No love lost as romance writers get go-ahead to sue Harlequin

The US Court of Appeals has given the go-ahead for a self-dealing claim by a group of authors against the world’s biggest romance publisher, Harlequin, alleging massive underpayment of royalties.

The authors claim they received less than a tenth of the cash they should have been paid, equating to only 3-4% of their ebooks’ cover prices instead of the 50% of net receipts stated in their contracts.

The class action by the authors claims that Harlequin Enterprises Limited, which publishes Mills & Boon books, deprived the writers of ebook royalties due to them under publishing agreements entered into between 1990 and 2004. The claim says Harlequin required the authors to enter into those agreements with a Swiss entity that it created and that it dominates and controls.

However, the suit says Harlequin, before and after the signing of these agreements, performed all the publishing functions related to the agreements, including exercising, selling, licensing, or sub-licensing the ebook rights granted by the authors.

Instead of paying the authors a royalty of 50% of its net receipts as required by the agreements, an intercompany licence was created by Harlequin with its Swiss entity resulting in authors receiving 3% to 4% of the ebook’ s cover price as their 50% share instead of 50% of Harlequin Enterprises’ receipts.

The authors give an example of an ebook with a hypothetical cover price of $8. The “net receipts” by Harlequin Enterprises Limited from the exercise, sale or licence of ebook rights would be at least $4, of which authors would be entitled to $2, based on their 50% royalty. Computing the “net receipts” based on the “licence” between Harlequin’s Swiss entity and Harlequin Enterprises, the authors’’ 50% royalty amounts to only 24 to 32 cents.

This week’s ruling in the US 2nd Circuit Court says the authors have provided a basis for a claim that Harlequin engaged in self-dealing because the industry standard is considerably higher than the 6 to 8 percent of net receipts that Harlequin Enterprises remits to its subsidiary Harlequin Switzerland (ie, at least 50 percent of net receipts).

You can get more details about the case at www.harlequinlawsuit.com

Harlequin fell into the arms of HarperCollins this week after Harper’s parent company NewsCorp swooped to buy the firm for around £250m. Harlequin will be run as a Harper division after the deal completes.

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