654 F.3d 242 (2nd Cir. 2011), 05-5943-cv(L), In re Literary Works in Electronic Databases Copyright Litigation

Docket Nº:05-5943-cv(L), 06-0223(CON).
Citation:654 F.3d 242
Opinion Judge:JOHN M. WALKER, JR., Circuit Judge:
Party Name:In re LITERARY WORKS IN ELECTRONIC DATABASES COPYRIGHT LITIGATION v. Thomson Corporation, Dialog Corporation, Gale Group, Inc., West Publishing Company, Inc., Dow Jones & Company, Inc., Dow Jones Reuters Business Interactive, LLC, Knight Ridder Inc., Knight Ridder Digital, Mediastream, Inc., Newsbank, Inc., Proquest Company, Reed Elsevier Inc., Uni
Attorney:Charles D. Chalmers, Fairfax, CA, for Objectors-Appellants. Charles S. Sims, Proskauer Rose LLP, New York, N.Y. (Stephen Rackow Kaye, Joshua W. Ruthizer, Proskauer Rose LLP; Kenneth Richieri, George Freeman, The New York Times Company, New York, NY; Henry B. Gutman, Simpson Thatcher & Bartlett, N...
Judge Panel:Before: WINTER, WALKER, and STRAUB, Circuit Judges. Judge STRAUB dissents in part and concurs in part in a separate opinion. STRAUB, Circuit Judge, dissenting in part, concurring in part:
Case Date:August 17, 2011
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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654 F.3d 242 (2nd Cir. 2011)

In re LITERARY WORKS IN ELECTRONIC DATABASES COPYRIGHT LITIGATION

Irvin Muchnick, Abraham Zaleznik, Charles Schwartz, Jack Sands, Todd Pitock, Judith Stacey, Judith Trotsky, Christopher Goodrich, Kathy Glicken and Anita Bartholomew, Objectors-Appellants,

v.

Thomson Corporation, Dialog Corporation, Gale Group, Inc., West Publishing Company, Inc., Dow Jones & Company, Inc., Dow Jones Reuters Business Interactive, LLC, Knight Ridder Inc., Knight Ridder Digital, Mediastream, Inc., Newsbank, Inc., Proquest Company, Reed Elsevier Inc., Union-Tribune Publishing Company, New York Times Company, Copley Press, Inc., EBSCO Industries, Inc. and Participating Publisher Tribune Company, Defendants-Appellees,

Michael Castleman Inc., E.L. Doctorow, Tom Dunkel, Andrea Dworkin, Jay Feldman, James Gleick, Ronald Hayman, Robert Lacey, Ruth Laney, Paula McDonald, P/K Associates, Inc., Letty Cottin Pogrebin, Gerald Posner, Miriam Raftery, Ronald M. Schwartz, Mary Sherman, Donald Spoto, Robert E. Treuhaft and Jessica L. Treuhaft Trust, Robin Vaughan, Robley Wilson, Marie Winn, National Writers Union, The Authors Guild, Inc. and American Society of Journalists and Authors, Plaintiffs-Appellees,

Edward Roeder, Appellant.

Nos. 05-5943-cv(L), 06-0223(CON).

United States Court of Appeals, Second Circuit.

August 17, 2011

Argued: March 7, 2007.

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[Copyrighted Material Omitted]

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Charles D. Chalmers, Fairfax, CA, for Objectors-Appellants.

Charles S. Sims, Proskauer Rose LLP, New York, N.Y. (Stephen Rackow Kaye, Joshua W. Ruthizer, Proskauer Rose LLP; Kenneth Richieri, George Freeman, The New York Times Company, New York, NY; Henry B. Gutman, Simpson Thatcher & Bartlett, New York, NY; James F. Rittinger, Satterlee Stephens Burke & Burke, New York, NY; Jack Weiss, Gibson Dunn & Crutcher LLP, New York, NY; Juli Wilson Marshall, Latham & Watkins, Chicago, IL; Ian Ballon, Greenberg Traurig LLP, Santa Monica, CA; Michael Denniston, Bradley, Arant, Rose & White, LLP, Birmingham, AL; Christopher M. Graham, Levett Rockwood P.C., Westport, CT; Raymond Castello, Fish & Richardson PC, New York, NY, on the brief), for Defendants-Appellees.

Michael J. Boni, Kohn Swift & Graf, P.C., Philadelphia, PA (Joshua D. Snyder, Kohn Swift & Graf, P.C.; Diane S. Rice, Hosie McArthur LLP, San Francisco, CA; A.J. De Bartolomeo, Girard Gibbs & De Bartolomeo LLP, San Francisco, CA; Gary Fergus, Fergus, A Law Firm, San Francisco, CA, on the brief), for Plaintiffs-Appellees.

Before: WINTER, WALKER, and STRAUB, Circuit Judges.

Judge STRAUB dissents in part and concurs in part in a separate opinion.

