Authors Sue Harlequin Enterprises for eBook Royalties

[DarkScribe]

Originally Posted by Barcey

This is why everyone needs to contact the American DOJ and complain about their actions against the publishers. If they aren't allowed to conspire to implement agency pricing then Amazon will gain a monopoly and force the authors to sign contracts just like this one. You have to understand that this is all part of the legacy publishing author development program. It's important that author's experience bad contracts like this so they know what to look out for in the future. Even if it costs more then the value of the contract it's important that you engage a lawyer and and an accountant to review the contract before you sign.
Oh sure you might think that the 70% that Amazon is offering looks pretty good but remember that's just the lobster and champaign dinner they're giving you before they take you back to their apartment and sign you up for a 3% contract. Amazon will do it out of pure corporate greed too, they won't have you best interest at heart.

I'm hoping to get a job working for the BPH perception management firms. I think with a little polishing around the rough edges I'll be in like Justin Bieber into a pack of 12 year old girls.

I thought that Justin Bieber WAS a twelve year old girl.

[DarkScribe]

Originally Posted by Kali Yuga

Again, the contracts in question apply to a very small slice of Harlequin's business. I don't even know how you would buy an ebook from 2002 -- I certainly didn't see any on their site.

It's easy. Rent the Tardis.

[Lynx-lynx]

Originally Posted by HarryT

That's the job of the author's lawyer. Any author who signs a contract without having it looked over by a lawyer is acting very unwisely.

Harry contracts of employment and contracts for employment are not always negotiable.

More often than not the power holder is the person/entity offering the contract, not the intended signatory of the contract.

This power differential changes when the intended signatory is in a position to bargain because they are being sought out by the contract holder, eg already established names (in whatever field).

Until then - it's likely to be: the companies way or the highway!!

I don't know about where you live but in Australia it is just not on that a lawyer should be required prior to entering into a contract either of or for employment. The contracts have to be written in language that can be readily understood, with all their clauses clearly stated.

In the matter that is the topic of this thread ..... it is yet to be determined whether there is a matter that needs to be remedied or not, and whether there was a less than open disclosure of the monies to be paid out in the terms of the contract.

[speakingtohe]

If you are an author who might be affected by the suit, the legal team offered these guidelines: “If you signed a contract with Harlequin Enterprises B.V. or Harlequin Books S.A. between the years 1990-2004, you might be a member of the class. You would need to examine your contracts from that time period and determine whether the contracts mention a specific royalty for electronic or digital rights. This can be found under the “Royalty” section of the contract and will be listed as either 6% or 8% of cover price. If your contract does not contain a specific percentage for electronic or digital sales, then chances are you qualify as a member of the class.”

I am totally confused. If you didn't sell the rights they cannot legally publish your book AFAIK? If you did sell the rights you cannot join the class action.
Obviously I am missing something.

Helen

[fjtorres]

Originally Posted by Kali Yuga

Harlequin is a very powerful brand, and it's going to take a little more than an obscure lawsuit to make a dent in their reputation.

It depends on which reputation you mean: with consumers or with writers.

When it comes to *romance* writers and especially romance writers with Harlequin contracts the lawsuit is hardly obscure:

http://jakonrath.blogspot.com/2012/0...40597969416098

Stephanie Scott said...
I found your blog from Kristen Lamb's post today. I took note of this lawsuit today as well; having joined up with Romance Writers of America recently, Harlequin royalties in general are a pretty hot-button topic. Lots of of HQ writers are looking to get out and find other publishers or self-publish. Hearing the dirty side of the book business has definitely enlightened this newbie writer!

(A common sentiment in writer-focused web sites--it pays to track all three sides in the business.)

More, the lawsuit is a *class action* lawsuit. It impacts *everybody* with a Harlequin contract in one way or another; it is not "obscure" to them.
And if they haven't heard of it yet (unlikely) they *will* by next week:

http://legalminimum.blogspot.co.uk/2...rlequin-e.html

I'll spend more time talking about this in the coming days. I also think my panel at the Romance Writers of America 2012 annual convention next week just got a new subject.

