S&S hit with class action lawsuit on ebook royalties

[fjtorres]

From COPYLAW:
http://www.copylaw.org/2016/05/simon...royalties.html

Via The Passive Voice:

http://www.thepassivevoice.com/2016/...-class-action/

A book is a book, except when it comes to eBook royalties. That's the premise of a class action lawsuit filed on Thursday, May 19, 2016, in the Supreme Court of the State of New York by class representative Sheldon Blau, MD.

The lawsuit alleges Simon & Schuster has been cheating its authors by improperly categorizing eBook transactions as "sales" rather than "licenses."

The distinction is significant, because the royalty rate for sales is much lower than the rate for the license of rights. If categorized as a license the author receives 50% of net receipts, rather than 25% of net typically paid to authors for the "sale" of an eBook.

The eBook royalty class action looks back approximately six years, the statute of limitations on contract actions in New York State. It alleges Simon & Schuster engaged in a "pattern and practice of paying Plaintiff and others similarly situated royalty payments for the distribution of licenses for electronic books, or "e-books," at a rate for book "sales," or some other lower rate than that required for "license" transactions."

This issue arose, in a different context, in F.B.T. Productions v. Aftermath Records, a 2007 federal lawsuit brought by Eminem's management company against his record label over digital royalty rate splits. Like the music industry, book publishers have taken the position that digital downloads should be accounted for as sales not licenses.

More at the sources, including a copy of the filing and commentary at TPV.

I'm thinking they'll need to round up a few more plaintiffs to get certified as a class action.

Where it could get...interesting...is during discovery, since the replacement of 25% of net terms for the previous 50% terms originated at Random House, not S&S, yet was adopted by all the BPHs and many others almost simultaneously. If discovery finds coordination...

It took Eminem a lot of time and money to beat his studio. This plaintiff has a steep uphill fight.

[murg]

Hmmm...Yet, when I 'purchase' an ebook from the publisher, they insist that it is a license and not a sale...

[Lynx-lynx]

Originally Posted by murg

Hmmm...Yet, when I 'purchase' an ebook from the publisher, they insist that it is a license and not a sale...

Having their cake and ......

[fjtorres]

Originally Posted by murg

Hmmm...Yet, when I 'purchase' an ebook from the publisher, they insist that it is a license and not a sale...

How often do you buy from a publisher, as opposed to a retailer?

See, most retailers make it (legally) clear (in their TERMS OF SERVICE) that what *they* sell is reading licenses.

The issue is most big traditional publishers bookkeep ebook income as sales instead of licenses to the retailers while relying on language in the (vintage) contracts that talks about both sales and licensing as separate things with separate rates. And then, there is Agency, where they license retailers to act on their behalf instead of selling the books to the retailers.

There are many different kinds of licensing in business and over the years some publishers have played games under licensing terms.

This is no slam dunk but it is very much past time that somebody called them on it.

Check this:

http://kriswrites.com/2013/09/25/the...nts-yet-again/

[fjtorres]

Here's the ticking time bomb from the Eminem lawsuit:

https://en.m.wikipedia.org/wiki/F.B....ermath_Records

The court then discussed whether or not Aftermath licensed the music to third party distributors, making extensive use of the Copyright Act of 1976, including references to sections 17 U.S.C. § 114, 17 U.S.C. § 115, and the First-sale doctrine as expressed in 17 U.S.C. § 109. The court reaffirmed the fundamental differences between a sale and a license, particularly pointing out that "a 'sale' of a work may either be a transfer in title of an individual copy of a work, or a sale of all exclusive intellectual property rights in a work."[1] Relying heavily on the Supreme Court's interpretation of these statutes, the court of appeals thus ruled that Defendants' dealings with third parties were license agreements and not sales. This was mainly based on the fact that Defendants' transfer of copyrighted material to third parties did not include ownership title of copyrighted material, and that Defendants reserved the right to reclaim copyrighted material at any time, therefore no sale was made.

Again, retailers cover their rears with the legalese in the TOS but many publishers accounting systems (notoriously dated) don't.

