Home » Contracts, Royalties » Attorney to Harlequin: What Have You Been Smoking?

Attorney to Harlequin: What Have You Been Smoking?

14 July 2011

Passive Guy recently discussed very strange letters Harlequin sent to its authors changing their royalty rates for ebooks.

At the time, PG must admit he worried someone had given him a genetically-engineered Diet Coke and transported him to BizzaroWorld where the clocks run backwards and everything is reversed. The Harlequin email was really weird or maybe, PG worried, he was the weird one, now that he lived in BizzaroWorld.

Passive Guy is happy to announce he can once again chug his Diet Coke with confidence because it’s Harlequin that lives in BizzaroWorld, sending out letters.

The Romance Writers of America asked outside counsel for a formal opinion about Harlequin’s email contract amendment. Counsel responded. The RWA made the information available to its members. A civic-minded RWA member (can’t remember who) sent PG a copy.

Here it is, beginning with an RWA explanation of what Harlequin did:

Update: Harlequin Digital Royalty Changes

On June 24, 2011, Harlequin sent letters to some of its authors announcing changes to digital royalty rates. In response to concerns expressed by members regarding the letter, RWA notified Harlequin of problems with the proposed method of modification.

Specifically, RWA addressed:

(a) Harlequin’s assumption that contracts can be changed automatically, without signature by both parties, which is contrary to Harlequin’s own written contracts,
(b) the unrealistic and unenforceable deadline of July 15, and
(c) the lack of written definition of “net receipts.”

RWA also forwarded the Harlequin announcement letter along with copies of Harlequin’s contracts to legal counsel. An opinion letter addressing problems with the proposed method of modification is linked below.

RWA is aware that Harlequin is in the process of reworking its June 24 letter. RWA has no knowledge whether the revised letter will address the issues raised by RWA with Harlequin, so Harlequin author members should carefully review Harlequin’s forthcoming letter and seek independent advice/counsel, as needed.

Please note that RWA takes no position whatsoever regarding whether the proposed royalty rates should be agreed upon by authors.

 

RWA Board of Directors

——————————

VENABLE LP
[PG has removed address,email,etc., information]

This letter is being provided to the Romance Writers of America (“RWA”) as a client of Venable LLP. Venable LLP has no attorney-client relationship with individual members of RWA and this letter is not intended to provide legal advice or opinion to such members. RWA members seeking legal advice should consult their own legal counsel.

July 13, 2011
Ms. Allison Kelley
Executive Director
Romance Writers of America
[PG removed address]

Re: Proposed Amendment to Harlequin Author Contract

Dear Allison:

You asked us to review the proposed amendment to Harlequin’s royalty rate provisions, with a specific emphasis on the permissibility of Harlequin’s proposed method to revise the Harlequin Author Agreement (“Agreement”). Section 35 of the Agreement squarely addresses your question, whether the “Digital Royalty Rates Changes” letter (“Letter)” to Harlequin authors is effective in revising royalties under the Agreement. We do not believe that it is.

In relevant part, the Letter states that:

Effective January 1, 2012, series authors who are actively writing for Harlequin will receive a digital royalty rate of 15% of net digital receipts for each digital unit sold in the English language, United States and Canada, frontlist and backlist. This will include books in Harlequin’s digital backlist program, Harlequin Treasury.

Given that these are more favorable terms than those in your existing contract(s), this notification will be considered the amendment to those contract(s). If you wish to maintain the existing terms of the contract(s), please let us know by Friday, July 15th, 2011.

By contrast, Section 35 makes clear that revisions to the Agreement must be approved by both parties in writing:

No modifications of this Agreement shall be valid or binding unless acknowledged in writing by both parties hereto.

As the Letter imposes new Agreement terms unless authors affirmatively protest those terms, we believe authors would have a strong argument that these modifications are not effective unless and until the author acknowledges and agrees to such terms in writing, whether or not those changes are more favorable to authors, as all Agreement changes must be in writing and signed by both parties to be effective. Thus, we believe that Harlequin’s attempt to revise its standard Agreement is likely ineffective, particularly in light of the narrow response time frame and the fact that several Harlequin authors have not received the Letter, and are therefore not on notice of the proposed changes.

