Home » Big Publishing, Contracts, Ebooks » Simon & Schuster Hit with eBook Royalties Class Action

Simon & Schuster Hit with eBook Royalties Class Action

21 May 2016

From Copylaw:

A book is a book, except when it comes to eBook royalties. That’s the premise of a class action lawsuit filed on Thursday, May 19, 2016, in New York Supreme Court by class representative  Sheldon P. Blau, MD.

The lawsuit alleges Simon & Schuster has been cheating its authors by improperly categorizing eBook transactions as “sales” rather than “licenses.”

The distinction is significant, because the royalty rate for sales is much lower than the rate for the license of rights.  If categorized as a license – rather than a sale — the author receives 50% of net receipts, rather than 25% of net typically paid to authors for the “sale” of an eBook.

. . . .

The eBook royalty class action looks back approximately six years, the statute of limitations on contract actions in New York State.  It alleges Simon & Schuster engaged in a “pattern and practice of paying Plaintiff and others similarly situated royalty payments for the distribution of licenses for electronic books, or “e-books,” at a rate for book “sales,” or some other lower rate than that required for “license” transactions.”

This issue arose, in a different context, in F.B.T. Productions v. Aftermath Records, a 2007 federal lawsuit brought by Eminem’s management company against his record label over digital royalty rate splits.  Like the music industry, publishers have taken the position that digital downloads should be accounted for as sales not licenses.

Link to the rest at Copylaw

PG is pleased to hear about this and wishes the plaintiffs well.
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Big Publishing, Contracts, Ebooks

38 Comments to “Simon & Schuster Hit with eBook Royalties Class Action”

  1. So basically S&S caught itself in the same trap as record labels.

    Only in this case, S&S is in an even worse spot because ebooks are specifically licensed rather than sold.

    • I think so.

    • Felix J. Torres

      It took Eminem years to win his lawsuit.
      Of course, these guys can point to that precursor,now.

      Should be interesting to see the ensuing contract gymnastics.

  2. Man, it really is at times like the music industry all over again.

    http://www.spin.com/2012/10/universal-settles-influential-eminem-digital-revenue-lawsuit/

  3. Double bookkeeping and whale math, two great things that go great together — until you’re caught/called out for it …

  4. the Other Diana

    Leave it to an AUTHOR to focus on the meaning of words.

    Well done, Mr. Blau. Well Done.

  5. wow. Just wow Mr. Blau.

  6. PG is pleased to hear about this and wishes the plaintiffs well.

    DS is ecstatic to hear about this and wishes the plaintiffs trustbusting success.

  7. Smart Debut Author

    If this sets a legal precedent, I imagine the results could impact big publishing significantly. The difference between 25% and 50% royalties for AAP publishers is at least 380 million a year off their bottom line — with 80% of that, or over 300 million a year, off the Big Five’s bottom lines, specifically.

    If they had to pay back their authors retroactively, it would more than wipe out any profits the Big Five had from the last 4 years. And if they have to pay 50% on digital going forward, it would leave them with no viable business model at all for the future.

    I suspect for those reasons the Big Five will throw a lot of legal firepower at fighting this possible precedent.

    But maybe they have nothing to worry about. Most of their writers are probably too chickens**t to sign onto or support a class action.

    We shall see… 🙂

    • the Other Diana

      Yes. This is very interesting on all counts.

      I’m surprised their lawyers didn’t catch this. Anyway, I always root for the “little” guy.

    • Let’s hope smart authors with 6 years of past sales with trad pubs join in. And let’s hope lots and lots of them join in. And if it wipes out their profits, they should consider it karma for exploiting authors.

      Come on, trad pub authors. GEt in on this. Make it HUGE.

    • They might also just throw a nice chunk o’ change at this author to make him go away. But then, if they do, that should encourage ALL their other authors with ebooks sales over the past 6 years to do the same and get their “chunk o’ change.” I so hope this becomes immense.

    • The cynic (aka the realist) in me always considers the possibility of judges being bought off. The enormous amount of money involved here does nothing to assuage those fears. It may or may not be relevant that S&S paid a $14 million advance (second largest ever) to a presidential candidate for a book that is not selling.

  8. Suburbanbanshee

    Blau ’em away!

  9. “If they had to pay back their authors retroactively, it would more than wipe out any profits the Big Five had from the last four years.”

    Pity.

    Since they insist on noncompete clauses and the like, and adhere strictly to the terms of the contract, what can bite author can bite publisher just as sharply.

  10. So if the plaintiffs win, will that affect retailers and smaller publishers who set terms for ebooks at less than 50% compensation to authors?