This is *not* a trivial event.

[Elfwreck]

Originally Posted by speakingtohe

I am totally confused. If you didn't sell the rights they cannot legally publish your book AFAIK? If you did sell the rights you cannot join the class action.
Obviously I am missing something.

Helen

The contracts apparently mentioned digital rights, just not specifically "ebooks." the complaint says:

The 1990-2004 standard form publishing agreements provided that the Plaintiffs were to be paid 50% of the net receipts of the "Publisher" from the exercise, sale, or license of digital rights to their works.

I gather that authors who specifically contracted for *ebook* sales are not part of this class. The complaint is that the "Publisher" is Harlequin, the agency with whom they signed the contract, not "whatever subsidiary Harlequin invented to launder money;" they don't get 50% of what Harlequin-main gets from Harlequin-sub.

[speakingtohe]

Originally Posted by Elfwreck

The contracts apparently mentioned digital rights, just not specifically "ebooks." the complaint says:

The 1990-2004 standard form publishing agreements provided that the Plaintiffs were to be paid 50% of the net receipts of the "Publisher" from the exercise, sale, or license of digital rights to their works.

I gather that authors who specifically contracted for *ebook* sales are not part of this class. The complaint is that the "Publisher" is Harlequin, the agency with whom they signed the contract, not "whatever subsidiary Harlequin invented to launder money;" they don't get 50% of what Harlequin-main gets from Harlequin-sub.

Thanks for the reply.
Cannot still grasp the concept. If they signed with harlequin, and Harleqin transferred the rights to a subsiduary or other company would they stilll not get what they signed for?

I know if you buy rights you can sell them. But if the sale of those rights includes payment terms can you just change them willy nilly?

Take mineral rights for example. If the sales contract says that the seller will retain rights to 20% of the moneys derived from these mineral rights, does this dissapear on resale of the property without your agreement? Maybe it does and I am unaware.

And if there is no clause for ebook rights how can they sell the ebook? And if there is a clause of 6-8% you can't sue in this class action. So who can sue?
That is my biggest question.

I have a few more, but if someone could explain this one to me, maybe they wold be answered as well.

Helen

[david_e]

.....

[DarkScribe]

Originally Posted by speakingtohe

Thanks for the reply.
Cannot still grasp the concept. If they signed with harlequin, and Harleqin transferred the rights to a subsiduary or other company would they stilll not get what they signed for?

I know if you buy rights you can sell them. But if the sale of those rights includes payment terms can you just change them willy nilly?

Take mineral rights for example. If the sales contract says that the seller will retain rights to 20% of the moneys derived from these mineral rights, does this dissapear on resale of the property without your agreement? Maybe it does and I am unaware.

And if there is no clause for ebook rights how can they sell the ebook? And if there is a clause of 6-8% you can't sue in this class action. So who can sue?
That is my biggest question.

I have a few more, but if someone could explain this one to me, maybe they wold be answered as well.

Helen

The plaint says that they entered an agreement with a Swiss subsidiary of Harlequin, not Harlequin itself. They claim that as Harlequin did the actual publishing and marketing that they are entitled to a rate they would have received if they had been dealing directly with Harlequin itself.

Seems straightforward to me. They had a deal and are trying to change the deal after the fact. I can't see that they have a chance of success.

[Elfwreck]

Originally Posted by speakingtohe

Thanks for the reply.
Cannot still grasp the concept. If they signed with harlequin, and Harleqin transferred the rights to a subsiduary or other company would they stilll not get what they signed for?

The concept is:
Harlequin signs for rights, offering author "50% of whatever we receive."

Harlequin creates "Harlequin-Subsidiary, a special overseas company." H-S is owned by people from Harlequin, and has no rights to do business other than those granted by Harlequin.

Harlequin licenses the book to H-S, agreeing that H-S gets 90% of the cover price.