We also note that “net receipts,” as used in the Letter, is not defined. As a result, it is difficult for authors to determine whether the proposed royalty rate changes are, in fact, more favorable to the authors.

To address these issues, revisions to author Agreements should define the term “net receipts” in writing and any modifications should be signed by all parties pursuant to Harlequin’s own contract terms.

If you wish to discuss this with me, please feel free to call.

Sincerely,
[PG removed counsel’s name]

 

Since most of you do not often receive formal legal opinions, allow Passive Guy to interpret.

First, Venable, the law firm providing the opinion, is a large and well-respected organization not inclined to send imprudent letters.

Second, formal legal opinions on complex matters are filled with lots of “on the one hand” and “on the other hand” and “it might be argued” types of language. Most such letters continue for several pages.

This is a very short opinion letter, remarkable free of “on the one hand” language and the passive voice (no relationship to this blog).

Not surprisingly, since Venable counsel does not practice in BizzaroWorld, the opinion letter is pretty close to PG’s initial impression in substance, if not in style.

PG would normally congratulate Venable for agreeing with him but this is a Contracts 101 legal issue, something a first-year law student might encounter in about the third week of Fall Semester.

What is the subtext of the opinion letter? Harlequin was nutso to send out the email. Major league nutso. The whole company needs a top-to-bottom Diet Coke audit.

So, Harlequin authors, the good news is that you don’t have new royalty rates based on some strange “net digital receipts” standard.

The bad news is that you still have your old Harlequin contract.

Contracts, Royalties

29 Comments to “Attorney to Harlequin: What Have You Been Smoking?”

  1. But like so many other publishers, Harlequin hopes that dumb writers not only will go along with this, but the writers will provide the Crisco as well.

    • Suzan – If the peasants don’t object, the crown can do whatever it wants to do.

      • That’s exactly the issue, PG. If I don’t live up to a contract with you, it only matters if you object. If I can convince you with smoke, mirrors, official letter heads, and theoretical amendments with the durability of sky writing, I’m in the clear. If you don’t object, the fact of the contract doesn’t matter.

        In that sense, even with RWA’s outside analysis, I think Harlequin was not crazy to do this, though they were clearly sleazy and short sighted. For authors who believed the change was bogus or learned the change was bogus, Harlequin has lost nothing (immediately) other than the cost of drafting and sending the letter.

        I’m willing to bet there’s a small but worthwhile percentage of authors who believe there terms are now changed, though. For those authors, Harlequin can no operate on different terms where the primary risk is simply restitution down the road should those authors figure it out (and do something about it) later.

        This is just an underhanded version of mail in rebates. They seem like a sale price, because I save $10 on a new drill, but I only save it if I get around to mailing it in. Most shoppers don’t bother.

        Rich

        • I thought I replied earlier, Rich. Excellent post.

          I think there is the short view and the long view for Harlequin on this.

          The short view says if they can scam some authors with a dumb farce like this, they’ll make more money. The long view says the more authors and would-be authors who come to view Harlequin as sleazy, the more likely those authors will be to never consider writing for Harlequin.

          In addition to restitution for underpaid royalties, I think the failure to pay royalties as provided in the publishing contract could well be a basis for terminating the contract for breach if the author wanted out.

  2. Suzan – It continues to be strange to me that some (most?) publishers maintain an attitude that their authors are simply assets to be exploited instead of valuable colleagues.

  3. Here’s something in the letter that struck me as odd: “series authors who are actively writing for Harlequin” … Does that mean you have to be currently under contract for future books for the new royalty scheme to affect you?

  4. I did a blog on this matter when it first came out. I mistakenly said there was a non-compete clause also and as soon as I was corrected, I apologized and withdraw the comment. But still said it was bad for authors.
    And got slammed by a bunch of romance writers for saying so. There seems to be this knee-jerk reaction any time you say something could be rotten in the state of romance publishing. Frankly, I’d like to know what Carina grosses per month, because looking at the ranking of their titles on Amazon Kindle, I’m pretty sure my little old company, Who Dares Wins Publishing outsells their entire line. They seem to be working on the philosophy of throwing a lot of titles out there, hoping each sells a little.
    It works.
    For the publisher.
    Not too good for the author.

    • Thanks for your comment, Bob, and I like your blog.