    Not sure any do, unless audiobooks are also licensed rather than sold?

    • They’re playing with the meanings of words and it’s come back to bite them on the backside.

      When they ‘sell’ me a book, I have the rights to resell it or donate it to a library.

      But when they ‘sell’ me an ebook, it seems I don’t have those rights – so even though it says ‘buy now’, it’s really just a non-transferable lease to use. But people are used to owning what they pay good money for. How many ebooks would not be bought it it said ‘lease now’? So they lie and say ‘buy’ though the rules are different.

      And as it made them more money, they’ve given the authors a ‘sale price’ instead of the lease price — even though they are really just leasing the rights to the readers.

      This could get real interesting for publishers no matter the outcome. Either those are leases and the authors need to be paid, or they are indeed merely sales — in which case I should have the rights to resell or donate the ebooks I’ve bought.

      They (the publishers) can’t have it both ways.

      • Well, to be honest, I don’t exactly want anyone selling “used” copies of my ebooks either, but only because there is currently no way to ensure the dishonest types won’t sell multiple copies of the ebook file, and it would really suck if my new release was offered for sale as used for less by a reader who finished it quickly, and is dishonest enough to keep selling copies, instead of only selling the single copy. That would harm my ability to earn a living/livelihood.

        But if someone comes up with a way to prevent that, I’m good with reselling ebooks. As far as I’m already concerned, readers who buy copies of my ebooks do own those copies, and I don’t care if they convert them to a different file type in order to read them on multiple devices, or keep a copy somewhere safe for in cases.

        They chose to give me a sum for it, they should be able to access the content for as long as they want, on whatever device they want. And most readers, I would hope, wouldn’t be dishonest enough to sell multiple copies whether there was something in place to prevent it or not.

        • You have those same issues whether it’s claimed to be a lease or a sale. And ‘locking’ ebooks down in any way only hurts the honest buyers, it only (maybe) slows down the dishonest ones. The thing is that right now they can gouge the libraries because we can’t donate our used ebooks as we can paper books.

          Trad-pub is going to want this settled out of court, because locking the law down in either direction is going to hurt their bottom line.

        • Felix J. Torres

          There are ways it can be done. Amazon has at least one patent on how to do it.

          Also, the blockchain technology underlying Bitcoin can be used, in combination with other DRM systems, to transfer licenses so bad actors would not be able to sell multiple copies or even keep one.

          Main issue is there really isn’t much interest.
          It only makes economic sense for all parties if ebooks are priced BPH-high. It is simpler to just price ebooks reasonably, which is what Indies do.

          • No, DRM (digital restrictions management) doesn’t work because at some point a human has to be able to see/hear/read it. Which means that no matter how you try to lock it down, if it’s worth making a copy of then someone will do so. It may be a crappy copy (camera pointing at a screen/microphone next to a speaker/someone typing in what they read on a screen/book page) but if you make the original too costly then the copiers can make money off trashy error filled one-offs.

            There is only one way in which DRM works. It can keep an honest buyer from using that which they paid good money for. (Just ask those people in the UK whose ebook readers are now paperweights.)

            • Felix J. Torres

              That is a much repeated assertion that is way too overbroad. And, ultimately, meaningless.

              Yes, you can go to the trouble of photographing each page of text on screen and then ocr’ing it just as you can with print books. So what?

              The issue about DRM or any other technological system isn’t whether it is 100-point-zero-zero percent effective but rather whether it is effective enough to enable the business model it is supposed to support.

              And contrary to what pundits claim, ebook DRM is effective at preventing casual piracy and it is effective at supporting library ebooks and supporting walled gardens. In business terms, that means it succeeds.

              All you need to know if that the very effective and convenient DRM stripping tools are typically downloaded a hundred thousand times or so, whereas the commercial ebookstores number tens of millions among their customers.

              I’m not a proponent of ebook DRM except for library use but I don’t pretend that my techie tastes apply to the vast majority of readers who simply want to read a book as cheaply and as conveniently as possible.

              So what if 1% or 5% of ebook buyers know how to remove DRM? The rest won’t even bother to try as long as the price isn’t offensive and the same principle applies to ebook resale. As I said: as long as the listed price is reasonably low the lack of resale value is not going to offend the majority of buyers and there will be no business case for building an ebook resale system. But in practical terms, one *can* be built.

    • Felix J. Torres

      Probably not retailers.
      Most make it fairly clear they are selling reading licenses and not the content.

