Tag Archives: publishing contracts

Independent Publisher’s Lawsuit Against Audible Fails, Highlighting Challenges to Receive Fair Streaming Compensation

Posted February 21, 2025

Last November, we covered a case where a group of authors complained about McGraw Hill’s interpretation of publishing agreements related to compensation for ebooks. As subscription-based models become increasingly dominant in the publishing industry, authors must be vigilant about how their contracts define compensation. Platforms like Kindle Unlimited, Audible, and academic ebook services are reshaping traditional royalty structures. This is not just a concern for trade books; academic publishing is also shifting towards subscription-based access, as evidenced by ProQuest’s recent announcement that it is ending print sales and moving toward a “Netflix for books” model.

Here we see yet another case where ambiguous contractual terms resulted in financial loss for an author—

On Feb. 19th, the Second Circuit affirmed the lower court’s dismissal of Teri Woods Publishing’s copyright infringement and breach-of-contract claims against Audible and other audiobook distributors in Teri Woods Publ’g, LLC v. Amazon.com, Inc. The Plaintiff initially granted the rights (that are the subject of this dispute) to Urban Audios in a licensing agreement. Thereafter, Urban Audio granted the rights under that agreement to Blackstone, which then sublicensed its rights to Amazon and Audible.

The Plaintiff in this case, Teri Woods Publishing, is an independent publisher founded by urban fiction author Teri Woods. The Plaintiff argued—and the courts ultimately disagreed—that the licensing agreement did not unambiguously permit Defendants to distribute Teri Woods’ audiobooks through the Defendants’ online audiobook streaming subscription services. More specifically, on the question of compensation for online streaming, Plaintiff and Defendants disagreed on whether (1) online streaming counted as “internet downloads” or alternatively “other contrivances, appliances, mediums and means,” and (2) the licensing terms dealing with royalties prohibit subscription streaming.

The licensing terms in question are contained in the licensing agreement Plaintiff entered into in 2018, granting Urban Audios the

“exclusive unabridged audio publishing rights, to manufacture, market, sell and distribute copies throughout the World, and in all markets, copies of unabridged readings of the [Licensed Works] on cassette, CD, MP3-CD, pre-loaded devices, as Internet downloads and on, and in, other contrivances, appliances, mediums and means (now known and hereafter developed) which are capable of emitting sounds derived for the recording of audiobooks.”

In exchange of this assignment of rights, Urban Audio—as the Licensee—must pay Plaintiff:

“(a) Ten percent (10%) of Licensee’s net receipts from catalog, wholesale and other retail sales and rentals of the audio recordings of said literary work;

(b) Twenty Five percent (25%) of net receipts on all internet downloads of said literary work.

In case you are not familiar with the services Amazon Audible provides: members of Audible generally pay a monthly fee to digitally stream or download audiobooks, instead of making any specific payment for the specific audiobooks they are streaming or downloading. This method of distribution, the Plaintiff argues, led to drastically lower compensation than expected, as the audiobooks were made available to subscribers at a fraction of their retail price.

Audible has a history of relying on ambiguous contractual terms to reduce author payouts. The “Audiblegate” controversy, for instance, exposed how Audible’s return policy allowed listeners to return audiobooks after extensive use, deducting royalties from authors without transparency. That practice came under legal scrutiny inn Golden Unicorn Enters. v. Audible Inc., where authors alleged that Audible deliberately structured its payment model to significantly reduce their earnings (unfortunately, the court in that case also largely sided with Audible)

Despite Audible’s track record, the courts were unsympathetic to Plaintiff’s grievance in the Teri Woods case, and held that the plain meaning of the phrase “other contrivances, appliances, mediums and means (now known and hereafter developed)” in the licensing agreement included digital streams and other future technological developments in distribution services. The courts also observed that the underlying licensing agreement did not provide for the payment of royalties on a per-unit basis; Plaintiff was only entitled to a percentage of “net receipts” received by Urban Audio for sales, rentals, and internet downloads.

The ambiguity in defining what constitutes an “internet download,” and whether payment was due on a per unit basis, ultimately were interpreted in favor of Audible. This case serves to remind us again of the importance of adopting clear contractual language.

Licensing agreements should be drafted with clear and precise language regarding revenue models and payment structures. Subscription-based compensation models, like those employed by Audible, fundamentally differ from traditional sales models, often leading to lower per-unit earnings for authors. By failing to anticipate and address these nuances, authors risk losing control over how their works are monetized. Ensuring that rights, distribution methods, and payment structures are clearly defined can prevent disputes and financial losses down the line.