      Throwing a lot of titles out there might work for Harlequin, but unless its authors are happy tiny royalties, it won’t work for them.

      When the world is changing, some people figure out the implications sooner than others. Regardless of whether someone figures it out or not, however, the world still changes.

    • Bob, I didn’t know you’d been slammed. Not all romance authors feel that way, just so you know.

      • Julie – I was just at lunch with a friend and told him some of the savviest and most pragmatic writers who comment here and email me are romance authors.

    • It’s my understanding that Carina does not use the HQN contracts, they have their own set of contracts with different provisions. No Advances. Higher royalty rates. Time based revision/”Out of Print” clause. etc. etc.

      Also it’s my understanding that, as of 6 months ago (this could have changed), they move a significant percentage of their sales through their website, not through amazon.

      • Christian – If you know anyone who is willing to share a Carina contract on an anonymous basis, please send them to my Contract Collection page.

  5. I don’t understand how a company like Harlequin can send an email like this and expect the terms within it to be accepted. There’s got to be more to this than we realize. I couldn’t guess what, but my New York nose tells me there’s something sour brewing somewhere.

    …love the blog template btw. ;-)

    • Debora – You may be right about more than we realize behind this email.

      Overall, Big Publishing is in a giant panic because of declining sales. Its primary pipeline for selling books – physical bookstores – is in crisis. As of right now, there’s a good chance Borders will simply disappear. Barnes & Noble put itself up for auction and only received one bid – from a guy who says his primary interest is the Nook.

      Sales of physical books are down and barriers to entry for competitors in ebooks are very low plus consumers expect ebook prices to be lower. This places tremendous strain on the finances of Big Publishing.

      Then, there is the drip, drip, drip of traditionally-published authors moving to indie publishing.

      It’s enough to make any publishing executive do something stupid. Maybe that’s what happened at Harlequin.

  6. I would venture a guess that they tried this with the idea that even if an author objected, they wouldn’t have the resources to hire their own attorney and try to fight it in court.

  7. Harlequin Author

    What’s really sad is that the old contracts have such an archaic royalty rate for ebooks, that authors would have been happy for it to be more – seriously via number crunching they still would have been earning more with 15% of net receipts than what’s currently on the books.

    Which actually gets to the crux of this problem. Harlequin is making these moves because they realize that authors are not happy with the current royalty rates for ebooks and have other options. They are trying, bless their hearts. Just not yet succeeding.

    • HA – Interesting observation. The way HQ tried to make the changes has made a lot of its authors even more unhappy, however. I don’t think RWA would have paid for a formal opinion letter if a great many authors hadn’t been angry.

  8. For some authors, seeing their names associated with an industry icon is as important as money. Why else would a NASCAR pit crew member pay $$ for a spot on a team? Couple the status angle with ignorance of both the law and publishing alternatives, and sending a unilateral contract change to writers might allow Harlequin to earn-steal some serious money.

    • Helen – I can see the status thing happening, particularly if an author has had to work hard for many years before a publisher finally accepts the manuscript.

      I have a friend who worked for years to get a top agent and now is getting close to a publishing contract. He does not want to hear anything about indie success or publisher problems. He’s a good guy, but he’ll sign anything at this point.

  9. What I’m finding interesting is that there is as much resistance to change in publishing among authors as there is among publishers. Even though authors have more options than ever before.

    • Bob – Agreed. Authors may see security in continuing what they’ve done previously even if the publisher isn’t as financially stable as it was five years ago.

  10. Michael Stackpole has a rather startling term to describe such authors . . .

    PG–thank you again for a great series of posts. May your Diet Coke always be unadulterated :)

    • Thanks, Sarah, and I like Stackpole’s term.

      I don’t see things wiggling in my Diet Coke any more, so I think it’s OK.

  11. re: the Carina contract. No, it’s a HQN contract, just with different percentages for royalties adjusted, plus of course, you don’t get the x amount of author copies.

  12. To echo Julie, many romance authors are a business first and author second. I am one of them. Trust me when I say, that we’re watching this develop very closely and the Internet makes it possible for large groups of authors to share information and exchange ideas in an instant. We’re no longer closeted away from sound counsel from the more business-minded.

    Anyone who chooses to blindly follow any publisher without reading and processing all the professional advice available is making a choice not to invest in their own future.

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