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 With A Unique Writing Style, 25 Jul 2012 @ 4:34am

    Re: Re: Re: Thanks for defending the artist for a change

    "Sorry dude. When I read your answers, I can boil them down to: No one has ever used the word six around here. Ever. Six is not remotely accurate. We always use "half-dozen.""

    So what you're saying is my correcting you and pointing out how wrong you are you refuse to acknowledge, that correct?

    Because no one here has ever said anything even remotely resembling what you accused them of saying. Just because you're too whatever and interpret things differently doesn't change what was said.

    "And so now that you play the old generic game of saying that you're okay with fighting piracy, why don't you give me a concrete example of what's okay. Is it okay to sue Kim Dotcom-like "innovators"? Is it okay to sue that punk down the street who has three terabytes of content that he's never bought? Or should the punk actually be put in jail?"

    bob, I told you one example up above. Others have given other examples. The best way to fight piracy, and I'm not going to give more examples after this one, is GIVE THE PEOPLE WHAT THEY WANT! Digital content, DRM-free, available in a plethora of formats, with no windowed releases, at reasonable prices (NOT FREE) in one centralized place (no signing up for 50 services). That's it. That alone can combat piracy and do so effectively. Any other examples you want see me previous comment, stop with the stupidity that doesn't work to solve the problem.

    It's not okay to sue Kim Dotcom-like innovators. People are innovating. You may not like what they're innovating or you may even feel threatened by it, but if they're doing nothing illegal (and thus far the case against Kim Dotcom is going horribly and failing in every single way) then you can't sue them just because.

    It is okay to sue that "punk" down the street who has three terabytes of content. Assuming of course you can prove all that content was illegally downloaded and have proof and evidence to convict him or win said suit in a court of law. But try and sue for reasonable amounts. Not for what an item cost if purchased legally, but going for the full $150,000 isn't going to endear you to anyone or make you many friends. If they can't make that much in several years of work, there's no point in going for the full "win".

    And no, the "punk" shouldn't go to jail. Unless said person is committing COMMERCIAL copyright infringement. But even then, I say no. We barely have any space in the U.S. prison system as it is. You want to fill it even more? With people who downloaded a movie or a song? Your priorities are out of whack.

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