Sunday, June 26, 2005

OPEN LETTER TO THE FREELANCE COMMUNITY from attorney Charles Chalmers

When this settlement was announced several plaintiffs, and a class counsel, made announcements saying the settlement is great. The deadline for class members to opt out of the proposed settlement, or object to it, is about three weeks away. I presently represent four class members who either will, or may, object to the settlement. I think that class members might benefit from hearing a dissenting view of this settlement. So this is my thinking as of today.

First, these are the basic facts. Since the 1980s a huge group of publishers (thousands are identified on the settlement website) and a group of database companies have been systematically infringing the copyrights of freelance writers. They have done it to make a profit. Their theory of non-infringement was rejected by the Second Circuit Court of Appeals in 1999 and then by the Supreme Court in 2001. The class actions were filed in 2000, so they reach back, for recovering damages, to 1997. And of course they cover all infringement up to the present. At least some infringement has continued up to the present.

There are many indications that this settlement is flawed. But I’ll start with what we don’t know. We don’t know whether $18 million is an adequate settlement to compensate the class members for all the infringement by all the defendants[1] (a vast list of virtually every significant publisher and every significant database) since 1997, a period of 8 years. We don’t know because the class attorneys haven’t disclosed the information, which they say they have, that justifies the $18 M. They say they have a report from an expert economist on the damages, but they haven’t given that, or any other damage information, to the Court. They have refused to give it to my clients. They’ve set up a website, but there is none of the needed information there.

Class members must decide whether to opt out or object before July 15th. The class attorneys asked the Court to establish a schedule which says their “Final” presentation in support of the settlement will be filed on July 15th. Maybe the needed information will be in that presentation, but then it will be too late for class members to consider it in deciding to opt out, or object. Why did the class attorneys set up a schedule that presents the justification for the settlement after the deadline to object or opt out?

What sort of information do we need? Under copyright law we should be told how much revenue, and how much profit, each of the defendants has made from the infringement. We should know when each defendant started infringement. We should know which defendants kept on infringing after the Supreme Court confirmed it is infringement. The databases contain both freelance works and publisher owned works, so we should have information on the respective amounts of each kind that the publishers have given to the databases.

The law says one of the most important factors, if not the most important, in approving a settlement is comparing the settlement to the maximum damages that might be recovered for the class. But the class attorneys didn’t give that information to the Court when they got preliminary approval, and they haven’t given it to the class, and they won’t give it to my clients, who have specifically asked for it. Maybe they’ll provide it in the “Final” presentation, but that is too late for you to object, or to opt out and file your own individual action for infringement. The settlement has a clause that lets the defendants drop out of the settlement if too many class members opt out. The part that is secret is the number of opt outs that triggers defendants’ right to back out. So, they don’t want you to opt out, and keeping the information about the value of the settlement secret is one way to avoid it.

This “hide the ball” approach is one of the reasons that I strongly suspect that if all the information was out in the open there would be a general disapproval of the settlement. Additional reasons include the other efforts that the class attorneys have made to suppress objection. They got the Court to say that if you want to object to the settlement you (or your attorney) must actually appear in court in New York City on July 28th. I think this requirement violates the Due Process clause of the U.S. Constitution, but that’s an argument for another day.[2] This settlement covers freelance writers from all over the United States, and all over the world. So, the class lawyers established a procedure that says you must travel to one of the most expensive cities in the world to object to the settlement. The vast majority of class settlements let the class members present objections in writing by an established deadline. Why did these class attorneys establish such a burden for class members (their “clients”) to object? Another factor that a court considers in approving a class settlement is the number of objections that are received. The “must appear” procedure here will suppress the number of objections. Not many class members will spend hundreds, or thousands, of dollars to go to New York.

When the class attorneys asked the Court for preliminary approval, the Court suggested a final hearing day in September 2005. No, the class attorneys said it should be sooner, and the date was set for July 28th. It’s a small point, but those class attorneys know, as I do, that the more time a class has to consider a settlement, the more likely there will be objections, so they made the time as short as possible.

What I’ve said about a lack of information concerning the total settlement amount applies with equal force to the amount specified for the three “Categories.” There is no information available to the class members to explain, or justify, the individual awards. So far as any class members can understand, these are just numbers out of a hat.

The plaintiffs and the class attorneys have presented just three justifications for this settlement. One, the named plaintiffs think it’s a good settlement. The associations have been particularly vocal in saying it’s a good settlement, although they say very little about why. Two, the class attorneys say it’s a good settlement. The law recognizes two things about the opinions of class attorneys when it comes to approval of a settlement. First, their opinion is entitled to respect. Second, one should be careful about the class attorneys’ opinion, and double check it against facts that can be confirmed, because their opinion might be affected by the fact that an approved settlement is going to provide them with a substantial payment.

