MANHATTAN (CN) - Harlequin Books cheats its 1,000 romance writers of royalties by using a bogus "licensing" agreement with its own Swiss subsidiary tax havens, three romance novelists claim in a federal class action.
The lead plaintiffs are Barbara Keiler, author of "Blooming All Over" and "Right Place, Wrong Time"; Mona Gay Thomas, author of "The Heart's Desire" and "His Secret Duchess"; and Linda Barrett, who wrote "Love, Money and Amanda Shaw" and "Apple Orchard."
Harlequin, the world's largest publisher of romance novels, releases more than 110 titles a month in 34 languages, in 114 international markets on six continents, according to the complaint. Its stable includes more than 1,200 authors, the plaintiffs say.
According to the complaint, Harlequin Enterprises set up two Swiss subsidiaries, co-defendants Harlequin Books S.A. and Harlequin Enterprises B.V., "for tax purposes," even though these companies have no publishing functions.
S.A. and B.V. are both foreign language equivalents of Inc. The complaint refers to Harlequin Books and Enterprises, together, as Harlequin Switzerland.
"This action concerns publishing agreements entered into from 1990 to 2004 between plaintiffs and the other class members and Harlequin Switzerland," the complaint states.
"Although defendant Harlequin Enterprises has at all times been the publisher of Harlequin books, and defendant Harlequin Switzerland does not perform any publishing functions, for tax reasons Harlequin Enterprises required the plaintiffs to enter into the publishing agreements, which it drafted, with Harlequin Switzerland as the 'publisher.' Harlequin Switzerland's sole role was to sign the publishing agreements prepared by Harlequin Enterprises and then to send out royalty statements and payments in its name. Plaintiffs at all times dealt with Harlequin Enterprises as the publisher of their works.
"The 1990-2004 standard form publishing agreements provided that the plaintiffs were to be paid 50% of the net receipts of the 'publisher from the exercise, sale, or license of digital rights to their works. Since Harlequin Enterprises is, and has always been, the 'publisher,' and its net receipts amount to at least 50% of the cover price of the e-books, plaintiffs are entitled to receive 50% of those net receipts.
"Harlequin Enterprises has nonetheless claimed that it had to obtain a 'license' from Harlequin Switzerland to publish plaintiffs' e-books. Harlequin Enterprises has claimed that plaintiffs' 50% royalty should therefore be based on the net receipts of Harlequin Switzerland from this 'license,' which amounts to only 6% to 8% of the e-books' cover price."
The authors say the publishing agreements gave Harlequin Switzerland the "sole and exclusive right to execute, sell, license or sublicense" copyrights.
"Although the publishing agreements named Harlequin Switzerland as the 'publisher,' at no relevant time has Harlequin Switzerland performed any traditional publishing functions," the complaint states.
Nevertheless, the authors claim, this agreement allowed the Toronto-based parent company to slice away the bulk of their promised 50 percent royalty.
"In 2011, Harlequin Enterprises sent written communications to plaintiffs and the other class members in which it took the position that royalties for e-books were covered by the AOR [All Other Rights] Clause in the Publishing Agreements and that the authors' 50% royalty was to be calculated based on the net amount received by Harlequin Switzerland, from a 'license' that Harlequin Enterprises claims Harlequin Switzerland granted to it to publish the e-books," the complaint states. "Harlequin Enterprises claimed in those communications that the net amount received by Harlequin Switzerland was 6% to 8% of the cover price of the e-books, and that the royalties owed to plaintiffs and to other class members were therefore 50% of that amount, or 3% to 4% of the cover price.
"Under the publishing agreements, defendants have been paying plaintiffs and the other class members e-book royalties of 3% to 4% of the cover price based on the net amount received by Harlequin Switzerland from the claimed 'license' granted to Harlequin Enterprises, far less than what plaintiffs and the other class members would have been paid if their royalties were based, as they should have been, on the net amount received by Harlequin Enterprises."
The writers seek damages for breach of contract and unjust enrichment.
They are represented by David Wolf of New York City and Michael Boni, with Boni & Zack, of Bala Cynwyd, Pa.