Royalty payment class actions: Opt-in? Opt-out? How does it affect me?
In recent years multiple class action lawsuits have been filed against the biggest textbook publishers, challenging their royalty-payment practices. In 2016, it was a suit against Pearson, alleging (among other things) gray market sales to international subsidiaries, paying lower international royalty rates, and then shipping books back into the U.S. for retail sales.1 More recently, there have been suits against Cengage, challenging “Cengage Unlimited,” Cengage’s all-access, Netflix-like subscription model.2 McGraw-Hill was also sued, in January, for improper royalty payment practices on its “Connect” products.3
In each of these cases, plaintiffs have purported to file class action lawsuits, where the plaintiffs and their counsel propose to litigate on behalf of all similarly-situated authors affected by the publisher’s practices. But for authors not directly involved in the litigation, the obvious question is “What’s in it for me?” Does the class action mechanism provide an acceptable format to protect your rights?
As with so many legal questions, the answer is “It depends.” The typical justifications for a class action are based on efficiency and economic incentives. When a defendant, by its actions, has simultaneously affected numerous parties, it can be more efficient to resolve in one lawsuit the legal disputes stemming from the defendant’s actions. Class action litigation strives to avoid inconsistent results from different courts or judges. It allows individuals with relatively small claims for damages — for whom it would not be cost-effective to retain counsel or individually litigate — to obtain some measure of relief, based on the resolution of the class claims. And the class mechanism shifts power between plaintiffs and defendants, since the aggregate risk of facing a class action claim typically dwarfs the risk associated with facing any individual claim. For all these reasons, a class action may benefit members of the class, especially for those who would not otherwise bring suit because their claim isn’t large enough to justify an independent lawsuit.
On the other hand, class members, generally, have no influence in the litigation – including whether, when, or how to settle the case – and have limited information rights throughout the process. Particularly for authors who have more substantial claims, they may not want to leave decision-making in the hands of parties and lawyers whom they have never met. After all, most cases are resolved in some form before trial, and the typical class action settlement provides only modest relief to each individual class member. If, as an author, you have substantial skin in the game with a claim that may be worth six or seven figures, you may not want your claim resolved on a class-wide basis.
Here are five things to consider when determining whether you should rely on a class action:
1) Under what circumstances is a class action the suitable option? The more your claim is worth, the less willing you should be to have your claim resolved in a class action where you are not a named party. Class counsel, and named plaintiffs, are typically more focused on the value of the overall settlement or recovery, rather than on how any particular author does in the settlement. As a rule of thumb, class actions are most useful for aggregating and resolving similar, small claims.
2) Has a class been certified? Just because a lawsuit is pleaded as a class action does not mean that it will proceed on a class basis. Before proceeding as a class, the plaintiffs and their lawyers must demonstrate that the class should be “certified” by the court. That means showing, among other things, that the class members have common legal claims arising out the defendant’s actions. In the past, defendants have objected to classes being certified, citing slightly different terms in different author contracts. Courts have not uniformly resolved the question of whether royalty cases may proceed on a class-wide basis. Moreover, many class actions never reach the certification stage, either because of legal challenges, or because an early settlement is effectuated with the named plaintiffs. Relying on a class action to protect your rights – particularly before a class is certified – may not prove wise.
3) What happens if I opt out? For class actions proceeding in federal court, you will be given notice if you are a member of a certified class, and an opportunity to opt out.4 If you do not opt out, you will be part of the class, and you will be bound by the outcome of the case. If you do opt out, you preserve your ability to proceed on an independent basis. It is worth noting that if you opt out, you still may benefit from the work done in the class action. Assuming you have been commonly affected by the defendant’s actions (one of the predicates of certifying a class), the fact-development done by counsel in the class-action may provide you (and your independent counsel) with a leg up on litigating your own claims.
4) Can I object to a proposed settlement if I’m part of a class? If you are determined to be part of the class, and the matter is settled, you will be given an opportunity to object and be heard in court. Courts have a great deal of discretion to approve settlements, however, and if they are negotiated fairly, on an arms-length basis between counsel or the parties, courts often approve class settlements in spite of objections.
5) What else should I consider when making my decision? Litigation often provides leverage for negotiation; the value of that leverage depends in part on the size of your claim and the quality of your legal position. In a class action, similarly-situated class members generally share equally in any settlement or recovery, and you give up your ability to negotiate individualized relief, including any prospective buy-out of your book, or changes to your royalty terms. Opting out, or working with independent counsel, can help you leverage individualized relief.
There is no simple answer to whether a current or prospective class action is adequate to preserve your rights; it depends on myriad factors, including your objectives, the size or uniqueness of your legal claims, and your willingness or interest in pursuing independent action. Generally speaking, however, the larger your claim, the more likely you should obtain independent counsel—even for purposes of determining whether the class action is adequate.
1 Gitman v. Pearson, 2014-cv-8626 (S.D.N.Y.) (settled in 2016).
2 In full disclosure, our firm filed the first of these cases, Knox v. Cengage, 18-cv-4292 (S.D.N.Y.) (settled in 2018). The allegations in Knox were later recycled in Bernstein v. Cengage, 19-cv-7541 (S.D.N.Y) (pending).
3 Flynn et al. v. McGraw Hill LLC, 21-cv-00614 (S.D.N.Y.) (pending).
4 State class action rules vary; in some states, you must opt in to be bound by class litigation. As a practical matter, however, large putative class actions against textbook publishers are generally brought in federal court given the jurisdictional requirements and availabilities.
David Slarskey is a trial lawyer who has successfully assisted clients through litigation and mediation to obtain approximately $10 million in recoveries from various publishers, including McGraw-Hill, Pearson, and Cengage.