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
[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
Romance Writers of America
[PG removed address]
Re: Proposed Amendment to Harlequin Author Contract
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.
[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.