McGraw-Hill Lowers Base for Textbook Author Royalties Class Action

Authors of books receive royalties from their publishers that are a percentage of the sale price of their works. This class action takes issue with a recent practice of textbook publisher McGraw-Hill Education, Inc., alleging that the company has improperly made deductions from the price of its textbooks, thereby reducing the amount on which royalties are calculated, and “shorting” the authors. This, the complaint claims, violates their publishing agreements.

The class for this action is all authors of works with a publishing agreement with McGraw-Hill Education or one of its predecessors-in-interest whose works have been sold for use on the Connect platform.

In recent years, McGraw-Hill, like other textbook publishers, has launched an online platform for college textbooks. This platform is called Connect, and the publisher claims it “bridges the printed page with a dynamic online learning environment[.]” The complaint quotes the company as saying, “From practice questions and homework problems to quizzes and exams—McGraw-Hill Connect integrates media-rich e-books, study tools, and assessments all in one place.”

Connect now has more than 4 million users, and, the complaint alleges, “McGraw-Hill’s higher education digital revenue represented 74% ($463 million) of all higher education revenue earned by McGraw-Hill.”

The complaint points out, “For the past 10 years, McGraw-Hill has paid royalties to authors based on the entire sales price of electronic textbooks sold for Connect.” This practice “complies with the terms of Publishing Agreements, which require McGraw-Hill to pay royalties based on the ‘net receipts’ of each textbook sold” and with other terms that “require McGraw-Hill to publish textbooks ‘at its own expense.’”

However, starting in December 2020, abruptly announced that it will instead base royalties on only a portion of what it receives for the book. Instead, the complaint alleges, McGraw-Hill “will unilaterally determine the ‘relative value’ of the electronic textbook, the Connect platform, and technology available on the Connect platform, and pay royalties only on the portion of the electronic textbook that McGraw-Hill says it attributes to the electronic textbook.”

This means that the company makes deductions from the price which is used to calculate the royalties, lowering the amount of royalties paid to textbook authors. This, the complaint says, goes against the terms of its publishing agreements with authors.

The complaint points out that author royalties have never been lowered by the costs to publish and market a hard copy of a textbook. The publisher has traditionally been responsible to pay for paper, printing, and binding and the costs of sales reps, consultants, and marketing. Publishers therefore already take the majority of the sales price of books, the complaint says, “typically between 80 and 90 percent, sometimes more…”

The complaint alleges that the cost of the selling a book on Connect (without a bookstore) “is the functional equivalent of yesterday’s paper, printing, and binding.” In deducting this cost, the complaint says, “McGraw-Hill now double counts its so-called contributions…”

The complaint alleges that “the textbook drives the revenues McGraw-Hill receives, not Connect.”

Article Type: Lawsuit
Topic: Royalties
Tags: Royalties, Textbooks