Many authors assume that digital rights are similar to traditional print rights, but as this case demonstrates, vague phrasing can allow distributors to exploit gaps in understanding. If authors do not explicitly outline limitations on emerging distribution technologies, they may find themselves receiving significantly less compensation than they anticipate when signing the agreement. For example, authors should ensure their contracts specify whether subscription-based revenue falls under traditional royalty calculations, and whether distribution via new technological formats require renegotiation. Beyond the issues with ambiguous contractual terms, this case also highlights the broader issue of how digital platforms can negatively impact readers and authors alike. Readers no longer own the books they purchase; instead, they receive licensed access that can be revoked or restricted at any time. This shift undermines the traditional relationship between books and their readers. Authors are equally threatened by these digital intermediaries, who have the power to dictate distribution methods and unilaterally alter revenue models; an author’s right to fair compensation is too often sacrificed along the way. The situation is especially dire with audiobooks, where Audible dominates the market.

Revived Class Action Against McGraw Hill: the Importance of Publishing Contracts

Posted November 15, 2024

open book with glasses on top

On November 6th, the 2nd Circuit Court of Appeals overturned the lower court’s dismissal in Flynn v. McGraw Hill, and allowed the plaintiffs’ breach of contract claim to move forward.

The breach of contract claim involves McGraw Hill’s alleged practice of reducing or ceasing royalty payments on revenues generated through McGraw Hill’s online platform, Connect, which hosts electronic textbooks and related course materials since its launch in 2009. The publishing contracts at issue specified that McGraw Hill would publish the plaintiffs’ textbooks “at its own expense” and that royalties would be based on “Publisher’s net receipts”—defined mostly as “the Publisher’s selling price, less discounts, credits, and returns, or a reasonable reserve for returns;” although the initially signed contracts only covered print works, McGraw Hill later amended the contracts to cover electronic works under the same royalties structure. McGraw Hill paid royalties based on the entire revenue from ebook sales through Connect, which included both the ebook and its accompanying materials such as PowerPoint lesson plans and test banks.

This changed in 2020, according to the plaintiffs, when McGraw Hill started paying royalties solely on sales attributed to the ebooks, excluding the revenue derived from the accompanying materials, despite the fact that the accompanying materials cannot be bought independent of the ebook. Under the new practice, McGraw Hill would unilaterally determine which part of the revenue is attributable to the ebooks, their accompanying materials, or the Connect platform, even though the sales are always based on a “single unitary price”.

The plaintiffs argue that this new arrangement violated McGraw Hill’s promise to publish the works “at its own expense,” a provision that should have meant authors wouldn’t be charged for the cost of operating or maintaining the publisher’s infrastructure; this claim is now allowed to go forward. The claim related to “net receipts” was again dismissed.

While the ongoing developments in this case are worth watching closely, it also serves as a timely reminder—especially in light of publishers’ licensing content for AI training—for authors to carefully review and negotiate their publishing agreements, and to rely on the contractual terms that hold publishers accountable to their promises.

Let’s take this opportunity to quickly remind ourselves of a couple of less-discussed contractual terms that may in fact be too important to ignore.

1. “…media now known and may be developed in the future”

The harm plaintiffs are claiming, in this case, is a whopping 25% to 35% drop in royalties when works are published on McGraw Hill’s online platform. Although this case only arose out of the electronic rights of textbooks, it reminds us how the advent of new technology could easily undermine instead of boost the income of authors.

Barely a decade ago, most experts of the publishing industry believed that the economics of e-book publishing were more favorable to publishers, as e-books are cheaper to produce than print books. As a result, authors should expect to receive a much larger share of the revenue—well above the typical 10-15% of the retail price for trade books.

The Flynn case confirms many authors’ suspicion that authors may not necessarily share in the financial boon brought by new technologies. It is thus important for authors to be wary of a broad copyright license that allows all future technology for disseminating the authors’ works.

It’s worth reviewing terms that address the publisher’s ability to license your works in specific contexts, including digital platforms and emerging technology that are not named. Instead of “media now known and may be developed in the future,” authors should consider limiting the publication of their works to specific, enumerated media, such as print books or ebooks. Failing that, authors should propose alternative terms that could safeguard their interests, such as a clause that allows for rights reversion if royalties fall below a certain level.

2. Royalty Audit

A common feature of publishing contracts is a clause that allows authors to audit the publisher’s accounting. While it may not seem like a top priority at first glance, authors should absolutely take advantage of this provision if it’s included in their agreement. An audit right provides authors with the legal right to review the publisher’s financial records to verify whether they are being compensated fairly and according to the terms of the contract.

