UPDATE: Cengage has issued a statement in response to the suit: It reads, in part: “ The suit comes as opposition is mounting to a proposed blockbuster merger between Cengage and McGraw Hill. The authors are seeking damages and restitution for unpaid royalties. 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 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." 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 require payment of royalties on the net receipts from sales. 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.īut 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. 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. 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.” Last October, Cengage settled a similar proposed class action suit with two of its authors, filed in May of 2018. The suit is the second legal battle for Cengage involving royalty payments following its 2018 switch to a digital subscription model. 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.” “This class action therefore alleges a breach of contract for damages due to Cengage’s uniform violations of its Publishing Agreements. “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.
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