The thunderbolt that was Thursday’s ruling by a three-judge panel on the appeal of the approval of the class action copyright settlement affects darn near everyone. An entire industry of new-tech publishers that have been flouting the law and need closure on their misdeeds. The freelance authors who are first in line for claim awards, some of them substantial. The battery of plaintiffs’ lawyers looking to collect their shares of millions of dollars in fees.
From the standpoint of the class members who began objecting to this settlement in early 2005, and who took the district court’s subsequent approval of the settlement up to the Second Circuit Court of Appeals later that year, there are two main groups affected that we continue to advocate for. One group consists of those either affected by or concerned about the principle of the settlement’s provision for a “license by default.” The second group consists of those either affected by or concerned about the principle of the way the settlement fund was structured to pay, or not pay, holders of copyrights that were not (or not yet) registered with the U.S. Copyright Office – the “C” subclass..
Let’s tease those out.
LICENSE BY DEFAULT
This extraordinary and unprecedented provision of the settlement would give the publisher-infringers the right to continue to reuse in perpetuity all works they have been infringing for which the rights holders did not inform them, by the opt-out or claims deadlines, that they could not.
Everything, by everyone. A few, a very few, of these rights holders belong to one or more of the three “associational plaintiff” authors’ organizations; others heard about the settlement, whether they understood it or not, from trade press articles and slapdash notice initiatives. But many, very many, did not, including writers in foreign countries and dead writers and their heirs. And who knows how many others “defaulted” on this ceding of rights because the provision was buried in fine print and they didn’t bother to read further or do anything after noting that their own potential claim awards were as low as $5?
Folks, the license by default is hecka wrong. It dynamites the foundations of copyright law and it thumbs its nose at the hard-earned 2001 Supreme Court decision in Tasini v. Times.
Thanks to the appellate decision, the license by default is dead for now – but it is not dead permanently and it is not dead as a result of an affirmative ruling on our objection to it. The settlement has simply been vacated and remanded to the district court for further proceedings, which means that this horrible provision could be exhumed in a future reconstituted settlement or in other settlements. In my opinion, we must continue to resist it.
THE ‘C’ SUBCLASS
Let’s start by noting that the settlement fund – $10 million to $18 million – is absurdly low for the scale of damages inflicted and for the documented willfulness associated with them. Indeed, it’s a joke. It reminds me of the bad guy in Austin Powers: International Man of Mystery, who is in a time capsule between 1967 and 1997, and emerges with an apocalyptic nuclear device over which he blackmails the United Nations for the princely sum of “one million dollars.”
But there’s more. For the purposes of claims awards, the fund is really capped at $11.8 million (after attorneys’ fees and various administration costs).
Now we get to the settlement provision that absolutely kills holders of Subclass C claims (unregistered works). If total claims overload the $11.8 settlement fund cap, then Subclass A and Subclass B claimants (registered works) get paid; Subclass C claimants get zilch. Though we don’t know the distribution of filed claims, we do know that potential Subclass C claims constitute more than 99 percent of the universe of infringements.
The claims deadline is years past. By analogy, that means that all the votes have already been cast and we’re just waiting for the tallies to be certified and announced.
During the briefing of the Second Circuit, objectors’ attorney Charles Chalmers uncovered compelling evidence that the settlement fund was, in fact, busted, kicking in the “C Reduction”; and, further, that the lawyers for the plaintiffs and the defendants misled the courts about that. Appellees' counsel even took the extraordinary measure of “correcting” mistakes in their court filings, something almost unheard of at the level of the defendants’ heavily staffed corporate law firms in particular. In the wake of that fiasco, their refusal to be transparent about the closed, real-world, but still unrevealed claims data speaks volumes.
People who read Chalmers’ August 2006 motion to strike (http:/muchnick.net/StrikePart1.pdf, http://muchnick.net/StrikePart2.pdf, and http://muchnick.net/StrikeMisc.pdf) and maintain that the C Reduction issue is a figment of the objectors’ imaginations should themselves apply for immediate membership in the Flat Earth Society.
Now the Second Circuit has invalidated the possibility/probability of a C Reduction by vacating the settlement – but not on the grounds we argued. Instead, two members of the three-judge appellate panel (with the third, Judge Walker, dissenting) broke entirely new ground by simply throwing out the settlement because it included redress not only for holders of registereds, who already have standing to sue, but also unregistereds, who only potentially have standing to sue. Neither the appellants (objectors) nor the appellees (plaintiffs and defendants) had taken such a position; when asked to brief the court on this issue, all three parties had argued that the federal courts do have jurisdiction for unregistereds for the purpose of settlement.
This ruling, if it stands, has enormous – and I believe, bad – implications for copyright law, for class action law, and just for the idea that the court system is a leveling and democratizing force.
Therefore, stay tuned.