Book sells for $8 list. H-S keeps $7.20, handing $.80 to Harlequin. Harlequin pays author $.40 per copy sold. At the end of the year (or whatever), H-S's profits get folded back into the main Harlequin profits. End result: Harlequin keeps $7.60 per title, and pays the staff at H-S out of that.

And if there is no clause for ebook rights how can they sell the ebook? And if there is a clause of 6-8% you can't sue in this class action. So who can sue?

This lawsuit is about a specific set of contracts.

In those contracts, the phrase "digital resale rights" (or something very similar) is used; the contracts that mention "ebooks" and 6-8% are so different that they're not part of this lawsuit. Those contracts had different royalty arrangements. It's not that those with 6-8% ebook royalties can't sue; they're just not part of *this* contract set and not included in this class-action lawsuit.

[Lynx-lynx]

Originally Posted by david_e

Nor are they a requirement. Should a person find something they disagree with they have every right not to sign.

Exactly, and if they have any queries then they need to ask them prior to deciding whether to sign or not.

RE the subject under discussion in this thread, it seems that legal action has been instigated claiming that clause/s have not been applied as indicated on the contract or have not been spelt out clearly in the terms of the contract, or whatever else is in the claim.

It may be the case (or not) that the clauses concerning payment to the author were not clearly articulated and may have caused the authors to 'believe' one thing when in fact something else was intended.

[HarryT]

Originally Posted by Lynx-lynx

I don't know about where you live but in Australia it is just not on that a lawyer should be required prior to entering into a contract either of or for employment. The contracts have to be written in language that can be readily understood, with all their clauses clearly stated.

For a normal employment contract yes, of course you're right, but a book contract is a rather different thing. I speak from personal experience, here; in fact the publisher I had a contract with to write a couple of textbooks specifically advised me to have it looked at by a lawyer - I think that was very good advice, and I'd advise anyone to do the same.

None of that excuses unfair contracts, of course, and please don't think that I'm in any way condoning such things - I'm certainly not. But a lawyer will be much better able to spot any potential "gotchas" in a contract than an ordinary person will.

In the UK there's a specific law called the "Unfair Contract Terms Act" which makes obviously unfair clauses in a contract illegal (and invalid).

[Soldim]

Originally Posted by Elfwreck

Harlequin creates "Harlequin-Subsidiary, a special overseas company." H-S is owned by people from Harlequin, and has no rights to do business other than those granted by Harlequin.

The purpose of Harlequin Books S.A. is as follows (from the original Swiss Commercial Registry):

Harlequin Books S.A., acquérir, exploiter et vendre toutes oeuvres littéraires, artistiques et audio-visuelles, qu'il s'agisse de littérature, de cinéma, d'enregistrement sonore ou de tout autre domaine. Elle peut également financer d'autres sociétés du groupe. Le société peut exécuter toutes les transactions commerciales et financières qui favorisent son but. La société peut avoir des participations d'autres sociétés et peut établir des succursales et des sociétés affiliées.

Which basically comes down to acquiring, exploiting and selling all types of media, as well as financial services for the rest of the group. The company can be owned by other companies, and can own companies itself.

So, in principle, it is not limited in it's business to Harlequin -- whether the do business with other companies on the publishing level I don't know. It's rather unlikely they don't do business with financial institutions outside of the Harlequin group.

Harlequin licenses the book to H-S, agreeing that H-S gets 90% of the cover price.

Book sells for $8 list. H-S keeps $7.20, handing $.80 to Harlequin. Harlequin pays author $.40 per copy sold. At the end of the year (or whatever), H-S's profits get folded back into the main Harlequin profits. End result: Harlequin keeps $7.60 per title, and pays the staff at H-S out of that.

Here's really a nice spin -- non of the books sell for $8 list price; as indicated by the different authors involved on the blogs. Mostly it's between $3.99 and $4.99. In the suit there's an unrealistic number for the sale price, and a real number for the author payouts.

[fjtorres]

Originally Posted by speakingtohe

Thanks for the reply.
Cannot still grasp the concept. If they signed with harlequin, and Harleqin transferred the rights to a subsiduary or other company would they stilll not get what they signed for?

