Laywers for Cengage last week answered a recently filed lawsuit filed by two authors, denying that the company’s new Cengage Unlimited subscription service will improperly cost authors sales and royalty payments. In fact, lawyers claim, they expect the new subscription service to increase payments to authors.
Although Cengage lawyers admit they have no “knowledge or information sufficient to form a belief as to Plaintiff’s expectations as to their royalties,” they claim the plaintiff authors have no basis to expect their royalties to “decline substantially,” adding that the “expectation is that Plaintiffs will see increased royalties.”
Filed in May in the Southern District of New York by authors David Knox and Caroline Schact, the suit claims that Cengage's subscription service "wrongfully" imposes “a unilateral change to the compensation structure for its authors,” switching from a “royalty-on-sale” compensation model to a “relative use” model, which pays authors a “fractional percentage" of Cengage’s subscription fees based on "the relative use of the work.” The change, the authors claim, will disrupt “the business of selling Plaintiffs’ work” in favor of selling subscriptions and, as a result, the authors "expect their royalties to decline substantially."
Further, the authors claim that Cengage is not properly compensating authors for the "digital courseware" and other add-ons such as "multimedia displays, homework, quizzes, tests and other supplements" derived from the authors' work, and has refused to allow the authors to audit their royalty payments. The suit seeks class-action status on behalf of Cengage authors.
In its 12-page answer, which was filed on July 27, Cengage claims that the new subscription service does not breach the authors' contracts. Among its defenses, Cengage attorneys point out that the author agreements include both a full and complete transfer of copyright to the publisher and the explicit right to publish digital editions in exchange for a cut of net receipts.
Publishing lawyer and blogger Lloyd Jassin told PW that the authors' short, 3-page contracts (which were appended to Cengage's answer) were not well-drafted by either party. (The original contracts are with West Publishing's College Department and date back to 1989 and 1994.) But they do show that the publisher did indeed obtain "broad rights" by assignment.
"[There were] two key mistakes the authors made," Jassin says: "One, they didn’t try to obtain audit clauses in their contracts. Had they tried, likely, they would have received audit rights. Two, they assigned all rights, rather than licensing specific rights."
Still, Jassin suggests that the suit is understandable. In its answer, Cengage concedes that the value of the third-party tools (videos, assessments or tests, and homework) is factored into the subscription product's pricing, depressing the net on which Cengage authors' royalties will be paid. "No crime in that," Jassin explains. "But, [Cengage] claims the value they ascribe to those tools and derivative works are neither arbitrary or unfair. Were those third-party costs, and expenses, impermissible, or inflated? Absent a contractual audit right, the only way to shine a light on how Cengage calculates royalties is litigation."
Cengage lists a target launch date of August, 2018, for Cengage Unlimited, which it describes as a "subscription service for college course materials" offering students access to all of Cengage's digital learning platforms and e-books, as well as online homework and study tools, for $119.99 per term or $179.99 for the year.
In a blog post last month, Cengage officials again denied that the publisher "has violated any of its contractual duties" to the two plaintiff authors, and that the suit will not delay the launch of the new service. "Litigation following the launch of a new and innovative business model is not unusual," the post states. "This lawsuit, or any similarly filed lawsuit, will not delay the launch of Cengage Unlimited."
