What I've said can be summed up here, again, more bluntly in Thothguard's words: Zharmae is not a commercial publisher as we think of a commercial publisher. They are still a small start up with NO reputation as being trustworthy, good, or bad.
I'm not sure why the goalpost keeps moving, but this isn't about Zharmae's reputation as a commercial publisher or what its long-term viability is. If you go back through this thread, I've raised plenty of issues with their contract and standard operating procedures.
It's about one person in this thread perpetuating a, as yet, unsubstantiated myth about first readers at a publishing house "pilfering" manuscripts and passing them off as their own. A statement which included the phrase "It's been done before," but where repeated requests for an example of it happening have been met with silence and misdirection.
This isn't about general issues of plagiarism, this isn't about fan fiction authors c/p chunks of other books and trying to pass them off as their own.
It's about a very specific claim that first readers have "pilfered" submissions and passed them off as their own.
This has implications. It contributes to whisper campaigns about "facts" in the publishing industry. It casts suspicion on the entire process of submission and publication, because it's not a leap to extract from "It's happened before..." without substantiation to "it happens frequently" but with no Snopes entry to debunk it, it gets passed as gospel when it is, to the best of my knowledge and Google prowess, NOT a real thing.
Unvetted, amateur readers brought in out of the goodness of their hearts and their enthusiasm are a cheap way to approach slush evaluation. I'd like to think the best of them. But I know just enough about these kinds of business to know that putting temptation next to amateurs is not particularly safe. The legal liabilities alone give me a headache.
Here's how one hypothetical case might play out: an author sends a mms to Zharmae. Like most slush it's a terrible book, badly written in several ways. But there is the sparkling core of a not-bad story in there, too, or an interesting bit of worldbuilding, or a cool character. For whatever reason (the author's functional illiteracy, their Golden Word Syndrome, or their refusal or inability to work with editors), Zharmae decides not to accept the book and sends a rejection letter.
But suppose one of the 'Z Club Readers' sees that spark, and thinks 'I'm going to run with that.' If Zharmae is smart, they'll make their readers ineligible to submit mms to any branch of Zharmae. But that enterprising reader could certainly submit their version of the book - however much or little it's been altered - to another publisher.
Will Zharmae's Z Club readers have to sign waivers that hold them, not Zharmae, legally responsible in cases where there are allegations of plagiarism? How will Zhamae vet these readers, to make sure there are no cliques and reprisals of the type we've seen with the StopTheGoodreadsBullies nonsense?
I'll ignore the clique and reprisals bit because it isn't germane to the original discussion.
However, you can't copyright an idea (
http://www.writersdigest.com/online-editor/can-you-copyright-an-idea). So even if some first reader did what you outlined above in respect to pulling out an idea and WRITING THEIR OWN NOVEL, they still aren't doing what has been alleged to have happened before.
As far as the legal implications for Zharmae, IANAL, but I don't see how there could be any. The stealing author would have to sign a Warranty and Indemnity Clause with whoever ended up publishing the book that said he/she was providing the book free of any issues.
(boilerplate) - “The AUTHOR grants that neither the Work nor entering into this Agreement will impair or violate anyone else’s rights including but not limited to rights of privacy, rights of publicity, libel or infringement of copyright or any other rights;”
Zharmae doesn't have ANYTHING to do with that on the legal front.
New writers are terrified of having ideas stolen, which is much harder to prove. Different writers build vastly divergent stories from that same idea. But once large blocks of substantially similar text can be matched, then there's a valid case.
New writers become more terrified when they hear "it's happened before..." on the murky subject of ideas being stolen. There's are huge degrees of separation between "different writers building vastly divergent stories from the same idea" and outright plagiarism. One relies on an author (regardless of where his/her idea came from) writing an entire, original work of fiction. The other relies on the ability to cut and paste.