Try this scenario:
The authors and agents were dealing with Harlequin and the contracts they signed called for certain specific royalty rates.
At the time ebook rights were lumped in with other subsidiary rights (like movie, TV, etc) at a 50% royalty.
For tax purposes all the contracts Harlequin negotiated were signed not by Harlequin Enterprises (whose employees did the negotiation) but with their swiss subsidiary, which then licensed the book rights to the parent company.
For print books (which had low negotiated royalties to start with) Harlequin's self-licensing terms were comparable to what an outsider would pay. (Which is apparently a legal test of validity.)
For ebooks the agreed-upon royalty rate was 50% of net *publisher* recipts.
In order to avoid paying the agreed-upon rate, Harlequin set the self-licensing terms at ~10% of their real world value and paid the royalties based on that.
The lawsuit claims that by that practice Harlequin is cheating the entire class of plaintiffs and is breaking the terms of the contract as negotiated.

To prevail, the plaintiffs have to prove that Harlequin switzerland (5 employees) is not the real publisher but just a front for Harlequin Enterprises which is the actual publisher of the books (both e-and p-) so that the net receipts cited in the contract should be the actual wholesale price and not the artificially low self-license price.

To prevail, Harlequin merely has to convince the court that licensing an ebook that sells for US$4.99 for $0.50 is a perfectly reasonable thing to do.

Which they might do, given the right lawyer and the right judge.
Stranger things have happened.

The thing to remember is that the class in the legal action at issue includes not just the named authors but the majority of Harlequin authors. (And that the ones not under the 1990-2004 contracts have their *own* separate issues with Harlequin practices.)

As wikipedia notes, Harlequin practices have been frowned upon for years:
http://en.wikipedia.org/wiki/Harlequ...prises#Current

The company is considered one of the most profitable in publishing. Over $585 million worth of books sold in 2003, for gross profits of $124 million and a profit margin of 21%. Its large profit margin can be tied in part to the amount of advance that its authors receive. These advances are often smaller than the industry average, and can total to only a few thousand dollars for a series romance.[1] Despite its profitability, and a 37.2% pay hike for Harlequin President and CEO, Donna Hayes in 2011,[40] there is controversy with its royalty program for authors. In 2011, the Romance Writers Association sent a letter to all members to "exercise due diligence in reviewing contracts" with Harlequin because "several members of RWA have expressed concern regarding" Harlequin's digital royalty rate changes and non-compete clauses.[41] This is not the first time Harlequin had been called out by the Romance Writers Association regarding Harlequin's treatment of their authors. In 2009, Harlequin was called out by the Romance Writers of America, Mystery Writer's Association, and the Science Fiction Writers Association for schemes of making their authors pay for publishing.[

The real issue here is not so much whether Harlequin's practices are legal (unless you are one of the affected authors, poor souls) but that the practices are now public.
Twenty years ago, ten years ago, even as recently as 2004, aspiring romance writers had little recourse than to swallow Harlequin's "standard" rates if they wanted to be published.

That is no longer true.
The authors have alternatives and are exercising them.

Harlequin could easily "win" this legal fight and lose the war for the future of the romance market.

[Kali Yuga]

Originally Posted by fjtorres

When it comes to *romance* writers and especially romance writers with Harlequin contracts the lawsuit is hardly obscure....

Right, so people are going to decide whether or not to publish with the single largest romance publisher based on contracts from 8+ years ago. Yes, I'm sure submissions will come screeching to a halt.

Originally Posted by fjtorres

More, the lawsuit is a *class action* lawsuit. It impacts *everybody* with a Harlequin contract in one way or another....

Uh, no.

"Class action" just means the attorneys believe there is a larger group who should be represented by this smaller group pressing this particular case.

The contracts from 2005 on all specified ebook royalty rates, and are not affected by this case.

I'm sure there are a lot of writers who had contracts in the specified time period (1999 to 2004). The question is how many of those titles were sold as ebooks and in significant amounts.