Author Lawsuit Against Harlequin Certified as Class Action

37The off again on again royalties lawsuit against Harlequin has moved a step forward. Passive Guy reported yesterday that Judge William Pauley has formally certified the plaintiffs as a class.Originally filed in July 2012, Keiler et al v. Harlequin Enterprises Limited et al was brought by a group of authors who allege that Harlequin had cheated them out of their royalties.

In the early ebook era (before 2005) contracted for ebook rights offered a standard contract that included an "all other rights" clause which promised authors 50% net royalties. While that sounds like a good contract, as a result of an accounting sleight of hand on the part of Harlequin the actual royalties paid to the authors were far less than what Harlequin received from distributors and retailers.

Harlequin designated one of its Swiss subsidiary as the publisher, which then licensed the rights back to the parent company at about 6% to 8% of the retail price of the ebooks, enabling the publisher to keep the difference.

It was a smooth trick, and they got away with it for quite a few years. They also almost won the lawsuit filed by the authors in 2012 when it was thrown out last year. Unfortunately for Harlequin, the lawsuit was reinstated by the 2nd Circuit Court of Appeals in May of this year. That court ruled:

We hold that the fourth claim alleged sufficient facts to plead a breach of the publishing agreements on the theory that defendants calculated plaintiffs’ e?book royalties based on an unreasonable license fee.

The plaintiffs are now a class which includes authors from the US, Canada, UK, Republic of Ireland, Australia and New Zealand who signed standard Harlequin publishing contracts between 1990 and 2004 which included the following All Other Rights clause:

On all other rights exercised by Publisher or its Related Licensees, fifty percent (50%) of the Net Amount Received by Publisher for the license or sale of said rights. The Net Amount Received for the exercise, sale or 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 the said rights;

Would anyone care to bet on how long it will be before Harlequin's corporate parent Newscorp decides to settle?

Update: Probably never. Apparently the liability for the unpaid royalties lies with Torstar, the Canadian company which sold Harlequin to HarperCollins earlier this year.

image by anoldent

About Nate Hoffelder (11579 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader:"I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

7 Comments on Author Lawsuit Against Harlequin Certified as Class Action

  1. Hi Nate; two major errors here.

    The first is that a decision to settle would not come from News Corp. Any liability under this suit remained with Torstar as part of the sale (since it applies to historical acts).

    The second is that the Appeals Court did not rule definitively as you suggest; they only found the *theory* strong enough to be tried rather than dismissed. [The full sentence from which you have improperly quoted: “We hold that the fourth claim alleged sufficient facts to plead a breach of the publishing agreements on the theory that defendants calculated plaintiffs’ e?book royalties based on an unreasonable license fee.” 

  2. A possible typo:
    … as a result of an accounting slight of hand on the part of Harlequin …
    Shouldn’t it be sleight?

  3. This is the reason (many suspect) that Torstar sold Harlequin so quickly for a large pile of cash. It was directly after the case was reinstated.

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