Authors File Class Action Lawsuit Against Harlequin Enterprises

[san_remo_ave]

This lawsuit is over ebook royalties for authors who contracted with Harlequin between 1990-2004.

It's likely to a hot topic at RWA next week, for those who are attending.

http://www.mediabistro.com/galleycat/authors-sue-harlequin-enterprises-for-ebook-royalties_b54677

ETA: Harlequin's response:

http://harlequinblog.com/2012/07/harlequin-responds-to-complaint/

ETA: Official website for lawsuit info

http://harlequinlawsuit.com/

 

[Ann_Mayburn]

Ohhhh, interesting. Thanks for posting!

 

[Deb Kinnard]

I call that more of a non-response, actually. All it says is that they paid "fairly" and they're going to defend the suit, which is expectable.

Now I wish I were going to RWA. The discussion level is going to be quite a thing to see/hear.

 

[Hildegarde]

Boy, this news is spreading fast.

Should be interesting to watch - I hope the authors get some compensation (and even more, that Harlequin cleans up its act).

 

[JMC2009]

Not ever having been published, I guess I don't understand what's going on. Here's what I get:

1. They have a Swiss entity for a tax shelter.
2. That entity can actually be seen as a "parent" company with it's imprints and other offices being representatives for it.
3. Since the authors sign the agreement with the Swiss entity and not Harlequin Toronto (et. al.), it's the Swiss entity that actually owns the rights.
4. Since the smaller offices are representatives of the Swiss company, why is there a "license" for a different media?

I can definitely see where the authors are coming from.. It's the Harlequin side of things that I'm having a hard time understanding, and how print and ebooks differ in the way they're handled.

 

[Bubastes]

Not ever having been published, I guess I don't understand what's going on. Here's what I get:

1. They have a Swiss entity for a tax shelter.
2. That entity can actually be seen as a "parent" company with it's imprints and other offices being representatives for it.
3. Since the authors sign the agreement with the Swiss entity and not Harlequin Toronto (et. al.), it's the Swiss entity that actually owns the rights.
4. Since the smaller offices are representatives of the Swiss company, why is there a "license" for a different media?

I can definitely see where the authors are coming from.. It's the Harlequin side of things that I'm having a hard time understanding, and how print and ebooks differ in the way they're handled.

From my understanding, item 3 in your list is the key: the contract was worded so the Swiss entity owns the rights, requiring Harlequin Toronto to pay the Swiss entity a licensing fee to publish the e-books (because the Swiss entity has no publishing capabilities of its own and because Harlequin Toronto doesn't own the rights). The contract didn't explicitly address e-book rights, so the royalty payment was calculated under the All Other Rights clause. As a result, the authors got 50% of the 6-8% licensing fee that the Swiss entity received from Harlequin Toronto, NOT 50% of the net receipts Harlequin Toronto received from from e-book sales.

The complaint argues that Harlequin Toronto and the Swiss entity are one and the same, entitling the authors to 50% of Harlequin Toronto receipts from e-book sales. The complaint essentially asserts that the license between Harlequin Toronto and the Swiss entity is just corporate shell-gaming passing e-book rights from one hand to the other.

Dear Author has a good explanation of the issues:
http://dearauthor.com/news/friday-n...a-class-action-for-underpayment-of-royalties/

If I'm misunderstanding anything, someone please let me know and I'll fix this post.

Usual disclaimers (this is not meant to be legal advice, blah blah blah) apply.

ETA: Additional analysis at the Legal Minimum blog. He and Dear Author don't agree on all of the issues and how they might resolve, but that's what makes this case interesting (at least to me).
http://legalminimum.blogspot.com/

 

[jennontheisland]

I still don't understand where they're getting the 50% number.

Harlequin does not offer 50% royalties on any contract.

 

[Bubastes]

I still don't understand where they're getting the 50% number.

Harlequin does not offer 50% royalties on any contract.

Their "All Other Rights" clause (see p. 11 of the complaint):

http://www.harlequinlawsuit.com/uploads/Harlequin_Complaint_7.19.12.pdf

The All Other Rights clause, which dictates how payment will be calculated for rights not specifically addressed in the contract (such as e-book rights):

On all other rights exercised by Publisher or its Related Licensees fifty percent (50%) of the Net Amount Received by Publisher for the license of said rights by Publisher from a Related Licensee shall, in Publisher’s estimate, be equivalent to the amount reasonably obtainable by Publisher from an Unrelated Licensee for the license or sale of said rights.

