PAN Alert: Harlequin Update

Dear Authors,

I am writing to inform you of the status of RWA's ongoing communication with Harlequin regarding proposed contract amendments. Harlequin has made significant changes to the offer first presented in June 2011, but they have not agreed to meet all of the authors’ requests. RWA was successful in convincing Harlequin that it could not amend contracts without the authors’ approval.

More recently, Harlequin has agreed to allow authors a choice in amending reversion clauses (or not) on a contract-by-contract basis, which is better than the original offer for all or none. Harlequin has also added clarification to the out-of-print clause as follows:

 …a Work shall be considered to be “in print” if the Work is available for sale in a print or electronic edition and where such edition(s) either individually or collectively generate aggregate sales of at least two hundred and fifty (250) units in the two (2) consecutive accounting periods immediately preceding the Reprint Demand. For the purposes hereof, print edition(s) do not include Unrelated Licensees’ large print and book club editions or copies purchased by Author or on Author’s behalf.

 When in the judgment of Publisher the Work is no longer in public demand or ceases to be salable or profitable, Publisher may give notice to Author of its intention to discontinue further publication.

While RWA agrees that stipulating a specific volume of sales that must be met for Publisher to substantiate that rights are still being exercised is preferable to vague “out-of-print” clauses, it must be noted that an author is prevented from terminating an agreement if an abridgement, condensation, digest, anthology, collection, or other short form version of the work is available. As I understand it, if a book is "out-of-print," Harlequin can immunize itself from any reversion of rights, simply by exercising "any of the rights granted to Publisher under the Existing Agreements" within 18-months of notice of the Reprint Demand. Before accepting the new agreement, authors should understand that this clause clearly favors Harlequin due to the very low threshold that must be met to retain rights.

With regard to Digital Royalty Rates, I can only say that I tried very hard to convey to Harlequin the authors’ extreme dissatisfaction at Harlequin’s lack of transparency related to authors being paid a mere 3% - 4% of cover price due to Harlequin’s own estimates of how much to charge Related Parties for licensing of digital rights. The following is an excerpt from one of the recent emails that I sent to Harlequin:

The key issue for authors has nothing to do with Harlequin’s corporate structure or its tax obligations. Everyone is aware that Switzerland has a better tax structure than other countries, and Harlequin has every right to protect its own income from taxes. The question in authors’ minds is why digital rights for exact replicas of English language works that were acquired, edited, marketed, and sold by Harlequin Enterprises via its own website or via US-based online bookstores, presumably to individuals who reside in North America have been treated as cross-border transactions. If this question is not answered to their satisfaction, the authors are not likely to sign the agreements, and trust will never be restored.

 In response to efforts by RWA and others, Harlequin sent letters to each of its authors dated January 16, 2012 which contains new verbiage contrasting “Net Amount Received” to “Net Digital Receipts.” I am not an expert in International Accounting Standards or International Tax laws, but the rationale put forth strikes me as justification for past actions rather than a logical explanation of the differences in “Net Amount Received” and “Net Digital Receipts,” especially when one considers that Harlequin is able to determine and pay authors on “the actual revenues received by Publisher’s Related Licensee.” 20% of NDR is presented as being “improved” over the 3% - 6% of cover that has been paid, and RWA certainly hopes this proves to be true. However, it seems the definition of NDR is just as open to interpretation as NAR has proven to be.

Going forward, Harlequin has promised that future contracts will extend the period of time an author has to object to her royalty statements from one year to three. I had hoped that would be included in the current amendments, but I was informed in a recent email that Harlequin cannot incorporate it into this amendment.

I know that authors would like for RWA to tell them what to do, but unfortunately, we cannot. Beyond the fact that associations cannot engage in collective bargaining, contract terms have varied over the years, and some of the earlier contracts are likely more favorable, particularly with regard to reversion clauses. Amendments will therefore affect each of you in different ways, depending on the terms of your original contracts and the size of your backlist. One thing that this situation clearly illustrates is that contract terms need to be as clearly defined as possible. No one should sign a contract without a full understanding of its terms and conditions and without the realization that if circumstances in the industry change over time, vague wording will most certainly benefit publishers. Publishers are your business partners; they are not your friends.

I am pleased that progress has been made since the original offer was made last June, and I regret that the terms are not as clear or favorable as we all had hoped.

Despite the fact that the deadline (1/31/12) is approaching for authors to execute agreements for the new digital royalty rates to be effective with sales beginning in July 1, 2012, we have not given up. RWA continues to be in contact with Harlequin, other writers associations, authors, agents and other interested parties. Progress, if any, will be made available to all PAN members.

Sincerely,

Allison Kelley, CAE

Executive Director

allison.kelley@rwa.org

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