UPDATE August 16, 2019 Cengage Releases Statement on Authors’ Complaints
UDPATE August 15, 2019 Another Textbook Author Files Breach of Contract Class Action Complaint Against Cengage Learning; Filed in U.S. District Court, Southern District of New York
Direct to Filing: Grafton H. Hull, Jr. v. Cengage Learning (via CourtListener)
17 pages; PDF.
Last night (August 12, 2019) a group of textbook authors filed a class action complaint against Cengage Learning alleging breach of contract.
The complaint was filed in the Southern District of New York.
The full text of the complaint (17 pages; PDF) is available (free) via CourtListener/ReCAP.
Here’s the “Nature of Action Section”
Plaintiffs and members of the putative class are professors and leading academics who authored academic textbooks and entered into contracts with Cengage (or its predecessors- in-interest) to publish, sell, and distribute Plaintiffs’ textbooks (“Publishing Agreements”).
2. The Publishing Agreements each require that Cengage pay Plaintiffs royalties on the net receipts from the sale of their works. However, Cengage has adopted a class-wide policy of diluting the net receipts from which royalties are calculated and paid to Plaintiffs simply because the sale at issue happened to occur digitally. Cengage’s digital-sale financial alchemy violates the plain language of the Publishing Agreements.
3. Cengage has recently introduced two new digital sales channels to increase its revenues from the sale of Plaintiffs’ works, and those digital platforms are called (i) MindTap and (ii) Cengage Unlimited. These two digital offerings have been wildly successful, so much so that Cengage attributes them to causing Cengage to have “outperformed our competitors and improved the performance of our Higher Ed business. We were able to make significant investments in our strategic priorities while also generating positive free cash flow . . . .”
4. MindTap provides an electronic version of Plaintiffs’ coursebooks with multimedia capabilities (e.g., a highlighting tool) and materials like quizzes. Cengage has sold the authors’ works through MindTap to over 2.7 million users.
5. The Publishing Agreements require that Cengage calculate royalties for any sale of Plaintiffs’ works by applying the contractually specified royalty rate to the net receipts from sales of their works. However, Cengage has treated the sale of Plaintiffs’ works on MindTap differently, with no authorization to do so under the Publishing Agreements.
6. Rather than following the net-receipts-of-sales contractual requirement, Cengage has unilaterally diminished the amount of revenue from MindTap that should be royalty-bearing by applying haircuts. Specifically, Cengage chops-off revenue by applying (i) an arbitrary determination of “appropriate value” to Plaintiffs’ works sold on MindTap, and (ii) a made-up “relative value” of various MindTap components that are used with Plaintiffs’ works. These two accounting shenanigans financially harm Plaintiffs and are not authorized anywhere in the Publishing Agreements.
7. As for Cengage Unlimited, that is a subscription service for digital higher education materials. Plaintiffs’ works are offered on Cengage Unlimited. A subscription provides access to more than 22,000 products across 70 disciplines and more than 675 courses for one price. Cengage heavily promotes this new subscription service. When students go to Cengage’s website to buy a book, Cengage immediately directs them to its “Unlimited” product. In eight months, Cengage Unlimited has attracted more than 1 million subscribers. Cengage has credited the new program with increasing its market share in U.S. higher education and bolstering its courseware activations by 15%.
8. 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. Cengage looks to what it deems, apparently by its mere say-so, the “relative value” to Cengage Unlimited subscribers of a particular work and the weighted average of the number of uses of that work, and then pays a royalty off that manufactured calculation. 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.
9. 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. Cengage has stopped paying Plaintiffs royalties on net receipts from sales, as the Publishing Agreements require. 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.