And the licensing clause (Harlequin is interpreting this so that "Publisher" = Swiss entity and "Licensee" = Harlequin Toronto):

If Publisher licenses, sublicensees or sells to an Unrelated Licensee any of the following rights to the Work anywhere in the world, in any language, Author’s and Publisher’s share of net amount received by Publisher for said license, sublicense or sale shall be apportioned as follows…Any other rights to reproduce, adapt, publish or otherwise deal in any manner whatsoever now existing or that may hereafter come into existence [Author's share] 50% [Publisher's Share] 50%.

 

[JanDarby]

This seems to be about the reissue of the books in digital form, not the original paperback books. If I'm reading it right, they're NOT saying they were paid improperly for the paper books, when they were originally released. They're just looking to get paid (more) for the recent release in digital format.

JD, not giving individual legal advice here, just general information

 

[Bubastes]

This seems to be about the reissue of the books in digital form, not the original paperback books. If I'm reading it right, they're NOT saying they were paid improperly for the paper books, when they were originally released. They're just looking to get paid (more) for the recent release in digital format.

JD, not giving individual legal advice here, just general information

Correct.

 

[JMC2009]

Thanks everyone. I didn't know about the "All Other Rights". I supposed had I actually clicked on some of the other links it would have been explained.

(All you web programmers out there who say that users should be able to get to anything on your website in 6 links or less... try 1. :-D)

ETA

Just read the Dear Author summary Bub posted the link to and wow, it's really informative! I got lost a little still in the All Other Rights, but I think I got the picture as to what's going on with the way Harlequin is set up... It sounds like:

We have Company A (Swiss) that is more or less "headquarters" for all these offices known under "Company - A.1" "Company - A.2" Etc.

A.1 and A.2 take care of different types of products that are produced by Company A.

This is what I think the Dear Author blog was referring to with the "piercing Veil of Corporate identity" thing.

I think what might support that from my oh, so not legal understanding is that they all license exclusively with Company A.

If Company A.1 and Company A.2 also did business with Companies B, and C (who are completely unrelated to Company A), then I think it would be easier to say that they're different entities.

It's like my environmental contractors... One company may have offices all over the country that specialize in slightly different things (Remediation, vs. Environmental Engineering vs. Mining), but at the end of the day they all still answer to that main company.

 

[Bubastes]

We have Company A (Swiss) that is more or less "headquarters" for all these offices known under "Company - A.1" "Company - A.2" Etc.

A.1 and A.2 take care of different types of products that are produced by Company A.

This is what I think the Dear Author blog was referring to with the "piercing Veil of Corporate identity" thing.

I think what might support that from my oh, so not legal understanding is that they all license exclusively with Company A.

Close, but it's the other way around: Company A is the Toronto headquarters and Company A.1 is the Swiss office. So the authors didn't sign their contracts with headquarters (Company A) -- they signed it with the Swiss outpost (Company A.1) even though headquarters handles all the editing, publishing, distribution, etc.

When you pierce the corporate veil, you're arguing that Company A.1 and A.2 ARE Company A (not separate entities at all). In that case, you're not even talking licenses anymore because there's only one company passing e-book rights from one hand to the other.

Here's something that puzzles me (without studying the rest of the contract, I don't know the answer): how were the print rights handled? If Harlequin is arguing that the Swiss entity owns the publishing rights, then did the Toronto headquarters pay a licensing fee to obtain the print rights as well? If not, then why is the Swiss entity treated as a licensor for e-books and not for print books? Sorry, thinking aloud here....

It's like my environmental contractors... One company may have offices all over the country that specialize in slightly different things (Remediation, vs. Environmental Engineering vs. Mining), but at the end of the day they all still answer to that main company.

Take it one step further: you have entities all over the world and their only purpose is to reduce taxes or carry out some other corporate shuffling. I used to do work for a large corporation that had over 200 separate entities worldwide solely for tax reduction purposes. In those cases, most of the entities didn't even have their own offices: they existed only on paper.

 

[thothguard51]

Some interesting comments from the Passive Voice Blog about this topic...

http://www.thepassivevoice.com/07/2012/harlequin-responds-to-lawsuit-by-authors-seeking-royalties/

 

[BenPanced]

UPDATE:

Harlequin plaintiffs bring new allegations

 

[JMC2009]

Thanks, Ben!

This alter-ego argument makes a lot more sense to me than does the corporate veil.