Friday, December 21, 2012

In its response to the Plaintiffs' amended complaint, Harlequin has nothing new to say

I've had a copy of the Harlequin response to the Plaintiffs' amended complaint in their motion for a class action in the e-books litigation, and I haven't been able to motivate myself to write about it for one simple reason: they had nothing new to say.

I've only found one item that even bears mentioning, and even that one can be dealt with quickly.



Harlequin directs the court's attention to a recent judgment, Cordell v. McGraw-Hill. In that case, McGraw-Hill transferred publishing contracts to its international division for international publication at below-market prices, then paid the authors based on the royalties on those below-market prices. In that case the court held that McGraw-Hill hadn't breached the contract.

Harlequin raises that case to make this point:
"In dismissing plaintiff's breach of contract claim [in the McGraw-Hill case], the court determined that the publishing agreement at issue was unambiguous and expressly provided that foreign royalty payments could be calculated based on sales to the defendant's international division... The same applies here."
But this raises the obvious question: Why should the same principle apply here? The contracts at issue in the e-books litigation specifically don't have the provision that Harlequin invokes from the McGraw-Hill contract: one that says the publisher can transfer inside divisions and pay on the lower intercorporate rate.

This goes to the bigger argument that the Harlequin plaintiffs are raising: that Harlequin's acts were structured to the detriment of the plaintiffs, that Harlequin knew why it was doing that, and that it did these acts deliberately. If there had been a clause in the contract calling out that Harlequin would transfer these rights to a related company, it would be difficult for the plaintiffs to argue they were taken advantage of: they would have known up front this was a risk and they would have accepted it.

But that's not the case here.

Instead, what happened here was that Harlequin never advised the plaintiffs that it might do an intercorporate license to publish e-books. In fact, its entire business practice was that it didn't do intercorporate licenses when it used its various corporate entities in publishing print books. The plaintiffs in their motion show that over and over again: Harlequin treated the European-based royalty-paying entities as exactly that - companies that existed just for financial purposes - and the real work was done by the Canadian company. The authors would have had no reason to suspect that any future e-books business would be conducted otherwise.

The first phase of the litigation has unfolded as it often does. The plaintiffs have found new and interesting facts that improve their case. And Harlequin has nothing new to say in response.

Maybe in 2013 Harlequin will wish the Mayan Apocalypse really did happen.

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