Speaking of the Associational Plaintiffs ...

The issue of "adequate representation" -- especially for the owners of unregistered copyrights -- is almost as powerful an issue for the objectors as the License by Default.

The importance of separate representation for parts of a class that are, or even might be, in conflict has emphasized by the Supreme Court twice in the last ten years. And the Supreme Court said that when you are looking at that adequacy question with a settlement, you should look at the settlement to see if there is any conflict.

Of all the opinions on this issue from all 11 circuit Courts of Appeal, the Supreme Court picked the following quote from ours, the Second Circuit, to make their point:

"The class representatives may well have thought that the Settlement serves the aggregate interests of the entire class. But the adversity among subgroups requires that the members of each subgroup cannot be bound to a settlement except by consents given by those who understand that their role is to represent solely the members of their respective subgroups."

The Second Circuit panel scrutinizing this settlement will confront the C Reduction: a provision that protects registered copyright owners by sacrificing the compensation of unregistered copyright holders in the context of a fixed fund. You don’t have to be a lawyer, or a Supreme Court justice, to see the conflict in that.

Next, the appellate judges will see that registered holders in the B category have a rational compensation scheme (a straight percentage) based on the price originally paid, while the unregistered have an irrational scheme whereby the percentage declines the more the freelancer was paid for the work. No explanation for this was ever offered.

Did the plaintiffs and class counsel stumble into this unawares? No. The defendants argued at the beginning that named plaintiffs could not represent unregistered holders. Irony abounds in this case. The plaintiffs had a law professor, Samuel Issacharoff, give “expert” testimony about the settlement. One of the plaintiffs’ arguments is that the less favorable treatment of the unregistered holders is justified because without a registration they could not sue themselves. They did not use Professor Issacharoff to support that idea, which is no surprise. He's on record as saying there is a particular danger that in a settlement covering claims that could not have been brought in the action the plaintiffs’ counsel may trade off the rights of those claims. We told the Court of Appeals about the professor’s view of this danger, which we say is exactly what happened here. We also told the court, “Law professors are no substitute for proper class representatives.” Smith v. Sprint Comm. Co., 387 F.3d 612, 614 (7^th Cir. 2004)(reversing class certification for inadequacy).

'License By Default' Will Doom the UnSettlement

In our earlier post I reiterated the objectors' confidence that the copyright class action settlement will be overturned on appeal.

Probably the number one reason is what we've dubbed the License by Default -- a provision giving the defendants the right to use, and allow others to use, the copyrights of all works covered by the settlement. Roughly, this consists of all freelance articles and content in hundreds, if not thousands, of newspapers, magazines, and journals from around 1980 to 1995 (along with some after that).

How did such a ludicrous and extreme provision come to pass? The purpose of class actions is to pursue claims held in common by members of the class. Under stringent conditions a class representative (named plaintiff) can indeed pursue and settle, and release, the common claims, with class members allowed to opt out if they don’t like the compensation. But class actions most assuredly do not exist for the purpose of giving away the rights or property of class members. The Second Circuit, our appellate court here, has previously stated: “The most fundamental principles underlying class actions limit the powers of the representative parties to the claims they possess in common with other members of the class."

The parties admitted that they had few current addresses for the freelancers of the 1980s and early 1990s. Some publishers had a hard time identifying which articles were freelance and which were staff. Thousands of freelancers will never have received the notice of this settlement. Copyrights last for about 100 years. Some of those freelancers have passed on, and the copyrights are now held by heirs or estates. Some are in hospitals or retirement homes. Some are probably the kind of people, like many of us, who see a class action notice in the mail and toss it, uninterested in processing pages of fine print just to turn a few bucks. Some may have read the notice and not realized the meaning of this provision – we complained that it was obscure at best.

Just imagine if you had to take the time to study carefully each class action notice because buried in it might be a provision saying that some items of your property will be turned over to a defendant. Maybe if you don’t opt out you pay the defendant $10 a year for ten years. Maybe the defendant utility gets the right to string power lines over your house. Do you want class actions to be able to do that to you?

What gave the parties here the nerve to present a settlement with a feature so patently improper?

Well, judges are busy and don’t spend much time reviewing settlements. This issue is legal and most objectors are not going to have the ability to spot it, or argue it.

But why did the Authors Guild, the American Society of Journalists and Authors, and the National Writers Union sign off on the License by Default? That's the question their members will have to ask.

Perhaps the organizations will respond that this was the only way to get compensation from the defendants. Such an explanation, however, won't cover the associational plaintiffs with honor: "In order to get compensation for some, we tried to give away the rights of all."

When you understand that a small group of named plaintiffs stand to walk away with nearly $2 million, and that group is influential in the organizations, you might be getting closer to the true explanation.

When you understand that all the organizations offer their memberships the potential for contacts with, or introductions to, the publishers who benefit from this settlement, you might be getting even warmer.

The legislative history multiplies this outrage. What led to the 2001 Supreme Court Tasini decision, and victory for freelancers, was a deliberate decision by Congress in the Copyright Act of 1976 to shift power from publishers of collective works like newspapers and magazines to freelancers. It wasn’t an accident.

Yet in the settlement we're challenging, the writers' organizations just rolled over and tried to turn that power right back to the publishers. But they won't succeed.

Reading the Tea Leaves at the Second Circuit

As we await a date for oral argument before the Second Circuit Court of Appeals, it's interesting to study some of the court's loosely parallel rulings.

For example, the Second Circuit very recently handed down the Hertzberg decision affirming a district court class action settlement approval. The sole issue was whether the district court properly concluded that the settlement amount ($46 million) was fair given the circumstances. Of passing interest to us is this statement: “OCM does not contend that there was any procedural unfairness in the negotiation of the settlement agreement.”

In our case, of course, we make several significant procedural arguments; one of those -- the impropriety of the named plaintiffs with big claims for registered copyrights negotiating the compensation for unregistered holders -- has been the subject of two Supreme Court decisions in recent years. Other significant issues we raise are the ability of the named plaintiffs to grant licenses of class member copyrights without any affirmation by the class member; negotiation under the auspices of a mediator working on contingent fee; the exclusion by the settlement of a portion of the class as alleged (scientific-medical articles); and the presentation of misleading information to the district court and the Court of Appeals by the plaintiffs and defendants.

Another appellate court, the Seventh Circuit, recently handed down the Synfuel decision reversing a district court approval of a class action. The objection that the Court of Appeals found required reversal concerned a "regressive" compensation scheme for class members. That means that it penalized those who had used the defendant’s service more. The Court of Appeals was concerned that the lower court accepted the contention of the class counsel that the regressive scheme was fair, without evidence or analysis. Our case has a similar issue. The compensation scheme for unregistered holders (Category C) is regressive in two respects. First, the “C Reduction” is seriously regressive to C’s, while extremely beneficial to the registered owners. Second, the C compensation is explicitly regressive, unlike that of the registered owners, either A or B categories.

Neither of these cases has facts remotely like those in In re Literary Works and they are nowhere near as complicated. But it is interesting to see that both these decisions reflect in a very small way certain issues we raise.

Our attorney, Charles Chalmers, is sure that we will win this appeal. More on that soon.