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Second chance for copyright deal

In a ruling focusing on court power to decide copyright cases, the Supreme Court has provided a second chance — but no final assurance of the outcome — for an $18 million deal designed to settle a massive case over rights to re-publish electronically a vast array of creative works.  The decision last Tuesday in Reed Elsevier, Inc., et al., v. Muchnick, et al. (08-103) returns the settlement dispute to the Second Circuit Court for a new review, presumably on the merits of the settlement itself.  At least one part of the settlement has been vigorously challenged by some authors in lower courts.  (The vote on the case was 8-0; Justice Sonia Sotomayor took no part.)

The ruling, written by Justice Clarence Thomas, resolved only a question of court jurisdiction under the Copyright Act.  The Court expressly declined to offer any views on the merits of the settlement.

The Court concluded that U.S. District Judge George B. Daniels did have the authority to do so when he upheld the settlement more than four years ago.  The settlement had appeared to be scuttled after the Second Circuit ruled in 2007 that the judge lacked jurisdiction to approve the deal, because some of those making claims for payments under the deal had not registered their works before taking part in the case.

On the jurisdictional point, the ruling means that if some owners of copyrights are legally in court because they had registered their works with the Copyright Office before suing, the District Court may go ahead and act on a class-action settlement even though some copyright owners who did not register their creations are also before the court. The register-before-suit provision, Thomas wrote, is not a jurisdictional pre-condition for a judge to approve a class and the terms of a class settlement of a copyright dispute.

Besides overturning the Second Circuit on that point, the Court on Tuesday refused to embrace a second argument for scuttling the settlement — that is, that the database publishers who supported the settlement had changed their legal positions on the jurisdictional question.

The settlement thus now stands where it did in September 2005 with Judge Daniels’ ruling: it has the judge’s approval, but it remains open to renewed challenge before the Second Circuit when the case returns there.  The deal was challenged in that appeal by ten authors who contended that, under a specific provision in the settlement, they might receive lower payments than some other copyright owners and, in fact, might receive no payments at all under the formula they were challenging.

The dissenting judge on the Second Circuit, while arguing that Judge Daniels did have authority to approve, noted with some concern the possibility that class members in that category “are paid little or perhaps nothing.”  The dissenter also said it was “a serious problem” that the settlement did not provide for some protection against favoritism of some authors.  Both of those issues are likely to arise anew when the case goes back to the Circuit Court.

Although the case in the Supreme Court had implications for the scope of copyright protection in the Digital Age, since it involved republishing of the created works on electronic databases, the Justices did not resolve the case in a way peculiar to that context.  The ruling on District Court power under the Copyright Act would have been the same whether or not digital publishing was at stake.

At the same time, however, the decision does reaffirm the power of a federal District Court to approve a “global settlement” of a major copyright dispute — one that seeks to end all future claims for infringement, in return for creation of a fund to pay off the copyright owners in order to compensate them while providing security for those who have re-published the works without permission.  In this case, the publishers had embraced the settlement because they were concerned about major omissions from their databases of the creative works.

The $18 million deal was put together, in difficult negotiations stretching over more than three years, in order to achieve legal peace in the publishing industry.  Nearly forty publishers, which had obtained the authors’ works for initial publication, had entered them in their electronic archives without the consent of the authors.  The deal allowed for restoration of articles previously taken out of those databases, and retention of those still there.

One estimate of the size of the electronic archive at risk in the case was that it included “every published English language work, regardless of where published, that has been on a database since 1997 without the copyright owner’s permissions.”  Some 26,000 publications were said to be covered by the settlement, including nearly three dozen encyclopedias.

With the case now returned to the Second Circuit, payment of the authors from the settlement fund will be delayed at least for months.  It will now be up to the Circuit Court to decide whether to call for new written arguments, or to proceed on its own with judging the ten objecting authors’ complaints about the deal.