For the second time in just over a year, a group of textbook authors has filed a proposed class action suit against publisher Cengage, alleging that the company’s digital pivot violates their author agreements.
The suit, filed yesterday in the Southern District of New York by authors Douglas Bernstein, Elaine Ingulli, Terry Halbert, Edward Roy, Louis Penner, and the Estate of Alison Clarke-Stewart, claims that Cengage is cheating their authors out of proper royalties for sales through its digital products—Cengage Unlimited, the company’s subscription platform, and MindTap, a more than five-year old service that enhances Cengage digital texts with multimedia capabilities, such as quizzes.
“Rather than paying authors pursuant to the terms of their contracts, Cengage has made its own decisions about how and from what pool of money to pay authors’ royalties,” the suit alleges, adding that Cengage has “stopped paying Plaintiffs royalties” on net receipts from sales set forth in their contracts. “This class action therefore alleges a breach of contract for damages due to Cengage’s uniform violations of its Publishing Agreements. The advent of new digital sales channels for academic textbooks is not an excuse to somehow start cheating the textbooks’ authors and violate their binding contracts with Cengage.”
The suit is the second legal battle for Cengage involving royalty payments following its 2018 switch to a digital subscription model. Last October, Cengage settled a similar proposed class action suit with two of its authors, filed in May of 2018. In that suit, authors David Knox and Caroline Schacht had claimed the publisher had “wrongfully” implemented “a unilateral change to the compensation structure for its authors,” switching from “the contractual 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.”
In its 12-page answer to that suit, filed prior to settling with the authors, Cengage attorneys claimed that the new subscription service does not breach the authors' contracts. And among its defenses, Cengage attorneys pointed 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.
But even with those sweeping terms, Cengage’s “unilaterally” implemented author payment formulas for both Cengage Unlimited and MindTap are invalid, the new class action suit argues, because they do not adhere to the royalty schemes laid out in the author contacts.
"The Publishing Agreements require payment of royalties on the net receipts from sales. However, for sales that occur through Cengage Unlimited, Cengage applies a different formula found nowhere in its contracts with Plaintiffs," the suit claims, calculating payments based on a "weighted average of the number of uses" of a work. "The Publishing Agreements, however, do not provide for the application of this made-up formula that serves to enrich Cengage, and reduce the royalty-bearing revenue of its authors."
In terms of MindTap products, "even if Cengage is permitted under the Publishing Agreements to deduct from author royalty bases the ‘appropriate value’ of additional elements that Cengage unilaterally included with the sale of the authors’ works," the suit states, "Cengage is still in breach of the Publishing Agreements because it is not fairly or accurately ascribing portions of net MindTap revenues as royalty-bearing versus non-royalty bearing."
The authors are seeking damages and restitution for unpaid royalties.
The suit comes as opposition is mounting to a proposed blockbuster merger between Cengage and McGraw Hill.
UPDATE: Cengage has issued a statement in response to the suit: It reads, in part: “
"...Our authors, like those at our competitors, saw declining royalties as a result of high prices that lowered students’ demand. The Cengage Unlimited subscription service was created to address this longstanding problem. It also enables a more sustainable business model for the company and our authors.
We have communicated clearly with our authors that the subscription service is consistent with the terms of their contracts, which we continue to honor. Since the service launched, we are in regular communication with them about the impact of the subscription on their royalties. We look forward to vigorously responding to this complaint as we remain steadfast in our belief that our industry must do more to contribute to affordable higher education.”