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JOHN M. WALKER, JR., Circuit Judge:

Plaintiffs in this consolidated class action allege copyright infringements arising from defendant publishers' unauthorized electronic reproductions of plaintiff authors' written works. The United States District Court for the Southern District of New York (George B. Daniels, Judge ) certified the class for settlement purposes and approved a settlement agreement (" Settlement" ) over the objection of ten class members (" objectors" ). In this appeal, objectors contend that (1) approval of the Settlement was impermissible because it released claims beyond the factual predicate of the case, (2) class certification was improper because subgroups within the class have conflicting interests, and (3) the district court committed procedural errors in certifying the class and approving the Settlement. Although we reject objectors' arguments regarding the release, we conclude that the district court abused its discretion in certifying the class and approving the Settlement, because the named plaintiffs failed to adequately represent the interests of all class members. We do not reach the procedural challenges, which are moot in light of our class certification holding.

We therefore vacate the district court's order certifying the class and approving the Settlement, and remand for further proceedings consistent with this opinion.

BACKGROUND

I. Factual Background

Plaintiffs are freelance authors (" authors" ) who sold written works to print publishers for publication in newspapers, magazines, and other periodicals. With the rise of the Internet, print publishers like The New York Times began to reproduce authors' works electronically by placing them in their own online databases and licensing them to appear in electronic databases such as LexisNexis. In response, authors sued the original print and subsequent electronic publishers, alleging in three independent class actions that the unauthorized electronic publication of their works infringed upon their copyrights.

In June 2001, the Supreme Court endorsed authors' theory of liability, holding in another case that publishers violate the Copyright Act when they reproduce freelance works electronically without first securing the copyright owners' permission. N.Y. Times Co. v. Tasini, 533 U.S. 483, 488, 121 S.Ct. 2381, 150 L.Ed.2d 500 (2001). Authors' three lawsuits, which had been suspended pending Tasini, were consolidated and coordinated with a fourth action in the Southern District of New York. The consolidated class action is brought by 21 named plaintiffs— each of whom owns at least one copyright in a freelance article— and three associational plaintiffs: the National Writers Union, The Authors Guild, Inc., and the American Society of Journalists and Authors. Defendants include electronic database operators such as Reed Elsevier Inc. (owner of LexisNexis) and Thomson Corporation (owner of Westlaw), as well as newspaper publishers that maintain their own archival databases, such as the New York Times Company and Dow Jones & Company, Inc. (collectively " publishers" ). The district court referred the parties to mediation, which began in January 2002. In March 2005, with the assistance of mediators Kenneth Feinberg and Peter Woodin, authors and publishers reached a comprehensive settlement agreement.1

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The Settlement divides the works at issue (" Subject Works" ) into three categories: A, B, and C. Category A covers works that authors registered with the U.S. Copyright Office in time to be eligible for statutory damages and attorney's fees under the Copyright Act. See 17 U.S.C. § 412. At the time of the Settlement, registration cost $30 per work or $30 per group registration covering multiple periodical contributions by one individual over a 12-month period.2 Category B includes works that authors registered before December 31, 2002, but too late to be eligible for statutory damages. These claims are eligible to recover only actual damages suffered by the author and any profits of the infringer that are not duplicative of the actual damages. 17 U.S.C. § 504(b). All other claims fall into Category C and cannot be litigated for damages purposes unless they are registered with the Copyright Office. 17 U.S.C. § 411(a). If registered, however, these claims— like those in Category B— would be eligible for awards based on authors' actual damages and infringers' profits. Category C claims comprise more than 99% of authors' total claims. Many authors hold claims in more than one category, each claim based on a separate freelance article they sold for publication.

The Settlement creates a damages formula for each category. Authors holding Category A claims are paid " $1,500 for the first fifteen Subject Works written for any one publisher; $1,200 for the second fifteen Subject Works written for that publisher; and $875 for all Subject Works written for that publisher after the first thirty Subject Works." Authors of Category B works are paid " the greater of $150 or 12.5% of the original sale price of the Subject Work." For each Category C claim, authors are paid " [t]he greater of $5 or 10% of the original price of the Subject Work," except for works sold for amounts over $249. Compensation for any Category C work sold for more than $249 depends on the amount for which it was originally sold: $25 per Subject Work sold for $250 to $999; $40 per Subject Work sold for $1,000 to $1,999; $50 per Subject Work sold for $2,000 to $2,999; and $60 per Subject Work sold for $3,000 or more.

The Settlement caps publishers' total liability through a provision that the parties refer to as the " C reduction." If the total of all claims— plus the cost of notice, administration, and attorney's fees— exceeds $18 million, then the Settlement reduces compensation for Category C claims pro rata until the total compensation is $18 million. If compensation for Category C claims reaches zero but the claims and fees still exceed $18 million, then the Settlement reduces compensation for Category A and B claims pro rata until the claims and fees total hits the $18 million limit.

The Settlement releases publishers from further litigation. The release prohibits authors from barring publishers' future use of the Subject Works, including the selling or licensing of the works to third-party sublicensees. A class member may choose to opt out of the release for future use and only grant a release for past use; however, any authors who fail to affirmatively opt out of the future-use release will be deemed to have granted it. Authors who only grant a past-use release receive 65% of the compensation that those who grant past and future releases receive.

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II. Procedural Posture

In March 2005, upon reaching the Settlement, authors and publishers moved the district court to certify the class 3 for settlement purposes and approve the Settlement. Objectors opposed the motion. In September 2005, after rejecting objectors' arguments, the district court certified the class and approved the Settlement as fair, reasonable, and adequate.

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