In October 2019, six authors, intending to form a class action together with other Cengage authors, filed a lawsuit against Cengage alleging that Cengage’s royalty accounting for proceeds from distribution of their products through the MindTap and Cengage Unlimited business models breached the publisher’s royalty arrangements with authors. In addition to the breach of contract claim, the authors alleged that Cengage acted in bad faith towards authors regarding the two products. Before a trial could get underway, Cengage responded by asking for all counts to be dismissed, and that the attempt to form a class action be denied.

On September 29, the federal judge hearing the case in the Southern District of New York issued a mixed ruling on Cengage’s motions, finding that the plaintiffs (i.e., the authors) did not adequately plead a claim for breach of contract for either MindTap or Cengage Unlimited, and further that they did not adequately plead a claim for bad faith in Cengage’s structuring of Cengage Unlimited.

As to the allegations of breach of contract, the authors had asserted that their royalty agreements “plainly require Cengage to pay royalties based on total net receipts of MindTap and Cengage Unlimited.” But the Court concluded that the “royalty clauses in the publishing agreements unambiguously define the ‘Work’ as the titles themselves and cannot bear Plaintiffs’ reading that they literally commit Cengage to pay royalties on total net receipts of MindTap and Cengage Unlimited.” Cengage was within its rights to combine authors’ works with ancillary products and to designate a portion of sales as non-royalty-bearing.

The allegations of bad faith are not dependent on contract language, but rather on the ‘implied covenant’ in all contracts that the parties will deal fairly with one another, and not act with an ulterior motive or a dishonest purpose. In the case of Cengage Unlimited, the Court ruled “Though Plaintiffs assert that the subscription price…is too low, Plaintiffs have not pleaded any facts that suggest bad faith by Cengage in setting that price.”

The two breach of contract and one of the bad faith claims, therefore, were dismissed. The judge did, however, decide that the allegation of bad faith as to the MindTap royalty accounting can proceed, writing “Plaintiffs’ theory…is that Defendant has, in exercising its discretion to determine what among net receipts from the sales of MindTap is attributable to the authors and what is attributable to Cengage-made materials, systematically undervalued authors’ contributions to enrich themselves…If true, Cengage has exercised its discretion with the ulterior motive of appropriating what should go to the authors to itself.” For clarity, this is not a decision that the claim has been proven, but only that it meets the criteria for an assertion of bad faith and therefore the question may proceed to trial, where more facts will need to be brought forward to support the claim.

In addition, the judge declined to deny the formation of a class of Cengage authors. In allowing the possibility that authors could form a class, the judge stated that it is unusual to deny forming a class without first allowing the gathering of more detailed information about the allegations, and whether they may apply to a larger class. The bad faith claim is not dependent upon contract language. Therefore, variations in contracts that might have proved problematic for class treatment of breach of contract claims are not likely to be a limiting factor as to the bad faith claim.

What are the implications of this case, and the current set of decisions, for future actions between authors and their publishers? While clearly not a vindication of all experimental pricing models publishers may want to try, this case so far seems to point toward publishers having fairly wide discretion. It may also suggest that authors who believe their publisher is routinely breaching contracts or acting in bad faith may need to gather more information before proceeding with lawsuits, and then present their positions more narrowly and with more sharply drawn legal arguments.

For any Cengage authors who would like to inquire about their eligibility to join the class action case, here is a link to the law firm handling it: https://www.susmangodfrey.com/cengage/welcome/

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Michael Spinella is Executive Director of the Textbook & Academic Authors Association.