The third justification appeared when, on behalf of Irv Muchnick, I asked the Court to vacate the preliminary approval because there had been no factual showing that the settlement was good. The plaintiffs presented a statement from the mediator who helped the parties negotiate the settlement. The mediator said, with great elaboration, that the settlement was great, and the best that could be gotten from the defendants. However, the mediator is to receive a “success fee” if the settlement is approved. A “success fee” is generally a contingent payment that occurs when there is “success.” In this case that is settlement approval. We’ve asked for the details of this success fee, and the class attorneys have refused to provide it. How reliable is the opinion of this mediator, who stands to gain something from settlement approval?

There are numerous defects in the settlement itself, aside from the question of the total amount. I’ll provide a partial listing:

1. Category C claims can receive nothing if Category A and B claims eat up the money left over (probably about $13 M) after payment of attorneys’ fees and administration costs. The class attorneys say this is unlikely, but why should the C claimants bear the risk? They are getting modest recoveries as it is. Sounds like the representatives of the Cs didn’t negotiate very well against the representatives of the As and Bs. Wait a minute! They all had the same representatives. Who would want such a provision – well, As and Bs. Pretty hard to imagine that the defendants care who gets the $18 M, so long as they get out of these cases. So the representatives of the whole class favored one part of the class over another. More on this below.

2. Category A awards are very modest considering the strength of an A claim. An A claim is entitled to statutory damages and to attorneys’ fees. Statutory damages means the plaintiff doesn’t have to prove any actual damage, or profit by the defendant – they automatically get damages set by a jury. The statute gives them between $750 to $30,000 for just one infringement. Remember, there is no question here that there has been infringement. If the infringement is willful the statutory damage can go up to $150,000. There is certainly some willfulness here, since the defendants kept on infringing after the Supreme Court decision. That is for each work, a book or article. And the A claimant is entitled to their attorneys’ fees while they pursue their claim for statutory damages. So why is the recovery for an A claim set at $1,500? We don’t know. There has been no explanation for that number, and there won’t be one until the time for opting out is past. If there is any group of class members that should seriously be considering an opt out, it is class members with one or more A claims.

3. The Notice to the class, and the Claim Form, say that articles in “scientific or academic journals” are excluded from the settlement.[3] No explanation of the reason has been given. The complaints filed to start the class actions didn’t exclude articles published in any particular kind of publication. It included all types of articles. No definition, or listing, of these excluded journals is given. The settlement website has an enormous list of publications that “sold its content to one or more electronic database.” (http://www.copyrightclassaction.com/) One of my clients has an article in Physics Review, which is almost certainly what they mean by a “scientific” journal. But Physics Review is on their list of publications that “sold” their content to databases, and my client’s article is on a database. Why should he be excluded from compensation when the publication sold his article to a database? Why should the right to compensation depend on the type of publication, rather than, say, the type of subject? Lots of articles on scientific or academic subjects are published in more general publications, from The New York Times to Better Homes and Gardens. In short, for some unknown reason, the named plaintiffs and class attorneys, who set out to represent all freelancers without regard to the type of publication, have now abandoned a sub-group of the class.

4. The default perpetual license. The settlement provides that if a class member doesn’t write in and state that defendants cannot use their work in the future, the class member will have given the defendants the right in perpetuity to use the work in databases. This provision is not described in the Notice. There is a very vague allusion to it, but I doubt anyone will understand it. So in the six weeks from Notice to deadline, any class member who fails to deny defendants future use will give them a license, without any compensation. My clients will argue that this is not permitted under the law, but the more important question is why the plaintiffs would agree to this kind of “forfeiture” of class members’ property rights. There is a well known way to compensate holders of copyrights for future use, like the one used for music. The Supreme Court said this was good model for freelancers when it rejected the publishers’ arguments in 2001.

5. An A category class member is one who registered within three months of publication, or before first infringement. If the class member registered after three months, how are they supposed to know when first infringement was? The defendants were not giving out notices of when they placed articles in databases. There are similar definitional problems for other categories.

6. The cut-off for registration of December 2002 makes no sense and is an arbitrary deadline.

Three aspects of the way this class action has been handled deserve attention, and contribute to my belief that this settlement is highly suspect.

1. The association plaintiffs. The law says that a class action named plaintiff, who represents the interests of the class, must have a claim that is typical of the claims held by class members. This lawsuit is about claims for damages for copyright infringement. So far as anyone knows or has ever said, the associations don’t have any copyright claims for damages. But the associations have played a major part in the case, particularly the settlement negotiations. The requirement that a named plaintiff have a “typical” claim is to insure that, while they are managing the action for the class they have the same interests as the class. The class interest here is to recover money and stop infringement. The associations may share that interest, but they may also have different interests. In 2000, the year these actions started, the National Writers Union stated: “But our first choice is not to engage in a legal war that ties everyone up in court and creates an all-out war over rights. Such draconian actions serve only to create conflict and instability in the industry.” (Paula J. Hane, “Freelance Authors Turn Up the Heat,” Information Today NewsBreaks, August 21, 2000.) The important point here is that the associations had no right to be named plaintiffs, or to be involved in settlement of damages. The law says they are not qualified for that role.

