Authors’ Case Against Harlequin for Abysmal E-Book Royalties Moves Forward

My post Harlequin Authors File E-Book Class Action Case Against Harlequin Over “Who’s the Publisher?” describes Harlequin authors’ class action complaint against Harlequin and its Swiss registered companies.  Harlequin authors received 3 or 4 percent of the cover price of e-books, when they thought they should be receiving more than 50 percent of the cover price.  The amended complaint claimed breach of contract under agency, assignment and alter ego theories.  The amended complaint also alleged that the license fees paid by Harlequin Enterprises to Harlequin Switzerland did not comply with the terms of the publishing agreements signed by the authors.  The authors’ royalties were calculated based on the amount paid by Harlequin Enterprises to Harlequin Switzerland.

The district court granted the Harlequin companies’ Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief can be granted for all claims.  The Second Circuit Court of Appeals affirmed the district court’s decision regarding the authors’ claims for breach of contract under agency, assignment and alter ego theories.  The Second Circuit reversed the district court’s ruling on the authors’ allegation that the license fees paid by Harlequin Enterprises to Harlequin Switzerland did not comply with the terms of the publishing agreements signed by the authors. 

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Apple’s Price-Fixing Conspiracy with Book Publishers Ruled Per Se Unlawful

Apple entered the e-book market in April 2010, shortly after the launch of its iPad.  Amazon launched the Kindle e-reader in 2007 and by 2009, had established a $9.99 price point for e-books.  Amazon sold almost 90% of all e-books.  The book publishers did not like the $9.99 price, because they thought it was eating into the sales of their hardcover books, threatening the existence of brick and mortar bookstores and threatening their business model.  Apple did not like the $9.99 price, because it didn’t want to adopt a low price strategy.  From December 2009 through January 2010, Apple met with the top publishers, the Big Six Publishers, to find a way to change Amazon’s $9.99 e-book price point.  The result was five of the Big Six Publishers entering into agency agreements with Apple.  The agency agreements gave Apple a 30% commission, set a $12.99 to $14.99 price range for e-books and gave Apple MFN status.  The MFN clause guaranteed that Apple’s e-book prices would be the lowest retail price in the marketplace and effectively forced the publishers to require all of their distributors, including Amazon, to sign an agency agreement in which the publishers would control the retail prices of books they published.  Apple controlled e-book prices at the retail level.

The U.S. Department of Justice (DOJ) filed an antitrust lawsuit against Apple and the five book publishers on April 11, 2012.  The book publishers settled and the case proceeded to a bench trial against Apple alone.  The district court ruled that the plaintiffs showed by “compelling direct and circumstantial evidence that Apple participated in and facilitated a horizontal price-fixing conspiracy. As a result, they have proven a per se violation of the Sherman Act.”  (Opinion pdf page 120).

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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.

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