The Second Circuit Court of Appeals reversed the district court’s approval of the settlement in “Freelance” (officially
In re Literary Works in Electronic Databases Copyright Litigation) for two basic reasons. One was the uncertainty over how little money would be received by claimants of unregistered works (“C’s”). But the main reason, the single legal reason, was the failure of the named plaintiffs and their counsel to adequately represent the C category claims.
And that holding was based mainly on one part of the settlement – what we objectors called the “C Reduction.”
Here’s what the Second Circuit said:
The selling out of one category of claim for another is not improbable here.
…
The “C reduction” places the risk that total claims and fees exceed the $18 million cap exclusively on Category C. … The “C reduction” cannot be justified as a reflection of Category C’s lower value, because the Settlement’s recovery formulae already account for that difference. The “C reduction” is not designed to reflect the claims’ value at all, but rather is a safety valve meant to preserve the integrity of the Settlement in the event the cap is exceeded.
The settling parties argue that the “C reduction,” as a contingent provision they reasonably believed was unlikely to be triggered, cannot reflect on the adequacy of representation. We disagree. Those negotiating the Settlement identified a risk and placed that risk on a single category of claims. If triggered, the “C reduction” would deplete the recovery of Category C-only plaintiffs in their entirety before the Category A or B recovery would be affected. We can discern no reason, and authors and publishers offer none, why this burden should have been placed exclusively on Category C, rather than shared equitably among all three categories of claim. That only one category was targeted for this penalty without credible justification strongly suggests a lack of adequate representation for those class members who hold only claims in this category.The court noted the total claims were $11.56 million – only around $300,000 from the amount that would trigger the reduction of C claims. The appellate decision went on to observe that this cast serious doubt on the assertion that a C Reduction was unlikely.
Before Judge George Daniels in district court, the lawyers for the class had scoffed at the objectors’ point about the C Reduction; they said things like “No basis in reality,” “As a factual matter there is no chance ...,” “It appears inconceivable ...”
Why was there a serious risk of the C Reduction? It was so for a reason at least some named plaintiffs were well aware of. And it was a reason their lawyers should have known.
Everyone agrees that freelancers commonly didn’t register their newspaper and magazine works prior to the Supreme Court’s 2001
Tasini case and the beginning of the class actions. Before
Tasini reached the Supreme Court, in September 1999, the Second Circuit had held that databases did not have the right to reuse freelance articles. (In the small world department, that decision was written by Judge Ralph K. Winter, who 12 years later would join with Judge John M. Walker Jr. to reverse the settlement here in Freelance.) The industry buzzed about it, and organizations began to plan class actions, which were filed in 2000. Writers’ forums and publications discussed it. It was no secret what was coming, and it was no secret to some that registration was a good idea.
The real Freelancer plaintiffs certainly knew. They are Mary Sherman, Letty Pogrebin, James Gleick, Miriam Rafferty, Marie Winn, Paula McDonald, Robin Vaughn, Ronald Schwartz, and Ruth Laney. Between 1999 and 2002 they registered approximately 1,400 articles stretching back to 1992 or earlier. (Tom Dunkel, who told me that he knew there were things wrong with the settlement that he had discussed with attorney Michael Boni, was the rare bird who previously and regularly had registered everything.)
Moreover, Copyright Office records show hundreds of freelancers registering their current, and older, articles between 1999 and 2002. All these registrations lined these people up to be Category B’s under the settlement, which was agreed in early 2003. That was pretty good, since B compensation is anywhere from 20 to 4 times better than C.
But then came HighBeam.
In 2005, while settlement approval was pending, the parties discovered – I may have helped them with my first communication to the court – that there were new infringers out there not covered by the settlement: HighBeam and Amazon. The parties promptly amended the settlement, making anyone who registered before the HighBeam and Amazon services started up (2003-4 at the earliest) an A claim.
Instantly, these claims were elevated from $150 to $1,500 per article.
But they didn’t raise the total amount of the settlement fund. This just made the likelihood of a C Reduction much, much likelier.
We objectors don’t have hard and fast data on anybody’s claims other than our own, or whether a claim will pass defense review. But with a little work you can estimate what the HighBeam/Amazon amendment did.
Depending on whether their articles were in HighBeam/Amazon, named plaintiffs’ claims went from a total around $160,000 of B claims to over $1 million in A claims!
Mary Sherman told her lawyers before the settlement was approved that all her articles could be found in HighBeam. You remember that end of 2002 requirement for registration in order to be a B? Sherman registered hundreds of articles 18 days before the cutoff. Her claims probably total about $300,000 under the settlement.
But it wasn’t just named plaintiffs – other freelancers lucky or informed enough to register before 12/31/02 will do very well, too. A writer named Martha Russis, who said she held B claims, actually holds A claims; she likely stands to get more than $500,000, rather than just under $100,000 for simple B claims. Another claimant, Ellen Klugman, also likely will top $500,000.
Bottom line: The HighBeam amendment greatly increased the risk of C Reduction because lots of freelance articles had been registered. Of course most freelance articles were still in the cold. The last data made public shows claims for about 8,000 articles that are either A or B, and 304,000 articles that are C. And remember our final point for now: Defendants had made clear to plaintiffs’ counsel in the settlement negotiations that they would not do this settlement unless it included unregistered works; the C claims were the key to any resolution of these consolidated class actions.
Let’s close this installment of our story by relating a tremendous potential irony. Since the settlement, there has been some new case law raising a question of whether HighBeam/Amazon infringements are indeed entitled to be A’s. That great treatment for some B’s, which contributed to the undoing of this settlement, might disappear.
Can the old settlement be rescued? I’ll take that up in the next chapter.
Irv Muchnick
CLASS COUNSELMichael J. Boni, Boni & Zack LLC
bonizack.com
Diane S. Rice, Hosie Rice LLC
www.hosielaw.com
A. J. De Bartolomeo, Girard Gibbs LLC
www.girardgibbs.com
Robert J. LaRocca, Kohn, Swift & Graf, P.C.
www.kohnswift.com
