Last Tuesday, a group of textbook authors filed a new lawsuit against Cengage in the Southern District of New York, reports Publishers Weekly. Authors Douglas Bernstein, Elaine Ingulli, Terry Halbert, Edward Roy, Louis Penner and Ross Parke are seeking class action status in Bernstein et al v. Cengage Learning, Inc. They allege the publisher is not paying them according to their contracts, but instead, is choosing how to pay royalties and from what pool of money. The group of authors is asking the court for damages and restitution for unpaid royalties for Cengages digital product

This class action therefore alleges a breach of contract for damages due to Cengages uniform violations of its Publishing Agreements. The advent of new digital sales channels for academic textbooks is not an excuse to somehow start cheating the textbooks authors and violate their binding contracts with Cengage, says the lawsuit.

According to Publishers Weekly, the author payment formulas for Cengage Unlimited and MindTap are invalid because they are not consistent with their Publishing Agreements, which require that royalties are to be paid on net receipts from sales. The authors believe they are being paid on a weighted average of the number of uses of their textbooks and supplemental materials.

Last Friday, Cengage posted a response to their website. They dispute the allegations.

We are disappointed to see these complaints against our efforts to improve students access to affordable, quality learning materials. Since its inception in March 2011, the MindTap learning platform has consistently helped students achieve higher retention, grades and confidence. However, despite significant investments in proven products, it became increasingly apparent that students were not able to afford them. Our authors, like those at our competitors, saw declining royalties as a result of high prices that lowered students demand. The Cengage Unlimited subscription service was created to address this longstanding problem. It also enables a more sustainable business model for the company and our authors.

We have communicated clearly with our authors that the subscription service is consistent with the terms of their contracts, which we continue to honor. Since the service launched, we are in regular communication with them about the impact of the subscription on their royalties.

We look forward to vigorously responding to these complaints as we remain steadfast in our belief that our industry must do more to contribute to affordable higher education.

This is the second such lawsuit from textbook authors since Cengage announced their Cengage Unlimited subscription product. In May 2018, authors David Knox and Caroline Schacht charged that the unlimited subscription service would dramatically reduce their sales and royalties. They were also concerned that there was not an appropriate audit system in place where authors could better understand the royalties due them. In October 2018, Cengage Learning settled the lawsuit with the authors for an undisclosed sum.

The Cengage Unlimited college textbook subscription service was launched last year. It gives students access to college textbooks carried by Cengage according to this fee schedule:

• 4 months: $119.99
• 1 year: $179.99
• 2 years: $239.99

The goal behind the subscription service is to make textbooks and education more affordable, says Cengage.

In May, McGraw-Hill and Cengage announced a merger in an all-stock deal. At that time, the deal is expected to close in early 2020. It is not clear if this lawsuit will have an impact on the merger.

Insider Take:

This situation is unfortunate but not entirely unexpected. Of course, there is the obvious precedent of the first lawsuit against Cengage settled last fall. But there is also the claim by many music artists and copyright holders on how they are paid by streaming music services like Apple Music, Spotify and Pandora. When intellectual property is conveyed digitally rather than physically (e.g., textbooks, albums or CDs), it is harder to measure their usage. Our hope is that the companies (e.g., Cengage, Spotify, Pandora) who are licensing the intellectual property from authors and artists are paying according to a mutually agreed upon payment formula and that they are compensating the owners of that intellectual property fairly. Thats the only way both sides survive in a digital world.