harlequin Switzerland is just an alias.
Not trivial.

But there is precedent so the case is not frivolous or hopeless.

Quote:
While not pled as a Piercing the Corporate Veil suit, that is essentially what it is.

What is Piercing the Corporate Veil?

This is a legal doctrine that allows the plaintiffs to tear aside Swiss 2′s corporate identity and put HQE in its place. A good case to consider when evaluating this claim is the 2008 decision of NetJets Aviation, Inc. v. LHC Communications LLC, 537 F. 3d 168 (2nd Cir. 2008) In NetJets, the Second Circuit (Circuit where NY resides) had to evaluate whether LHC was the alter ego for another entity. NetJets is a company that offers essentially timeshares of private planes. It entered into an agreement to provide access to a private plane with a company called LHC Communications. LHC Communication severed the contract after a year and NetJets wanted LHC to pay up. LHC declared it had no money. NetJets pursued Laurence S. Zimmerman personally, asserting that Zimmerman was LHC’s alter ego and thus responsible for its debts.

This is the standard for proving the alter ego claim set forth by NetJets and fairly close to what the Authors will have to prove against HQE and Swiss 1 and 2. (All citations removed to make it easier to read)


To prevail under the alter-ego theory of piercing the veil, a plaintiff need not prove that there was actual fraud but must show a mingling of the operations of the entity and its owner plus an “overall element of injustice or unfairness.”
.
.
.
NetJets was able to show that Zimmerman and LHC were essentially the same entity and that Zimmerman was using LHC to avoid debts.
One thing this suit *will* do is shine a searchlight on Harlequin's acceptance, contracting, and accounting practices. So they need to get this out of public view ASAP.

Even if Harlequin wins they lose 'cause their defense is "yeah, we gave away your ebook rights. So what?"

Not a good position to take if you intend to convince new writers to sign up with you.
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Old 07-20-2012, 12:57 PM   #13
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If the contract specified that H were to pay the author 50% of what they received, and 6-8% of retail did indeed represent 50% of what H were receiving, then it perhaps is fair (or at least, in accordance with the contract, which may not be the same thing). That's for the court to decide.
3%. Just to be clear.

H contracted with authors for 50%.

H also set up H2 as a "publisher;" H2, however, did nothing but rubberstamp paperwork. H2 received all income and paid H 6% of that. Then H paid authors 50% of THAT, = 3%. So H/H2 kept 97% of the income and paid authors 3%, which is how 50% became 3%--a process that was completely obscured from authors, agents, and lawyers (due to their royalty report practices) until some events last year instigated a closer look.

Now the court decides if what was done is legal. That'll probably take some time... (understatement)

(It's probably obvious, but yes, I write for HQ, and I do have affected contracts. It's an interesting position to be in.)

Doranna
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Old 07-20-2012, 01:27 PM   #14
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The legal fees may eat up any monetary award, if granted.

Is the ultimate goal to have the rights returned to the authors?
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Old 07-20-2012, 03:31 PM   #15
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One point of consideration is who in that convoluted structure does manuscript acceptance and who negotiates the contracts.
The suit will have an easier road if the editors and contract negotiators are H.E. employees instead of actually sitting in the swiss offices. It speaks to who the authors and agents thought they were dealing with.
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