Harlequin Authors File E-Book Class Action Case Against Harlequin Over "Who's the Publisher?"
Harlequin novel authors Barbara Keiler (aka Judith Arnold), Mona Gay Thomas (aka Gayle Wilson) and Linda Barrett sued Harlequin Enterprises and Harlequin’s Swiss registered companies, collectively Harlequin Switzerland, for breach of their publishing agreements. The litigation centers on whether Harlequin Enterprises or Harlequin Switzerland is the e-book publisher for the purpose of paying royalties to the authors.
The complaint alleges that Harlequin Enterprises, based in Toronto, Canada, set up Harlequin Switzerland for tax purposes. Harlequin Enterprises forced its authors to sign publishing agreements with Harlequin Switzerland as the publisher, when in reality Harlequin Enterprises performs all of the traditional publishing functions (e.g., receiving submitted manuscripts and editing manuscripts) and Harlequin Switzerland performs none of those functions. The authors claim that under the publishing agreements, they are to receive 50% of the net receipts of the publisher on the e-book publications. Harlequin Enterprises claims that Harlequin Switzerland is the publisher and that Harlequin Enterprises must license the right to publish e-books from Harlequin Switzerland, thereby decreasing the amount owed to the authors. As a result, the authors receive only 3% to 4% of the cover price of the e-books. The authors argue that they should receive a much greater share of the cover price, around 25%, since Harlequin Enterprises receives net receipts of 50% or greater on the cover price of e-books.
The publishing agreements the authors signed do not specifically address e-books. The authors argue that two general clauses cover e-books: the “All Other Rights” clause and the “Other Rights” clause. The All Other Rights clause covers the license or sale of rights. The Other Rights clause covers licenses, sublicenses or sales to unrelated licensees. Both clauses give the authors 50% of the net amount received by the publisher.
The authors make six breach of contract claims and an unjust enrichment claim against Harlequin Enterprises and Harlequin Switzerland.
- Harlequin Enterprises is the assignee of the rights granted by the authors in the publishing agreements and materially breached the terms of the agreements by not paying the authors 50% of the net receipts received by Harlequin Enterprises on the e-books.
- Harlequin Enterprises controls Harlequin Switzerland, Harlequin Switzerland is the agent of Harlequin Enterprises and both defendants materially breached the terms of the publishing agreements by not paying the authors 50% of the net receipts received by Harlequin Enterprises on the e-books.
- Harlequin Enterprises acted as the publisher under the publishing agreements, assumed the obligations of the publisher under the publishing agreements and materially breached the terms of the publishing agreements by not paying the authors 50% of the net receipts received by Harlequin Enterprises on the e-books.
- Harlequin Enterprises knowingly accepted the benefits that flow to the publisher under the publishing agreements, should be estopped from denying that it assumed the responsibilities of the publisher under the agreements and materially breached the terms of the publishing agreements by not paying the authors 50% of the net receipts received by Harlequin Enterprises on the e-books.
- Harlequin Enterprises dominates and controls Harlequin Switzerland so that Harlequin Switzerland has no discretion to act, and Harlequin Enterprises used its domination and control over Harlequin Switzerland to commit wrongs and unjust acts that injured the authors, such as forcing the authors to enter into the publishing agreements with Harlequin Switzerland and then basing the authors’ e-book royalties on a “license” from Harlequin Switzerland. The defendants materially breached the terms of the publishing agreements by not paying the authors 50% of the net receipts received by Harlequin Enterprises on the e-books.
- The claimed “license” between Harlequin Switzerland and Harlequin Enterprises is not equivalent to a license that could be obtained from an unrelated licensee and materially breaches the publishing agreement provision that requires any license from a related licensee to be on the same terms as a license from an unrelated licensee. A publisher would receive at least 50% of the cover price in a license with an unrelated licensee.
- Harlequin Enterprises drafted the publishing agreements, which arguably do not contain terms covering the “sale” of e-books as opposed to the “license” of e-books. If Harlequin Enterprises activities regarding the e-books are determined to be sales of e-books and not licenses of e-books, Harlequin Enterprises has been unjustly enriched at the expense of the authors. Equity and good conscience require that the amounts received from the sale of e-books be turned over to the authors.
Don McGowan analyzes how Harlequin Enterprises and Harlequin Switzerland landed in this mess from his perspective as a corporate in-house counsel in his post, How Big Companies Make Big Mistakes. Mr. McGowan has worked as in-house counsel at Microsoft and currently works as in-house counsel at Pokémon.
This case is Keiler v. Harlequin Enterprises Limited, No. 12-cv-05558-HB, U.S. District Court, Southern District of New York.