Second Circuit: Copyright Class Action Settlement Fails - Unregistered Copyrights Not Adequately Represented

The Tasini v. New York Times drama has been going on for many, many years. The issue: freelancers wrote articles for the New York Times and other publications. When technology permitted the articles to be put into searchable electronic databases, could the publishers do this without seeking permission from the copyright holder? The U.S. Supreme Court's 2001 decision in Tasini taught us that doing so without getting the copyright owner's permission was copyright infringement. So in the decade that followed, we had Reed Elsevier v Muchnick in which the US Supreme Court decided that 17 USC 411 (the requirement that a copyright be registered before a federal claim for copyright infringement may be filed) was not jurisdictional.

Now following remand from the Supreme Court's decision in Muchnick, we have In re Literary Works in Electronic Databases Copyright Litigation (2d Cir. August 17, 2011) - a decision deciding a matter that was originally argued on March 7, 2007.

The decision is embedded below.   In it the Second Circuit rejects the district court's certification of a class action for settlement purposes because the holders of unregistered copyrights were not adequately represented.  Holders of unregistered copyrights were classed as "Category C".

Category A -  Holders of copyrights registered in time to qualify for statutory damages.  To be paid $1,500 for first 15 works written for any one publisher, $1,200 for the second fifteen works for that publisher, and $875 for all works written for that publisher after the first 30.

Category B - The greater of $150 or 12.5% of the original price of the work.

Category C,  The greater of $5 or 10% of the original price of the work with sliding scale for works over $249  ($25- $60).

The settlement capped the publishers' total exposure at $18 million.  Key to the Second Circuit's reasoning was that only Category C would be reduced if the global settlement exceeded $18 million.

This decision is an important one in interpreting Rule 23 of the Federal Rules of Civil Procedure, which governs certification of class actions and requires that each class or subclass be adequately represented.

Judge Straub wrote a 16 page dissent in favor of class certification.


In Re Literary Database Litigation

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In Reed Elsevier v. Muchnick, 08-103 (March 2, 2010) the U.S. Supreme Court, in a decision by Justice Clarence Thomas, held that a failure to register a copyright under Section 411 of the Copyright Act did not deprive a District Court of jurisdiction to approve a settlement agreement involving unregistered copyrights.   The decision is found here.

The case arose out of Tasini v. New York Times, a claim by freelance authors against the New York Times and other publishers, alleging that publishers infringed copyrights by including articles in which freelancers retained copyrights in electronic databases.  Irving Muchnik objected to a settlement in the wake of Tasini (affirming the claim of copyright infringement).  The Second Circuit vacated that portion of the settlement relating to unregistered copyrights, claiming that the district court lacked jurisdiction over the controversy (over the dissent of Judge Walker).  I agreed with Judge Walker's dissent in my blog post of December 2, 2007.



The language from the Court:

Subject to certain exceptions, the Copyright Act requires copyright holders to register their works before suing for copyright infringement. 17 U. S. C. A. §411(a) (Supp. 2009). In this case, the Court of Appeals for the Second Circuit held that a copyright holder’s failure to comply with §411(a)’s registration requirement deprives afederal court of jurisdiction to adjudicate his copyrightinfringement claim. We disagree. Section 411(a)’s regis-tration requirement is a precondition to filing a claimthat does not restrict a federal court’s subject-matterjurisdiction.

Importantly for copyright litigators, the Supreme Court did NOT address the split between the Circuits over whether judges may or are required to sua sponte dismiss copyright actions where a copyright registration certificate was not obtained prior to the filing date of the action.

Becase the subject matter of copyright is completely preempted by federal law, I think that the result is a correct one in the class action context.

Freelancers, Unregistered Copyrights and Electronic Database Litigation

Freelancers suffered a very tough blow in the Second Circuit's decision In re Literary Works in Electronic Databases Copyright Litigation, --- F.3d---, 2007 WL 4197413 (2d Cir. 2007). Dissents in the Second Circuit are fairly rare, but the Second Circuit's former Chief Judge John M. Walker, Jr. wrote a fairly thorough dissent.

In 2001 the U.S. Supreme Court decided New York Times v. Tasini, 533 U.S. 483, 488 (2001) which held that section 201(c) 0f the Copyright Act does not permit publishers to reproduce freelance works electronically when the publishers lack specific authorization to do so. In the wake of that decision, the In re Literary Works litigation was commenced as a class action to vindicate the rights of freelancers whose works were taken without their permission. After years of heated negotiation, the parties agreed to a class settlement. The settlement Classes were divided into subclasses A, B and C. Subclass A consisted of freelancers who had registered their copyrights (see my post of yesterday on advantages of registration). Subclass B registered after infringement, but before December 31, 2002. Subclass C never registered their works.

As discussed in my post of yesterday: for a U.S. copyright owner, registration is a prerequisite for commencing litigation. As the In re Literary Works decision sets forth: Class A is entitled to statutory damages and attorneys fees. Class B to actual damages. Class C .. well.... there's the rub.

The Defendants claimed that Class C (unregistered copyrights) were practically worthless. So a group of objectors (holders of unregistered copyrights) objected to the class settlement, which was likely to leave next to nothing or nothing for the Class C. Watch out what you ask for: the objectors brought the issue of the court's jurisdiction to the fore, and the Second Circuit scuttled any settlement in favor of the unregistered copyright holders. Why? They had not registered.

It seems that all of the parties spend a lot of time arguing the meaning of Section 411 of the Copyright Act, which makes it a requirement that registration to occur for a federal court to have jurisdiction. To dig into the highly technical nuances of the argument, it appears to me that the dissent makes the most sense: Section 411 doesn't create the pre-existing rights and should be treated solely as an enforcement mechanism.

And in the end, the result is not only unfair, but it renders Tasini a pyrrhic victory. As In re Literary Works states: "this jurisdictional failure likely affected more than 99 percent of the claims at issue."

Why unfair? Well, freelancers (a.k.a. ink-stained wretches) traditionally beat deadlines by minutes, turned in their work, got some beer money, and lived hand-to-mouth. They owned their work, and maybe, just maybe, someday they'd turn it into a book. Of course they owned their copyright, and when they saw "Copyright New York Times" they knew that the Old Gray Lady had taken care of the formalities of registration for them.

But in a case called Morris Business Concepts, Inc., 259 F.3d 65 (2d Cir. 2001) and in a decision denying a petition for rehearing 283 F.3d 502 (2002), all of that was taken away. Why? It was held that the newspaper owns the "collective copyright" but that if a freelancer wanted to consider a copyright registered, it would have to file a separate registration to indicate that all of the rights had not been transferred to the publisher. So every time the ink-stained wretch turned in a story, he or she was also supposed to file a registration with the Copyright Office.

Clearly, 99% of the freelancers did not have that understanding. They were relying on the publisher's registration.

So when we look at the In re Literary Works decision, the "unregistered copyrights" that were settled and under discussion were copyrights claimed by freelancers in registered collective works. Since copyright is an area of "complete preemption", this is clearly an area in which Congress intended to legislate - and whether the publisher's re-publication of a story without permission is deemed a breach of contract or a copyright infringement, it seems that there is sufficient grounds for litigation over whether it is a state or federal claim to permit a federal court to exercise supplemental jurisdiction over it in the settlement context. As Judge Walker correctly noted, there is certainly a "case or controversy" to give the freelancers standing in the constitutional sense.

As Judge Walker correctly noted, "... a plaintiff alleging copyright infringement has suffered an injury-in-fact whether or not he has registered his copyright." Professor Patry's lively discussion and link to the decision.