If this suit isn't squelched fast it may very well spread industry-wide.

[crich70]

They claim to have made 'sales' but at the same time in the tos they claim no sale was made? You can't have it both ways. And it sounds like they say they have the right to steal from you too. If I sell you something and then after getting your money take the item back I'd say I'd be guilty of theft. If i buy a copy of a DVD of say "Star Wars 7" at the store I expect that the store can't just walk into my home and take it back later. Granted an ebook has a lot less substance than a DVD which exists on physical media but I believe it would still be theft to take it back. If I buy a book from a seller I trust in their honor to not later deprive me of what I paid for.

[fjtorres]

Originally Posted by crich70

They claim to have made 'sales' but at the same time in the tos they claim no sale was made? You can't have it both ways. And it sounds like they say they have the right to steal from you too. If I sell you something and then after getting your money take the item back I'd say I'd be guilty of theft. If i buy a copy of a DVD of say "Star Wars 7" at the store I expect that the store can't just walk into my home and take it back later. Granted an ebook has a lot less substance than a DVD which exists on physical media but I believe it would still be theft to take it back. If I buy a book from a seller I trust in their honor to not later deprive me of what I paid for.

Just remember that there are two transitions in the chain: publisher to rtailer abd retailer to consumer.

The lawsuit is solely about retailer to publisher revenues and how they are distributed. And the pullback clause refers to publishers pulling "master" titles from retailers. Consumers are only "interested observers" for now.

The only way this suit ripples down to the consumer level is if the plaintif loss on merit and not on a technicality. If the court finds that ebook distribution is a sale to the retailer then the retailer is reselling ebooks which opens *two* cans of worms.

That's the fun part of the suit.

[howyoudoin]

Originally Posted by crich70

They claim to have made 'sales' but at the same time in the tos they claim no sale was made? You can't have it both ways. And it sounds like they say they have the right to steal from you too. If I sell you something and then after getting your money take the item back I'd say I'd be guilty of theft. If i buy a copy of a DVD of say "Star Wars 7" at the store I expect that the store can't just walk into my home and take it back later. Granted an ebook has a lot less substance than a DVD which exists on physical media but I believe it would still be theft to take it back. If I buy a book from a seller I trust in their honor to not later deprive me of what I paid for.

I think that's more about control of the medium and introducing friction to benefit the seller/rights holder. Rights-wise there's no difference between the two.

Say we were willing to purchase an ebook and agreed to have it delivered to us on a CD rather than as a download, then the transaction has essentially been reduced to one similar to purchasing a DVD from a shop.

The seller cannot then walk into our house and take back the CD containing the ebook; no more than they could walk in and take away a DVD movie. The only thing the seller/rights holder can do in practical terms is to point a stern finger at us and tell us that we're just purchasing the right to read the book or watch the movie, and that this is a non-transferable right. But they cannot prevent us from lending the CD or DVD to a friend. They might consider this a lost sale, but there's nothing they can do about it.

But if they change the medium to a digital download and introduce further friction by wrapping it in user-linked DRM, they convert some of those 'lost sales' into actual sales. They do this not only for ebooks, but also for movies.

From the point of view of a consumer who is not savvy enough to liberate and 'own' their purchases, a physical CD/DVD looks like a sale, while a digital download looks like a lease, whereas in legal terms they are both leases, as specified by the somewhat obscured terms of 'sale' to us.

In any case this is a digression from the topic at hand—which is whether these leases ought not to be considered sales in light of these shady accounting tricks by the publishers. This is of course, speaking from the point of view of a consumer who is interested in whether or not the obvious corollary exists to this argument between the authors and publishers.

[howyoudoin]

Edit: Redundant post. fjtorres has already made the point.

If I were a publishing house interested in benefiting myself by screwing over both the authors and reader, one technique would be to sell the ebook to the retailer—thus making it legal to pay the authors the lesser fee for a sale—and then have the retailer lease the ebook to the reader, thus also screwing over the reader who does not own the ebook. This makes it perfectly legal on both ends.
I wouldn't be surprised if this were exactly what's happening. Middle men and intermediary companies are an easy and time tested method to achieve the fullest benefits possible.

