The protracted copyright infringement class action by freelance writers seeking compensation for pieces published without authorization in various online databases has hit another roadblock.
In re Literary Works in Electronic Databases Copyright Litigation involves claims for infringement of works as to some of which the copyrights are registered and the vast majority are unregistered. This detail – the registered/non-registered distinction – keeps stymieing resolution of the case. In 2007, after the parties had spent years negotiating a settlement and gaining district court approval, the Second Circuit threw out the settlement, holding that the district court lacked subject matter jurisdiction to approve the settlement because many of the claims to be resolved were based on unregistered works, and registration is a jurisdictional predicate to a copyright infringement suit. The Supreme Court finally reversed in 2010, and the parties went back to the district court and again gained approval of the settlement.
Last month, the Second Circuit tossed the settlement once again. This time, the Second Circuit's rejection is based on Rule 23(a)(4)'s requirement of fair and adequate representation of the class. Because some class members' claims are based only on works with unregistered copyrights, and none of the plaintiff class representatives are in that category (i.e., each named plaintiff is suing on at least one work with a registered copyright), the court held that the class failed the adequacy prong of Rule 23(a). Interestingly, the court ignored the fact that the organizational plaintiffs all have members with both registered and unregistered copyright claims. The panel – over Judge Chester J. Straub's dissent – held that the only way to cure the defect was to create a separate subclass containing class members whose claims are based only on unregistered works.
The proposed settlement calls for different compensation for each of three categories of claims: Category A, works registered in time to be eligible for statutory damages and attorney's fees; Category B, works registered, but not eligible for statutory damages and attorney's fees; and Category C, unregistered works. Category C makes up 99% of the total claims, as most freelance authors do not register their works. Although it recognized that the plaintiff class representatives all hold some Category C claims, the Second Circuit held that the fact that none of the plaintiffs held only Category C claims meant that class members holding only Category C claims were inadequately represented. The court noted what it considered a "fundamental conflict" between plaintiff class representatives holding claims in two or more categories and class members who hold just Category C claims, in that those holding both can choose to compromise on one to get more on another, but those holding only Category C claims have no such option.
The defendants and the plaintiffs have both petitioned for rehearing, with both sides making many of the same arguments. The defendants point out that the decision requires an impossibility: a subclass of members with only unregistered works cannot be represented by a plaintiff class representative also suing on only unregistered works, as Section 411(a) of the Copyright Act bars a copyright infringement claim on an unregistered work. That is why none of the class representatives have only Category C claims.
The parties also argue that the adequacy requirement is met here because all class members, and all plaintiff class representatives, have the same claim for copyright infringement. The decision thus contradicts established precedent holding that variations only in the amount of damages class members stand to recover is not a valid basis for a finding of inadequate representation, where all have the same interest and the same type of injury. The proposed settlement, of course, provides for payment on all categories of claims, whether registered or unregistered. Indeed, the parties point out, class members suing on many unregistered works stand to receive more than class members suing on fewer registered works. And, of course, the plaintiff class representatives all have some Category C claims. In contrast, in the cases relied upon in the decision to support a subclassing requirement, the representative plaintiffs settled claims they did not have.
Another attack on the decision is that the class and the settlement should stand because of the presence of strong structural assurances of adequacy. The parties contend that subclassing is only one way of ensuring adequacy of representation. The presence of structural assurances of adequacy may make subclassing unnecessary. Here, the parties argue, given that all plaintiffs have Category C claims, the plaintiff representatives were incentivized to negotiate the best settlement possible for those claims. In fact, the awards for unregistered works were higher than those for registered works. Also, as emphasized by Justice Straub in his dissent, the institutional plaintiffs, who were very active in the settlement, have members with all three categories of claims. Thus, the parties argue, the fact that there is no plaintiff with only Category C claims is far from a disabling conflict requiring subclassing.
The decision implicates policy issues, too. It appears that under the majority's reasoning, subclassing – and even sub-subclassing – would be required in nearly every class action, and certainly in every case with a damage cap where class members will be receiving different amounts. Thus, the decision could hamper future class action settlements. Interestingly, in this case, only 10 out of thousands of class members objected – and none of them would be members of the subclass proposed by the court. Now, payment to the thousands of non-objectors will be further delayed as the case makes its way through additional appellate practice.
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