17 August 2011

GBS Update:
Second Circuit Decision in Muchnick May Kill Class Settlement Chances


The Settlement (in essay form)
The Lawsuit (in essay form)

... and that's a good thing.

This morning, the Second Circuit decided In re Literary Works in Elect. Databases Copyright Litig., No. 05–5943 (PDF), on remand from the Supreme Court's opinion in Muchnick. The Second Circuit decided (2–1) that:

We agree with objectors that the interests of class members who hold only Category C claims [for unregistered works] fundamentally conflict with those of class members who hold Category A and B claims. Although all class members share an interest in maximizing the collective recovery, their interests diverge as to the distribution of that recovery because each category of claim is of different strength and therefore commands a different settlement value. Named plaintiffs who hold other combinations of claims had no incentive to maximize the recovery for Category C-only plaintiffs, whose claims were lowest in settlement value but eclipsed all others in quantity. The interests of Category C-only plaintiffs could be protected only by the formation of a subclass and the advocacy of independent counsel. We therefore hold that the district court abused its discretion in certifying the class based on its finding that class representation was adequate. (slip op. at 27–28, footnote omitted)

In short, there cannot be a global settlement in which all distinct classes do not have adequate representation at the bargaining table. Well, duuuuuuh: As the Second Circuit pointed out here — and Judge Chin pointed out in rejecting the GBS settlement the first time around — this is a fundamental requirement of Fed. R. Civ. P. 23(a).

This ultimately destroys any realistic chance of settlement of the GBS as the parties have structured their settlement discussions on two independent grounds, both of which Judge Chin noted as conflicts that would have required denial of class certification for failure of adequate representation. First, there's the precise issue stated in this remand decision — treatment of unregistered works. Although publishing contracts typically require the publisher to register book-length works with the Copyright Office, authors have little (if any) remedy for the publisher's failure to do so... because, as discussion elsewhere in the remand decision implies (slip op. at 23–25), a court's immediate tendency to say that the cost of registration is the proper measure of discount is not an accurate measure of the difference in value, even after Muchnick.

Second, and of perhaps more import, is the "orphan works" issue. This is where most of the attention concerning Judge Chin's opinion has gone, at least in public. Under the same reasoning as in the Second Circuit's remand decision noted above, "orphan works" even when registered constitute a distinct subclass with unique claims — and it's a subclass trying to share in a limited settlement fund. That subclass must be explicitly represented at the bargaining table if the GBS settlement is to encompass "orphan works," but the parties have obstinately refused to allow anyone else at the table. This behavior sinks both subclasses, and therefore will limit any GBS settlement proposal to non-orphaned, registered works at most — and Google won't buy that, or at least would have to fundamentally change its longstanding business model and public statements to even consider it.

I've argued from the beginning that the inept (at best) complaint represented such a fundamental flaw in the GBS litigation that it should, as a matter of justice, fail for procedural reasons that will not bar authors from a better assertion of their rights. One of the primary concerns that I expressed at that time was that the errors of Morris and the Second Circuit's refusal to revisit its misreading of the 1976 Act (so that it wouldn't have to declare its 1909 Act decisions no longer good law) made the matter essentially impossible to litigate.

More in the next couple of days, including an analysis of why the dissent in today's opinion isn't just wrong — it fundamentally misconstrues the nature of the publisher-author relationship in a way that warps its view of the database-author conflict.