Home » Contracts, Legal Stuff, PG's Thoughts (such as they are), Romance » Appeals Court Reinstates Lawsuit Against Harlequin

Appeals Court Reinstates Lawsuit Against Harlequin

1 May 2014

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:

Keiler v Harlequin (Text)

Contracts, Legal Stuff, PG's Thoughts (such as they are), Romance

17 Comments to “Appeals Court Reinstates Lawsuit Against Harlequin”

  1. “the theory that defendants calculated their e-book royalties based on an unreasonable license fee”

    I always thought this was the strongest part of the authors argument.

  2. Didn’t any of these authors have literary agents to prevent this from happening?

    • Difficult as I find it to absolve a literary agent of blame, in this instance, the contracts the authors signed were for 50% of net of the digital sublicense. Which is a reasonable contractual term. Their agents could not reasonably be expected to insert, “And the publisher shall not create an overseas shell company owned by itself towhich it will sublicenses at an absurdly low royalty rate, thus ensuring the author is screwed while the shell company, owned by the publisher, pockets the author’s rightful earnings.”

      • Thanks for answering, Laura. I couldn’t figure out a way to explain it so succinctly!

  3. William Ockham

    Now I understand what the industry means by “nurturing”.

  4. PG wrote: “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.”

    This has come to a lawsuit (followed by an appeal) precisely because Hq has been disinclined to negotiate a fair settlement during more than a year of negotiations which occurred before the writers investigated suing.

    • I think HQ believed it could win the whole thing without ever going to trial. That’s what happened in the District Court.

      Having the damages door opened again by the Appeals Court might make them more inclined to seriously discuss settlement.

      • I hope you’re right, PG, but if I were a betting woman, I’d bet against it. I believe that Hq has too long and consistent a history–even when this refusal hurts business–of refusing to negotiate with writers, and I don’t think the leviathon will change course now.

        • Unfortunately, you’re right, Laura. Even if the legal team lays out the worst case scenario, HQ won’t back down.

          These are the same people who can’t figure out why they’ve had such a drop in submissions since this lawsuit was filed.

  5. I so want the authors to win and end up with a pile of moolah, including punitive for skanky business practices. (Not that I know squat about law, but definitely want to see Harlequin have to pay for being disgraceful here.)

  6. It’s raining lawsuits!

  7. They have even deeper pockets to fight this with now, NewsCorp just bought them up;

    http://www.businesswire.com/news/home/20140502005269/en/News-Corp-Acquire-Harlequin#.U2OH_160beK

    Where did I read about the tsunami of mergers that were coming? Oh yeah, it was right here at TPV!

    • Just read this one too. I was surprised, but not too surprised. (I didn’t think Torstar would be into selling HQN.)

    • Deep pockets? Maybe… Or maybe they now get a CEO who is willing to settle and put an end to the self-dealing. News Corp is already under enough pressure for their own practices, so going to the matresses over somebody else’s scams isn’t going to help.

  8. So the Second Circuit Court of Appeals basically said that the crux of the entire suit, that the sublicensing agreement was completely unreasonable, is worth further consideration. Sounds like a major win to me.

    HQ still comes off looking like complete slime.

Sorry, the comment form is closed at this time.