Tricky, tricky, tricky. Harlequin, the publisher of those trashy romance novels that Grandma liked so much, is facing a class-action lawsuit over some corporate trickery that may be reducing writers' royalties from 25 percent of proceeds to only 3-4 percent, reports the Courthouse News Service. According to the plaintiffs, the entire fraud is committed through the use of self-dealing corporate subsidiaries.
Sound complicated? Are you having a strong urge to close this window and run to something easier, like TMZ? Well don't. We had the same urges, until we "got it." Now, we're just impressed. You will be too.
Here's how the alleged corporate structuring seems to be set up. Harlequin Enterprises is the overall corporation and publisher. We'll call them the Parent. Parent set up two corporations in Switzerland, probably for tax purposes. We'll call them the Swiss Children.
The Swiss Children, like most children of billion-dollar entities, do little to nothing. They exist on paper, for tax purposes, and allegedly to separate writers from their royalties.
The writers sign contracts with Swiss Children as the publisher. The problem is, Swiss Children apparently don't actually publish anything. They merely exist on paper.
So, Swiss Children have to hire someone to actually do the publishing work. They license the material to the Parent, Harlequin Enterprises. The Parent then grabs up book deals and e-publishing contracts.
Parent sets up deals for e-books with companies like Apple. Parent takes half of the cover price. The other half goes to Apple. Their licensing agreement with Swiss Children only requires them to kick 8 percent to the Swiss Children. Out of that, half goes to the writers.
See the problem yet? By creating a sub-company and having the writers contract with that company, they are able to siphon out 42 percent of the book's cover price before the writers' cut is calculated.
Is it legal? Courts like to give wide deference to parties' contracts with each other. They assume that these parties are intelligent enough to read through contracts before signing them. However, that tolerance for bad bargains only goes so far.
While the court may not want to cure a bad deal due to one party's stupidity, this deal may have crossed over into deceptive practices, especially if the Swiss Children have no purpose other than tax-sheltering and siphoning royalties before they are paid out to writers.
Nonetheless, you have to be impressed with the creativity at Harlequin. Tricky, indeed.
- Consult a New York Personal Injury Attorney (FindLaw)
- Romance Novelists Sue Harlequin Over E-Book Royalty Claims (Bloomberg Businessweek)
- The Harlequin Complaint (Scribd)
- Local Startup Company Claims Google Stole Idea for 'Hangouts' (FindLaw's New York Personal Injury Blog)