      Most traditional publishers, on the other hand, make no such distinction in their contracts and go as far as claiming that vintage contracts from the last century grant them ebook rights.
      (Audiobooks, too.)

  11. I like how the Plaintiff is doing this for himself individually and on behalf of all others similarly situated…

    • This is a fairly standard practice for class-action suits, Patrice.

      Such lawsuits are filed with a small number of named plaintiffs, then counsel asks ask the court to certify the class as being similarly-situated to the named plaintiff and authorize the suit to go forward on behalf of the “class” – all S&S authors with similar contract provisions. Individual S&S authors may opt out of the litigation if they wish to do so.

      A class-action is an exception to the usual rule that litigation can only be conduction on behalf of individual named parties.

  12. Where does the 50% for a license come from? Is it in the contracts with the authors? Did the publishers actually put that in the contracts? Why?

    Given all the other terms in a contract that limit the author, what would prompt publishers to open such a gaping hole in the contract? How does that benefit the publisher?

    • It’s a contract-by-contract thing.

      But (I think) it used to be standard to let the publisher act as agent, sublicensing translations, paperback deals, and other rights in exchange for a 50-50 split.

      Originally, ebooks were viewed as another one of these extra rights and the going rate was 50%. Then the publishers decided it would be 25% and agents and authors caved. But also about this time, agents decided that they could handle foreign rights, movie rights, and television rights, so there wasn’t much left in the 50-50 category.

      I don’t see how you could sign a contract that says “25% for ebook sales” and then claim that, because ebook sales don’t technically exist, you should get 50%. It seems morally equivalent to what publishers do when they promise to pay okay royalties for everything except deep discount and then sell most everything at deep discount.

      Disclaimer: Not only am I not a lawyer, I don’t even know much about the publishing industry. I’m just relaying things I think I remember from The Business Rusch.

      http://kriswrites.com/business-rusch-publishing-articles/

      • Felix J. Torres

        Probably this one:

        http://kriswrites.com/2013/09/25/the-business-rusch-addendums-rights-grabs-agents-yet-again/

        What I remember from a Teleread article in 2009 is that Random House saw that ebooks were becoming big money and decided to move ebooks from the subsidiary rights category (foreign, audio, performance, large print, etc) typically licensed out at 50% and bookkeep them as sales. And, to get authors to sign on to 25% of net they sent out contract addendums offering a switch, typically in exchange for a 2% boost in pbook royalties. Since most authors were making near-zero ebook income the “deal”looked swell. Especially since, in many cases, they were sent to the authors, bypassing the agents.
        Not that the agents would’ve objected to the changes.
        They just objected in principle to being bypassed as misleading midlist authors is the agent’s primary function these days. 😉

        For some “strange” reason all the other BPHs adopted identical terms within weeks.

  13. I am cheering on for the authors to win and get mucho dinero. It’s about damn time!

    And this is exactly why I refuse to pay much for an ebook. Licensed, not OWNED. And it’s not physical. Why should I pay as if it were a physical object with a physical object’s value?

  14. I eagerly await the press releases, articles, public appearances, Letters to the Editor and lobbying that Authors United will perform on behalf of the rights of authors encouraging them to join this class action lawsuit.

    Just think, the money they can collect from the publishers will offset the losses they fear to have from Amazon changing terms in the indefinite future!

    • I’m assuming that was an attempt at a joke, because by now everyone surely knows the the AG/AU lapdogs only yap on their masters’ command, and the qig5 don’t want their penned pet writers getting any ideas …

  15. This name, Lloyd Jassin, rang a bell. I designed and typeset a book by him (and a co-author) about copyright law and libel for John WIley back in 1998.

    http://www.amazon.com/Copyright-Permission-Libel-Handbook-Step/dp/0471146544

  16. Not a lawyer here, so maybe this is a dumb question, but if S&S breaches their contracts, do the contracts mostly survive? In other words, does that mean that the contract is void and the author gets his/her rights back, or does that just mean that they get a few pennies more toward earning out their advances and things continue as usual but with a higher royalty on ebook sales being passed on to the author?

  17. Patricia Sierra

    I had a contract for two books. It didn’t make mention of ebooks way back then, but the publisher sent me a contract amendment that I signed (the famous 25% net). I have that amendment stored away somewhere so I can’t say for sure, but I don’t think it mentioned anything about licensing; just sales. The original contract might mention licensing, though. It too is stored away so I can’t check it at the moment.

    I wouldn’t join a class-action lawsuit. For one thing, it wouldn’t amount to much money in my case — and for another, I don’t need the stress of a legal battle in my life. I will watch it with interest, though.

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