2. The non-litigation, litigation. The process of a law suit, in general, is simple. Plaintiff files a complaint. Defendant files an answer, or moves to dismiss the case. If an answer is filed the parties start “discovery” in preparation for trial. If a motion to dismiss is filed there are proceedings about that, and if some claim is permitted to proceed, the parties go to discovery. Discovery is a process by which you gather facts from your opponent. It involves interrogatories (written questions to be answered under oath), production of documents (to be produced under oath) and depositions (examination of witness, under oath). Discovery can be long or short, depending on the complexity of the case. But even in complex cases they are ready for trial within 2 to 4 years of discovery.

This case never got beyond complaints. There have been no answers by defendants, no motion to dismiss, no discovery, no nothing. Just settlement negotiations. Defendants may settle without being pushed by the prospect of going to trial, but if they are not threatened with a trial they are not going to be under much pressure. It is virtually unheard of to go five years in a case without doing anything but talk settlement. Plaintiffs had a tremendous sword in this case. There is no question that the defendants have been infringing for years. There were estimates of damages in the hundreds of millions of dollars. But the plaintiffs and the class attorneys put the sword in the sheath and said “let’s talk.” And they talked for four years. And they talked in front of a mediator who will get a “success” bonus it there is settlement, but no bonus if there is not.

3. The need for sub-classes. When there is a conflict between groups with a class there should be sub-classes, with separate representatives and separate attorneys for each sub-class. There is clearly a conflict between As and Bs on the one hand, and Cs on the other, when the settlement provides that Cs lose some or all of their awards if there is not enough money to cover all claims. But there are no sub-classes – the same representatives and attorneys represented them all, but they favored the As and Bs on this point. One has to wonder if there are other ways that Cs got shortchanged?


[1] The class action were not filed against all publishers, but the settlement allows them all to chip in for the settlement price and buy protection against suits against them.
[2] It is the intention of at least Irv Muchnick to appeal any settlement approval based on this issue.
[3] Curiously, the settlement agreement itself does not exclude these publications.


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9 Comments:

Anonymous Anonymous said...

couldn't you just look up their earnings and figure a percentage of usage of articles, then come to the right conclusion?

Without much of the work, these entities would not be in business.

11:54 AM  
Blogger Irv Muchnick said...

"Anonymous" has isolated one very plausible model for calculating damages. Who knows what model the settlement is using? There's supposedly a report by an economist but it's not provided with the preliminary settlement approval papers, and class counsel refuse to provide it to us.

12:04 PM  
Anonymous Anonymous said...

I hold no brief for the violators, their counsel,
or anyone else but the actual plaintiffs
(freelancers generally). But I wonder whether
the failure or refusal of defendants to provide
data on when publishers started their viola-
tions, and how long these went on, etc....
isn't due to a clear fact (though I realize
little is clear in law)....

If they give this data, and the settlement
is rejected, haven't they admitted legally
that they are guilty, and helped provide
data for conviction and sentencing?

...Or is any such de facto admission not
admissable in another, future trial??

Where is the failure in my logic?

BC

6:15 PM  
Blogger Irv Muchnick said...

I don't know that I'd characterize what you've said as a failure of logic, but let's back up. First, this is a civil matter, not a criminal one, so no one is going to jail. It's a case of infringement of intellectual property rights and of ill-earned profits.

Second, we -- the objectors -- are not trying the case itself. We're asserting that the parties who came to the settlement with the defendants should share with the rest of us the data, the facts, on which that settlement was based. There's supposed to be an economist's report. Where is it? Plaintiffs' counsel won't let anyone see it, or at least not until after the deadline for deciding whether to opt out or object.

7:06 PM  
Anonymous Chris Goodrich said...

I got to this blog through the NWU..and say 'Yay!' I'd already sent in my claim, with misgivings..and fortunately, the firm gave me the chance to renege, the project manager saying I needed to list my articles according to *their* form! With hundreds of Class C articles, it wasn't worth the time...and clearly, the law firm, like the publishers, was happy to "offload" the scut work to the writers they'd already ripped off. I'm glad to be out: now we'll see if the settlement's rejected, and I'm betting (almost literally) it is....

2:11 PM  
Blogger Irv Muchnick said...

Chris, thanks for your support. But the settlement won't get rejected automatically, or because people don't file claims. It will get rejected only if the court does not approve it at the July 28 fairness hearing. Anyone who wants to join the list of co-objectors should email me at info@muchnick.net.

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