Author Lawsuit Against Harlequin Certified as Class Action

The 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

Nate Hoffelder

View posts by Nate Hoffelder
Nate Hoffelder is the founder and editor of The Digital Reader: He's here to chew bubble gum and fix broken websites, and he is all out of bubble gum. He has been blogging about indie authors since 2010 while learning new tech skills at the drop of a hat. He fixes author sites, and shares what he learns on The Digital Reader's blog. In his spare time, he fosters dogs for A Forever Home, a local rescue group.

10 Comments

  1. MC24 October, 2014

    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.” 

    Reply
  2. Name (required)25 October, 2014

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

    Reply
    1. Nate Hoffelder25 October, 2014

      Yep. I actually thought the other word was correct.

      Reply
  3. David Gaughran25 October, 2014

    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.

    Reply
    1. Nate Hoffelder25 October, 2014

      One problem with this is that these kind of deals take months, but the deal was announced within days of the lawsuit being reinstated.

      Reply
      1. fjtorres25 October, 2014

        In their quarterly financials Torstar attributed their declining sales to competition from indie ebooks and warned they expected higher content acquisition costs. A couple months later, they announced the deal.
        That sounds like a more proximate cause.

        Reply
        1. Nate Hoffelder25 October, 2014

          Yep.

          Reply
  4. News that isn't |28 October, 2014

    […] Harlequin is now a class action. Things move very slowly in the law-type world. Some authors are sueing Harlequin for unpaid royalties, this started two years ago and it has finally moved one step forward and has been described as a class action. Does this mean anything? Don’t know as I’m not versed in lawyer-speak. Will this move the lawsuit any faster? Probably not. […]

    Reply
  5. […] A legal note: My former publisher and, back then, the largest paperback publisher in the world, Harlequin, is being sued by authors for allegedly cheating them out of their royalties. The woman who instigated the class-action lawsuit (Keiler et al v. Harlequin Enterprises Limited et al) is an unassuming powerhouse who is respected and approachable. When it was announced on October 24 that the judge in the 2nd Circuit Court of Appeals formally certified the plaintiffs as a class, the roomful of 200+ authors clapped and whistled. The suit was filed in July 2012, thrown out, and is restored. For more: http://the-digital-reader.com/2014/10/24/author-lawsuit-harlequin-certified-class-action/#.VFVlzv-u4… […]

    Reply
  6. Harlequin Royalties Lawsuit | Attorney - How To Claim Injuries6 March, 2016

    […] Author Lawsuit Against Harlequin Certified as Class … – The off again on again royalties lawsuit against Harlequin has moved a step forward. Passive Guy reported yesterday that Judge William Pauley has formally certified … […]

    Reply

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