Legal Issues

by Zachary Knight

Filed Under:
authors, ebooks, royalties


Harlequin Authors Sue Publisher Over Creative Royalty Calculations

from the I-get-how-much? dept

Creative accounting from legacy players is nothing new. We have seen many repeated examples of ways in which legacy publishers, labels and producers try to limit the amount of money they pay out to the artists they depend on for their incomes. We have the fact that Return of the Jedi, despite being the 15th highest grossing film of all time, is still not profitable. There is also the crumple zone inducing idea from the major labels that digital sales are licenses except when they are not. So would it be a surprise that we would find a similar situation within the legacy publishing industry? 

Enter Harlequin, publisher of fine romance novels. Harlequin has been accused, according to a class action lawsuit, of using some very creative accounting to reduce the ebook royalty rates paid to authors from 50% of the net receipts to a paltry 3-4% rate:
This lawsuit results from Defendant Harlequin Enterprises Limited, the world’s leading publisher of romance fiction, depriving Plaintiffs and the other authors in the class, of e-book royalties due to them under publishing agreements entered into between 1990 and 2004. Harlequin required the authors to enter into those agreements with a Swiss entity that it created for tax purposes, and that it dominates and controls. 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.

What this means to the authors can be illustrated by an e-book with a hypothetical cover price of $8.00. The “net receipts” made by Harlequin Enterprises Limited from the exercise, sale or license of e-book rights would be at least $4.00, of which authors would be entitled to $2.00 based on their 50% royalty. Computing the “net receipts” based on the “license” between Harlequin's Swiss entity and Harlequin Enterprises, Plaintiffs’ 50% royalty amounts to only 24 to 32 cents.
Basically, these authors are just not happy with these reduced royalty rates. The authors claim that Harlequin Switzerland was set up for no other purpose but to syphon out as much money as possible before calculating any royalties for the authors. Hardly something that any publisher should do if they actually care about their business. 

There was once a time where such a tactic would not have reached the point of a lawsuit. There was a time when publishers actually had a strangle hold on publishing and could force any terms they could conceivably get away with. However, with the introduction and proliferation of self publishing, that stranglehold is weakening. As authors are looking at the deals they are getting from publishers vs the deals self published authors are getting from the likes of Amazon and even Apple, they are beginning to lash out. 

Of course, if Harlequin were smart about this, meaning it realizes the mistake of using such accounting methods, it would seek a quick settlement that results in the authors getting paid their proper royalties. If for some reason, as many publishers claim, it cannot afford to pay authors the true 50% then it will see a quick decline of new authors and a drop off of existing authors. Then, it will fail.

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  1. identicon
    Anonymous Coward, 24 Jul 2012 @ 2:35pm

    Re: Thanks for defending the artist for a change

    Alright, let's just demolish your usually less than supported by the facts nonsense, shall we?

    "(1) screwing over the artist is impossible to stop whether it's done by piracy or accounting so why bother trying to stop it;"

    Not once has that been stated on this site. What has been stated is that piracy will occur, no matter what. Dealing with it then means beating it, not through ridiculous and broad laws, but by offering something better. Basically, make your product (whatever it is) better than the free version. However, if you don't feel like putting out something better and do want to go the legislative route, do so but do so in an intelligent manner and with actual facts and evidence to support you.

    "(2) creators should just chill out whenever anyone wants to make a copy of their work without paying them;"

    This has never been stated on this site. What has been said is that sometimes overreacting in certain manners does more harm than good. And, in point of fact, more and more creators every day are supporting some of those methods used to share their works. Not necessarily saying, "Hey, copy my stuff." But making use of technological innovations that allow them to do things, which sometimes also allow others to copy their works.

    "(3) suing anyone is wrong, wrong and wrong again;"

    Not even remotely close to accurate. What has been said is suing for stupid reasons is wrong. Apple suing others for making their tablets rectangular is stupid. Suing others for creating something you hold a patent to, but don't actually make is stupid. (Patent trolls.)

    "(4) trying to stop this will break the distribution mechanism whether it be the Internet or the publishing network"

    No, again, you are wrong. There is nothing wrong with trying to stop piracy, as long as it's done in an intelligent and reasonable manner. Overly broad laws ala SOPA are bad and have the capacity to be abused (and will be abused, the DMCA which was asked for and supported by idiots like you is now being routinely abused, and they are now crying that the thing they asked for isn't enough and requires work).

    "Alas, my guess is that you're only doing this because of the old enemy-of-my-enemy-is-my-friend rule. The publishers are annoying to Big Search and therefore they must be bad. Anything that hurts an enemy of Big Search, Big Hardware or Big Piracy."

    Jesus christ, bob. Do you stop and listen to yourself? The world is not at the center of some Google orchestrated conspiracy. Just say the goddamn word. GOOGLE! GOOGLE! GOOGLE! Stop saying "Big Search". You're new name is "Big Idiot". Because that's what you are acting like every time you pull Big Search out of nowhere, especially when you do so in articles that have nothing to do with Google.

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