Authors in the Flynn case learned about the new royalties arrangement through an email from the publisher. It is of course important for authors to monitor any communications sent by their publishers. However, it is not certain that publishers will always disclose it when they adopt a new method of calculating royalties, and certainly not a given that their accounting never makes any mistake. When authors become suspicious of their publisher’s deductions or other financial practices, the ability to audit can be crucial. Publishers may make deductions or shift expenses that are not immediately obvious to authors based on the royalties they receive. An audit can help uncover if a publisher is deducting expenses that are unjustified (such as fees for maintaining online systems, as in this case). The audit right can be an essential tool for discovering accounting discrepancies and ensuring the publisher is acting in good faith.

As generative AI tools become more prevalent, many authors are concerned about how their works may be used for AI training without their knowledge or consent. It’s important to remember that not all contracts automatically grant publishers or other entities the right to license works for use in AI training. If you have retained sublicensing rights, or your publishing contract offers a broader definition of net receipts or profits, you could be entitled to the revenue your publishers earned from selling your works to train AI.

Just as with traditional royalties, income from AI licensing should be distributed according to the terms of the contract. If you’re uncertain about whether you are getting fairly compensated, don’t hesitate to utilize the auditing right to request detailed information from your publisher.

Final Thoughts: Be Proactive and Stay Informed

At the heart of the Flynn v. McGraw Hill case is a breach of contract claim. The plaintiffs argue that McGraw Hill’s royalty deductions for maintaining its online system violated the terms of the agreement. Central to the argument is the publisher’s promise to ‘publish at its own expense.’ This case serves as a prime example of how important it is to scrutinize the details of a publishing agreement, where the devil often lies.

Many publishing agreements are complex and may contain clauses that, while seemingly minor, can have significant financial and creative consequences. It’s essential that authors take the time to review their contracts thoroughly, ideally consulting with colleagues and mentors who have more extensive experience with similar situations, to fully understand—at the very least—how their income will be calculated and what rights they are granting to the publisher.

Authors Alliance and SPARC Supporting Legal Pathways to Open Access for Scholarly Works

Posted August 27, 2024

Authors Alliance and SPARC are excited to announce a new collaboration to address critical legal issues surrounding open access to scholarly publications.

One of our goals with this project is to clarify legal pathways to open access in support of federal agencies working to comply with the Memorandum on “Ensuring Free, Immediate, and Equitable Access to Federally Funded Research,” (the “Nelson Memo”) which was issued by the White House’s Office of Science and Technology Policy in 2022. For more than a decade, federal open access policy was based on an earlier memo instructing federal agencies with research and development budgets over $100 million to make their grant-funded research publicly accessible for free online. The Nelson Memo, drawing from lessons learned during the COVID-19 Pandemic, provides important updates to the prior policy. Among the key changes are extending the requirements to all agencies, regardless of budget, and eliminating the 12-month post-publication embargo period on articles.

The Nelson Memo raises important legal questions for agencies, universities, and individual researchers to consider. To help ensure smooth implementation of the Nelson Memo, we plan to produce a series of white papers addressing these questions. For example, a central issue is the nature and extent of the pre-existing license, known as the “Federal Purpose License,” which all federal grant-making agencies have in works produced using federal funds. The white papers will outline the background and history of the License, and also address commonly raised questions, including whether the License would support the application of Creative Commons or other public licenses; possible constitutional or statutory obstacles to the use of the License for public access; whether the License may apply to all versions of a work; and whether the use of the License for public access would require modification of university intellectual property policies.

In addition to the white paper series, we plan to convene a group of experts to update the SPARC Author Addendum. The Addendum was created in 2007 and has been an extremely useful tool in educating authors on how to retain their rights, both to provide open access to their scholarship and to allow for wide use of their work. However, in the nearly two decades since its creation, models for open access and scholarly publishing have changed dramatically. We aim to update the Addendum to more closely reflect the present open access landscape and to help authors to better achieve their scholarship goals.

A final piece of the project is to develop a framework for universities looking to recover rights for faculty in their works, particularly backlist and out-of-print books that are unavailable in electronic form. Though the open access movement has made significant strides in advancing free availability and reuse of scholarly articles, that progress has generally not extended to books and other monographic works, in part because of the non-standard and often complicated nature of book publishing licenses. It has also not done as much to open backfile access to older journal articles. We think a framework for identifying opportunities to recover rights and relicense them under an open access license will help advance open access of these works.

The project will be spearheaded by Eric Harbeson, who joined the Authors Alliance this week as Scholarly Publications Legal Fellow. Eric is a recent graduate of the University of Oregon School of Law. Prior to law school, Eric had a dual career as a librarian/archivist and a musicologist. Eric did extensive work advocating for libraries’ and archives’ copyright interests, especially with respect to preservation of music and sound recordings. Eric’s publications include a well-regarded report on the Music Modernization Act, as well as two scholarly music editions. Eric can be reached at eric@authorsalliance.org.