[howyoudoin]

Originally Posted by fjtorres

Just remember that there are two transitions in the chain: publisher to rtailer abd retailer to consumer.

The lawsuit is solely about retailer to publisher revenues and how they are distributed. And the pullback clause refers to publishers pulling "master" titles from retailers. Consumers are only "interested observers" for now.

The only way this suit ripples down to the consumer level is if the plaintif loss on merit and not on a technicality. If the court finds that ebook distribution is a sale to the retailer then the retailer is reselling ebooks which opens *two* cans of worms.

That's the fun part of the suit.

whoops, sorry, I see you have already made the point. My post is redundant.

[disconnected]

I'm still confused. I thought with agency titles Amazon never "bought" or "owned" the books but was just providing a storefront for the publisher and earning commissions.

[howyoudoin]

Originally Posted by disconnected

I'm still confused. I thought with agency titles Amazon never "bought" or "owned" the books but was just providing a storefront for the publisher and earning commissions.

I'm not saying this is what is happening, just throwing an idea into the wind of how both ends can be legally achieved:

Assume I am a publishing company named Pimon and Pooster. I am a division of a company named SBC Corporation.

The contract my authors sign stating that they get paid when I sell their books is with SBC Corporation (contract A). SBC Corporation then sells the book to Pimon and Pooster, thus enabling me to pay my authors the lower fee for sales.

Pimon and Pooster then employs Amazon as an agent to lease the same books to consumers (contract B), thus making both both contracts non-conflicting with each other for the simple reason that on-paper they involve two completely different sets of parties.

There's probably a ton of holes in this theory involving optimal inventory prediction and taxes at each step, making it unprobable, but it's plausible if the accountants and lawyers have figured out a profitable way to make it so.

[howyoudoin]

This sort of thing happens all the time.

My first job was at a Medical Clinic.

However my contract on joining there was with "XYZ petroleum company", who were my employers on paper, and who would be paying me. This seemed strange to me, but apparently XYZ Petroleum company owned the chain of clinic I was joining.

Of course, an easy way to discount the relevance of this tactic to the case at hand would be confirmation by the authors that were indeed contracted directly to Simon and Schuster, and that S&S had directly the agency contract with Amazon and the leasor-leasee relationship with the end-consumer, thus putting S&S on shaky ground.

[fjtorres]

Originally Posted by howyoudoin

From the point of view of a consumer who is not savvy enough to liberate and 'own' their purchases, a physical CD/DVD looks like a sale, while a digital download looks like a lease, whereas in legal terms they are both leases, as specified by the somewhat obscured terms of 'sale' to us.

Exactly.
From the point of view of the law the distribution medium is irrelevant: the only thing that matters are the cobtractual terms of the transaction.

(And, hey, a bit of redundancy never hurt anyone. )

[fjtorres]

Originally Posted by howyoudoin

Assume I am a publishing company named Pimon and Pooster. I am a division of a company named SBC Corporation.

The contract my authors sign stating that they get paid when I sell their books is with SBC Corporation (contract A). SBC Corporation then sells the book to Pimon and Pooster, thus enabling me to pay my authors the lower fee for sales.

.

Originally Posted by howyoudoin

This sort of thing happens all the time.

My first job was at a Medical Clinic.

However my contract on joining there was with "XYZ petroleum company", who were my employers on paper, and who would be paying me. This seemed strange to me, but apparently XYZ Petroleum company owned the chain of clinic I was joining.

Of course, an easy way to discount the relevance of this tactic to the case at hand would be confirmation by the authors that were indeed contracted directly to Simon and Schuster, and that S&S had directly the agency contract with Amazon and the leasor-leasee relationship with the end-consumer, thus putting S&S on shaky ground.

This particular trick is exactly what Harlequin did to a lot of their authors: they set up a wholly owned subsidiary to buy manuscripts that it then licensed (dirt cheap) to its parent company so they didn't pay royalties on the sale price but on the artificially low license payout. The practice is called self-dealing and is usually but not always illegal.