Wednesday, August 01, 2012

Harlequin Fail Revisit

Two weeks ago I blogged about the class action suit writers have brought against Harlequin.

Harlequin should be afraid. They should be very afraid. 

Why should a big corporation with the money to hire a squad of lawyers be afraid?

As always, the devil is in the details. To get a better understanding of what the suit means, you need to look at the seven claims in the suit. It also helps to be a lawyer.

I am not a lawyer, nor do I claim understanding of legalese. But I spoke with someone who seems to have some idea what the claims mean, and can translate them into readily understandable English. Feel free to follow along by reading the complaint at http://www.harlequinlawsuit.com/The_Complaint.php.

Let's start with the pronouncement that the Swiss entity of Harlequin Enterprises (let's call them Harlequin Swiss) is the actual Publisher. In actuality, they're not. Harlequin Enterprises, Ltd. is. But the contracts list Harlequin Swiss as the Publisher. Now look at the claims, which start on Paragraph 52 of the Complaint.

Claim 1: Assignment. It means that rather than licensing the rights from the Swiss entity, Harlequin Enterprises was in actual fact assigned the rights. And I believe various earlier Paragraphs of the Complaint give factual information supporting this.

Assignment means transferring the rights held by one party to another. If you recall the problem here, Harlequin Swiss avoided paying authors 50% for licensing ebooks by licensing the rights to Harlequin Enterprises Limited for 6%, giving the authors 3%. But this claim states that Harlequin Swiss assigned the rights. Meaning Harlequin Swiss essentially let Harlequin Enterprises do everything involved in the publishing process. 

In other words, Harlequin Swiss gave Harlequin Enterprises full authority over the book rights. If the rights were assigned, then Harlequin Enterprises licensed those rights, for instance to Amazon, the authors should have been paid in those amounts. Harlequin Swiss "assigned" the rights to Harlequin Enterprises, making Harlequin Enterprises the Publisher. Whatever Harlequin Enterprises received, the authors should have gotten 50% of that, not 50% of the artificial license

Claim 2: Agent. Harlequin Swiss is the agent of Harlequin Enterprises. So Harlequin Enterprises is actually the one in control.

Claim 3: Harlequin Enterprises Limited (hereafter called "HEL") acted as the Publisher, assuming all of its obligations, and therefore must also assume the liabilities. Meaning this lawsuit.

Claim 4: Estoppel. From what I gather, this means that because HEL is acting as if it were the Publisher it can't continue to deny it is the Publisher. It can't represent itself as the Publisher on one hand, but when it becomes legally convenient, suddenly deny it's the actual Publisher on the other. So it gets “estopped” from denying the truth. It is the Publisher.

Claim 5: Alter Ego. Harlequin Swiss is under the control of HEL. Usually the courts keep separate corporate identities distinct or discrete. You can't blame the wrongs of one on the wrongs of the other, even if they're related entities. But when one is directing the other to commit a wrong, the courts may permit the two identities to be treated as one. That's the best I can explain it given these particular circumstances.  There are many factors in piercing the veil; there is no definitive set of rules. Basically, it's in the judge's hands to determine whether this meets the level of alter ego or not.

Those first five are all Breach of Contract issues that assert that HEL is the actual Publisher. It's sort of a giant step back from the narrower focus of the All Other Rights (AOR) clause itself.

Claim 6:  Narrows the focus to a specific clause, the AOR clause. It's the one I focused on in Harlequin Fail Part 2, namely that 6% isn't equivalent to the amount reasonably attainable by an unrelated third party. In fact, it is 50%, which is what authors should have gotten. 

Claim 7: Unjust Enrichment. If the AOR clause only covers the licensing of the right to sell ebooks (as HQ contends) and not the right to sell the individual ebooks, then HQ can only license the right to others, not sell the ebooks themselves. The Complaint actually says it clearer in Paragraph 88.

But guess what Harlequin is doing on its own website? That's right! It's selling ebooks!

So on top of everything, Harlequin may not even have the rights to sell ebooks under these contract terms. Can you say copyright violation?

Recap in layman's terms: Harlequin assigned rights to itself, which I'm pretty sure is a no-no legally, and it licensed those rights below fair market value, which is another no-no, and then it sold ebooks on its website without having the rights to them, yet another no-no.

Ouch.

So here are my questions for Donna Hayes, CEO of Harlequin, assuming she understands the claims as I have laid them out. (If you don't understand them, Donna, I plan on doing an update soon with crayon drawings and smaller words.)

Donna, do you still believe Harlequin authors have been recompensed fairly and properly?

Do you deny Harlequin Enterprises Limited acted as the Publisher? That Harlequin Swiss is an agent of HEL and under its control? That HEL was assigned the rights in question?

Did you know about this all along? If so, how were you able to sleep at night?

Have you brushed up your resume? If so, maybe you don't want to include the part about screwing hundreds of authors and boldly leading your company into a high-profile class action suit.

I don't expect answers, Donna. But maybe discovery will get those answers, and then the rest of us will know the truth.

And, as I said before, shame on you. And shame on Harlequin.

But guess what? You can make this right. You can pay what you owe, and by doing so lead the whole publishing industry into a future where authors are treated fairly. You can be a symbol of reform, and restructure so that those who have made your company rich and powerful--the writers you have exploited--are given their due and just rewards.

And then, after you do that and can finally sleep soundly knowing your wrongs have been righted, if there is any money left over you can hire a good accountant and file Chapter 11, just like the Big 6 are going to wind up doing.

Screwing authors isn't a smart way to conduct your business when the only reason you have a business in the first place is because of authors.

That's a lesson you're going to learn the hard way.