23 March 2011

GBS Update:
The Settlement Is Dead; Long Live the Settlement Negotiations!

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

So, Judge Chin (properly, IMNSHO) rejected the Amended Settlement Agreement (ASA)...

Why Did He Reject It?

Unfortunately, Judge Chin's opinion is not a model of clarity on this issue. There is no conclusion that says "x, but in the alternative y", or "for the combination of the above reasons," or "x, and in addition I would also consider y but the record is not developed enough." On the other hand, we have to remember that Judge Chin's opinion has multiple audiences. It's not just for the lawyers, or even the parties, but for public consumption... and due to the conflicting interests and perceptions of those audiences, crystalline clarity on the actual rationale for rejection was just going to lead to outraged refusal to accept the opinion on the part of at least some of those distinct audiences.

That said, Professor Grimmelmann (see below) makes a persuasive case that the "real holding" is that the settlement improperly reaches too far, for a combination of procedural and substantive reasons — especially as the settlement concerns a release for Google's future conduct. Over time, I suspect that this will become the majority perception of the opinion. I think that shortsighted, because (as I mentioned yesterday and discuss in a bit more detail below) it neglects some critical procedural issues that make the opinion more robust than just a policy-based rejection would have been.

I also strongly suspect that the antitrust problems are going to play a much greater role in any future proceedings in this matter — whether through another round of negotiations resulted in a revised settlement, or through litigation — than most commentators have acknowledged. The landscape is substantially different now than it was at the time this settlement was proposed, let alone when the unacceptably defective complaint was filed. The EU's ongoing antitrust inquiry concerning Google; the Comcast-NBCU merger; the Borders bankruptcy and B&N proxy battle; continued consolidation in the publishing industry itself; the Harper-Collins attempt to treat e-book sales as mere "licenses"; the resale price maintenance agreement "agency model" for e-books; the explosion of e-reading devices and cell phones/netbooks able to read electronic texts; the development of Android by another part of Google, which powers many of those devices; the failure of three major attempts to unseat Google's search dominance; I could go on, but I won't. My point is that context matters in antitrust policy and enforcement, and I think these considerations will be even greater now that more of the deadwood in the DoJ's antitrust section has retired and/or transitioned to private practice. That Judge Chin mentioned antitrust at all is highly significant, as the initial settlement did not consider antitrust issues at all, and some recent rumblings from the Supreme Court in not-apparently-related matters indicate that maybe (only maybe, but that's enough) there are second thoughts on Leegin and the practical barriers to enforcement raised by the rule of reason.

Finally, Judge Chin's point that this probably requires a legislative solution is critical. It appears that — unlike the self-interested financiers who came up with the settlement's plan — he's actually read footnote 6 of Tasini, and figured out that Justice Ginsburg meant what she wrote.

The dissenting opinion suggests that a ruling for the Publishers today would maintain, even enhance, authors' "valuable copyright protection." We are not so certain. When the reader of an article in a periodical wishes to obtain other works by the article's author, the Databases enable that reader simply to print out the author's articles, without buying a "new anthology... or other collective work." In years past, books compiling stories by journalists such as Janet Flanner and Ernie Pyle might have sold less well had the individual articles been freely and permanently available on line. In the present, print collections of reviews, commentaries, and reportage may prove less popular because of the Databases. The Register of Copyrights reports that "freelance authors have experienced significant economic loss" due to a "digital revolution that has given publishers [new] opportunities to exploit authors' works."

More to the point, even if the dissent is correct that some authors, in the long run, are helped, not hurt, by Database reproductions, the fact remains that the Authors who brought the case now before us have asserted their rights under § 201(c). We may not invoke our conception of their interests to diminish those rights.

New York Times, Inc. v. Tasini, 533 U.S. 483, 497–98 n.6 (2001) (citations omitted). (Yes, quoting this from Google's own site against Google is itself a snarky comment on the proper kind of free e-books: Those that are public domain or released with the consent of the author.)

What Happens Next?

Because Judge Chin also rejected class certification in rejecting the class settlement under Fed. R. Civ. P. 23, his order is immediately appealable. Aggrieved parties may file an appeal within 30 calendar days — that is, on or before 21 April 2011. Technically, the potentially aggrieved parties are those who proposed the settlement only — that is, the Author's Guild, Google, and the other filing organizations. That does not include the US government (even though it was heard on the settlement, it's not "aggrieved" because it opposed), nor does it include the individual named plaintiffs... because the Authors Guild's lawyers never filed motions to intervene or to add them as plaintiffs, they would only have become "parties" if the settlement had been approved. Similarly, nonparties who supported the settlement have no standing to appeal, either, unless the Second Circuit grants them intervention — and after Muchnick, I think that unlikely at best.

An appeal has slightly (but only slightly) more than a snowball's chance in hell of being successful: The meat of Judge Chin's opinion is actually very early — the part where he objects that there are conflicts between the named representatives and the class, and among the named representatives. Findings of this nature are reviewed on appeal only for "abuse of discretion"... and the Second Circuit has not reversed a judge's rejection of a settlement after finding that conflicts of interest made representation inadequate in over two decades.36 Everything after that is just strong guidance for the parties, and indicates how he would rule on those matters if he had to. The "purpose of copyright" issues; the opt-in/opt-out issue; the antitrust issues; adequacy of notice for orphan works; and so on all support Judge Chin's position. However, on appeal these would all be reviewed de novo, meaning that they're much more likely/possible to be reversed. This is where I disagree with Professor Grimmelmann (see below) and some other commentators, who focused on the "this exceeds the proper scope of Rule 23" issue raised by the release of future conduct, also in a short portion of the opinion. I agree that that's equally problematic... but, on appeal, that portion gets reviewed de novo — just like what happened in Muchnick, where the Supreme Court eventually reversed. So, for purposes of "figuring out what happens next," the issues relating to conflicts of the class representatives will prove the most important protection against reversal, even if for policy reasons the "exceeding the scope" issue is the most attractive one.

The status hearing on 25 April will tell us a lot more. It's not coincidental that that is more than 30 days after this ruling; that will allow Judge Chin to cancel it if someone does file a timely appeal. I anticipate that we're going back to the bargaining table, with the Authors Guild still trying to shut out all other authors' groups. I also suspect that whatever variety of "opt in" they discuss will be as narrow and difficult to avoid as possible; information that I have indicates that this was a dealbreaker for Google in the first place, although I strongly suspect that last year's ruling in Muchnick may force some rethinking.

What Do Others Think?

This is a non-exhaustive list of significant and perceptive comments thus far in the blawgosphere. I'm not going to cover the various blatherings of the putative parties to the settlement; neither am I going to cover the loons (and you know who you are; but just because you're not on the list below doesn't mean I think you're a loon). I'll freely admit that I don't agree with everything said below; keep in mind, though, that — unlike most of these commentators — I've actually litigated both copyright matters and class actions through the appellate stage, so don't just assume that I'm wrong if you don't agree with the above. In no particular order:

  1. Judge Chin is now himself on the Second Circuit, and should be referred to as Circuit Judge Chin, even when he's dealing with this matter in the District Court; collegiality indicates that the Second Circuit is unlikely to reverse one of its own, and the Supreme Court simply would not take this one so soon after Muchnick involving many of the same lawyers.