Authors Allege That Publisher Unfairly Apportioned to Itself Revenues from Digital Interactive Versions of Texts

By Zick Rubin and Brenda Ulrich, Archstone Law Group PC

On September 25, 2023, Judge Andrew Carter of the federal district court in New York City certified a class  of textbook authors in a class action brought against Cengage Learning  (Bernstein v. Cengage Learning, Inc.). The lawsuit alleges that Cengage unfairly apportioned the revenues it received from sales of “MindTap” digital interactive versions of the authors’ texts, arbitrarily  allocating to the authors either 50% or 75% of these revenues and reducing royalties accordingly. In the wake of the class certification, lawyers for the authors can proceed to seek reimbursement on a class-wide basis for the allegedly underpaid royalties. The class may consist of hundreds or thousands of authors, and the total claimed underpayment may total many millions of dollars.

This is a turning point in this long-running case, which was instituted in 2019.  It’s a big deal for authors. In today’s digital age, a large proportion of textbook sales are as digital interactive versions, which combine the eTexts with homework assignments, self-tests, and multimedia materials. Cengage apportions its revenues into “royalty-bearing” portions (the eText itself) and “non-royalty-bearing”  portions (the digital platform and other materials that are included in the MindTap versions). The authors’ contractual royalty rates are then applied only to the “royalty-bearing” portions. The authors contend that Cengage arbitrarily set the percentage of “non-royalty bearing” portions at 50% or 75%. The authors’ royalties on these sales are thus slashed by as much as 50%. The authors contend that these apportionments violate the “covenant of good faith and fair dealing,” enriching Cengage at its authors’ expense.

The certification of the class was a major battle, vigorously disputed by the two sides. Cengage furiously opposed the certification, arguing that since the individual contracts all differ from each other, the authors’ claims don’t have enough in common to permit resolution in an omnibus action. If Cengage had prevailed on this point, each individual author or team of authors would have had to bring their own individual actions, something that would not be practical for many individual authors. The authors just as aggressively pushed for certification, marshaling evidence that the 50% and 75% apportionment was an arbitrary across-the-board policy that affected almost all Cengage authors whose books are sold in MindTap versions. Judge Carter ruled for the authors, holding that “all authors reasonably shared the same expectation . . . that Cengage would not act arbitrarily, irrationally, or malevolently in determining the amount of net receipts on which the royalties would be paid.”

Cengage also argued that Douglas Bernstein and his fellow authors did not understand the issues well enough to be “adequate class representatives.” Judge Carter firmly rejected that argument, holding that “the deposition transcripts demonstrate the Professors are active participants in the litigation and exhibited a firm understanding of the claims of the Proposed Classes. “

Whether or not Cengage did act “arbitrarily, irrationally, or malevolently,” to the authors’ detriment, remains to be determined. There  may still be twists and turns. But the case is now likely to move toward trial on both liability and damages, or (as is very common in such cases) toward a comprehensive settlement.  If the authors prevail on the merits, any financial recovery would be shared among all the authors in the class, according to a formula that would need to be approved by the court.  It’s  too soon to make predictions, but the class certification puts great pressure on Cengage to settle the matter. Any court award or settlement could also include an agreement as to how Cengage would account for royalties in the future.

The author class is defined so as to include almost all Cengage authors whose books have been sold in MindTap versions. Many TAA authors are prospective class members, and don’t need to do anything further at this point.  However, all class members would later be given an opportunity to opt out of the class – and, if they wish, to bring their own individual actions, rather than be bound by the results of the class action.

The authors in the class action are represented by the law firm  Susman Godfrey LLP.  Cengage is represented by the law firm Duane Morris LLP.

The class certification is most directly relevant to Cengage authors.  But other major textbook publishers (including McGraw Hill, Pearson, and Macmillan) have adopted similar apportionment formulas for digital interactive versions of textbooks (such as McGraw Hill’s “Connect,” Pearson’s “MyLab,” and Macmillan’s “Achieve”),  and the evolving legal precedents set  in the Cengage case may thus be of importance to a large number of TAA members.  The publishers are watching the Cengage lawsuit closely.  A putative class action lawsuit against McGraw Hill in New York as well as a second putative class action lawsuit against Cengage (this one in Boston), both involving similar issues,  are currently pending.   In later blogs or newsletter articles, we will update TAA members on developments in these other actions.

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Zick Rubin and Brenda Ulrich practice publishing and intellectual property law at Archstone Law Group, PC, where Zick is Of Counsel (zrubin@archstonelaw.com) and Brenda is a Partner (bulrich@archstonelaw.com). They represent many textbook authors in drafting and negotiating publishing, licensing, and collaboration agreements and in resolving publishing disputes. They also advise colleges and universities on the development and implementation of intellectual property policies, navigating copyright questions related to teaching and scholarship, and managing and defending trademark portfolios.