Keiler v. Harlequin is a proposed class-action lawsuit by Harlequin authors against Harlequin for actions by the publisher that resulted in massive underpayment of royalties to authors for ebooks. Some authors report receiving as little as six cents in royalties for sales of each of their ebooks by Harlequin. PG has posted about the case previously here, here and here.
The trial court ended up giving HQ a win, but the authors appealed. Today, the Second Circuit Court of Appeals reversed the trial court on one count, allowing the HQ authors a chance to move forward with their case at the trial level. Here’s the appellate court’s summary of its decision:
The United States District Court for the Southern District of New York (Baer, J.) concluded that plaintiffs’ allegations failed to state claims and dismissed the amended complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). See Keiler v. Harlequin Enters. Ltd., No. 12-5558, 2013 WL 1324093 (S.D.N.Y. Apr. 2, 2013). For the reasons set forth below, we hold that plaintiffs’ claims based on agency, assignment, and alter ego theories cannot serve to modify the terms of the Publishing Agreements and were properly dismissed. We also conclude that the amended complaint set forth sufficient facts to plead a breach of the Publishing Agreements on the theory that defendants calculated their e-book royalties based on an unreasonable license fee. Accordingly, we affirm the judgment in part, reverse it in part, and remand for further proceedings consistent with this Opinion.
The appellate court’s decision to partially reinstate the suit is based upon contentions by the authors that the license from Harlequin Switzerland to Harlequin Enterprise in return for a royalty of 6-8% of the cover price of the books is not “equivalent to the amount reasonably obtainable by Publisher from an Unrelated Licensee for the license or sale of the said rights.”
The court further found that the authors had contended that such royalties should be at least 50% of net receipts. The decision gives the opportunity for the HQ authors to prove such a contention.
This is not a final win for the authors, but it does open the door for them to proceed with their suit on the theory that the royalty rates between one HQ company and another were substantially lower than HQ would have received from an unrelated licensee.
While today’s ruling doesn’t bring the suit to a close, PG believes this is an important decision that appears to provide the authors a path to a trial on the merits of their claims.
The long path forward would involve moving through the preliminaries for such a trial, the trial itself and then appeals from the trial court’s decision, no matter which way it goes.
The shorter path would be a negotiated settlement between the authors and HQ that would likely involve some substantial additional royalty payments to HQ authors.
PG says HQ authors shouldn’t spend any money they don’t already have, but they may wish to hoist a glass to the Second Circuit.
Here’s the full opinion: