Reed Elsevier v. Muchnick: Free-lancers and an $18 million deal (Argument Preview)
on Oct 6, 2009 at 4:34 pm
The Supreme Court will hear oral argument at 11 a.m. Wednesday in Reed Elsevier Inc. et al. v. Muchnick et al. (08-103). Only eight Justices will hear the case, since Justice Sonia Sotomayor is recused. Arguing for newspapers and periodical publishers and for companies that operate electronic databases will be Charles S. Sims of Proskauer Rose in New York. That side is supported by the federal government, to be represented by Ginger D. Anders, an assistant to the U.S. Solicitor General. At the invitation of the Court, Ohio State law professor Deborah Jones Merritt will defend the Second Circuit ruling at issue, since neither side in the case would do so. [Disclosure: Howe & Russell, P.C. represents respondents Irvin Muchnick et al., but the author of this post operates independently of the firm.]
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A Digital Age case that may have a broad cultural impact could revive an $18 million deal, and which may clarify federal judges’ power to approve the settlement of a major lawsuit, comes before the Supreme Court in a lingering dispute over the legal rights of those who make their living as free-lance writers.
Background
Individual authors who work as free-lancers, with no specific publishing home, often contribute their articles for publication in newspapers, magazines, and other periodicals. They do so for a fee, usually under some form of written agreement. When the authors create their works, they instantly own the copyright to them, giving them the sole right to copy or distribute the articles. Copying without their consent is considered an infringement of copyright. An author may register an article with the U.S. Copyright Office, and there are benefits from doing so, but registration is not necessary to create ownership rights. In fact, it is estimated that only about 1 percent of free-lancers do register their articles.
From time to time over the years, free-lancers have sold articles for publication in newspapers or other periodicals. Paying a free-lance fee, the publishing companies get a right to provide the article to their own readers.  They have permission to do that. But a dispute arose in the 1990s when a group of free-lance authors found that the articles they sold for print publication actually had also been copied into electronic databases.  That had been done, the free-lancers contended, without their consent, so it amounted to infringement of their copyright — by the print publishers in allowing electronic copying of the articles into databases maintained by other companies, and by those other companies — the electronic publishers — for putting the articles into their databases under licenses from the publishers who had no right to allow re-publication.
The publishers, both print and electronic, insisted that they had not infringed the authors’ rights, contending that the electronic publishing was simply another form of revision of the original print publication of the articles. The publishers contended that the millions of pages of articles now constituted, in electronic form, a large chunk of contemporary American history, and that giving the free-lancers a new layer of rights threatened to put much of that record beyond public access, contrary to the basic goal of the Copyright Act of wide access to original creations. A lawsuit led to a victory in a federal trial court for the publishers, finding that they had not infringed. The U.S. Court of Appeals for the Second Circuit , however, disagreed, finding that the free-lancers’ rights to their works had been violated.
That dispute ultimately reached the Supreme Court, in the case of New York Times Co. et al. v. Tasini et al. In a decision on June 25, 2001, the Court ruled by a 7-2 vote that the federal Copyright Act does not allow the electronic copying, thus finding infringement by both the print publishers and the electronic database companies. What that meant, in practice, was that the free-lancers would have a right to a separate license — and, presumably, a separate fee — for the electronic reproduction. The Court said it would leave to lower courts the question of how to remedy the infringement. It suggested that the two sides might work out a deal to allow continued electronic archiving of the articles.
After the Second Circuit had ruled in that case, but before the Supreme Court decision came down, some two dozen free-lancers filed their own infringement lawsuits, seeking to proceed in a “class action.” Those cases were put on hold until after the Supreme Court had ruled in Tasini. After that ruling, the federal judge presiding over those cases suggested the two sides try to agree on a settlement.
The publishers initially resisted the idea of settling, saying the district court would not have the authority to approve such a deal because some ninety-nine percent of the free-lancers had never formally registered their copyrights. If so many claims were beyond the Court’s reach and no “class action” settlement could emerge, the publishers contended. That argument was based upon a section of the Copyright Act providing that no claim for copyright infringement can be filed in a federal court for any work that has not been registered.
Even so, it appeared that both sides were interested in a deal. So, over a period of more than three years, a settlement was worked out, in sometimes heated negotiations. Under the industry-wide deal, an $18 million settlement fund was set up to pay the free-lancers for electronic publication rights. Nearly forty publishers joined in the deal. In return for payments, free-lancers would release all future claims of infringement for articles already in the databases. That allowed restoration of articles previously taken out of the databases, and retention of those still there. The deal could become final only with the approval of the District Court.
By one estimate, the electronic archive that was covered by the deal was huge. “It includes,” according to that assessment, “every published English language work, regardless of where published, that has been on a database since 1997 without the copyright owner’s permission. It is not limited to ‘freelance’ contributors to magazines and newspapers, nor to the United States. The class size is unknown. There are over 26,000 publications covered by the settlement. Many are not periodicals. Thirty-five encyclopedias are included.”
Ten free-lance authors, however, objected to the deal, saying they might get no payment at all under the arrangement. The District Court upheld the settlement, and treated the deal as a class action. The objecting authors took the case on to the Second Circuit, complaining that the payments they stood to receive were too low, or might not even be made. The Second Circuit, on its own, raised the question of whether the district court had the authority to rule on claims so far as they involved articles that had not been registered with the Copyright Office — again, about ninety-nine percent of the claims.  The Second Circuit found that the provision in federal law did not permit jurisdiction to approve a class that included owners of unregistered copyrights. This, the Circuit Court said, is a jurisdictional bar, so only owners of registered copyrighted could be covered by any deal.
The publishers, believing that only a settlement of all the claims — that is, a “global settlement” — would clear the way legally to preserve the electronic record, took the case on to the Supreme Court.
Petition for Certiorari
The publishers’ petition, docketed July 22, 2008, as 08-103, raised two questions: did the Copyright Act clause on registering-before-suing take away the usual power of federal courts to approve a comprehensive settlement that release all claims, even those beyond a court’s jurisdiction, and did the Second Circuit ignore the Supreme Court’s suggestion in Tasini that the two sides could settle in order to allow continued electronic copying of free-lancers’ work.
The authors who fully supported the settlement urged the Court to hear the case. The objecting free-lancers opted not to respond. But, after initially examining the case, the Court asked the objectors for their views. They urged the Court to review only the first question raised, on the question of jurisdiction in the district court.
Over the next four months, the Justices examined the case at nine separate Conferences. Finally, last March 2, they agreed to hear the case, but wrote for itself the issue it would decide: whether the provision of the Copyright Act restricted federal court jurisdiction “over copyright infringement actions.” A month later, with no one involved defending the Second Circuit’s answer to that question, the Court selected Professor Merritt to do so. After briefing, the case was scheduled for oral argument on Oct. 7.
Merits Briefs
The publishers, again stressing the “exceptional importance” of the case, argued in their merits brief that allowing the Second Circuit ruling to stand would mean that “the nation’s electronic databases and archives will be permanently depleted, a result Congress surely did not intend, and contrary to this Court’s expectation [in the Tasini decision] that the archives would be restored by ‘an agreement allowing continued electronic reproduction of the Author’s works.’ ”
Contending that the Second Circuit ruling, if upheld, would make it doubtful that any new settlement could be reached, “given the prevalence of non-registration among freelance authors, the cost and burden of registration for works of such modest economic value, and the publishers’ lack of information as to which articles were freelance and how to locate those freelance authors years after their articles were first published.”
On the statutory provision directly at issue, the publishers’ brief contended that it does not restrict federal courts’ jurisdiction at all — that it is not even a jurisdictional clause. “The text, structure, purpose, and legislative history of the Copyright Act, as well as over 200 years of copyright legislation, lack the faintest suggestion that registration is jurisdictional.” The Second Circuit, the brief said, relied almost exclusively on Second Circuit precedent and did not even discuss a 2006 Supreme Court ruling (Arbaugh v. Y&H Corp.) that clarified when a federal law is to be treated as jurisdictional. Applying the test laid down in that ruling, the brief added, the provision at issue here “plainly does not qualify as jurisdictional.” The fact that registration must precede filing of an infringement lawsuit, the brief said, only makes that a mandatory condition for filing, and does not determine whether the court has jurisdiction to hear a case when some of the parties do have a right to be in court.
In addition, the publishers asserted that there are “legions of decisions” holding that courts may release claims that they do not have the authority to decide, and to approve a settlement deal providing relief that they could not grant. Once the infringement lawsuits were filed, that gave the courts jurisdiction to approve the settlement even though it reached the claims of authors whose works were not registered, according to the brief.
The consent free-lancers’ merits brief essentially parallels the arguments made by the publishers. The objecting authors, however, go beyond that in their brief, urging the Court not to rest a ruling in favor of court authority to review the settlement solely on the customary power of courts to approve settlements that release claims not directly before the court. That brief suggested that the Court should allow owners of unregistered works to pursue their own infringement claims in a context other than a proposed settlement. Without that option, the objectors said, their claims would be worth less as a practical matter.
The Justice Department joined in the case in June, primarily because of the federal government’s role in the registration of creative works under the Copyright Act and a similar registration system at the Patent and Trademark Office. The Justice Department itself, the amicus brief asserted, is interested because it pursues civil remedies for copyright violations. The provision at issue, the brief contended, is an important feature of copyright law, because it serves “public and governmental interests,” but it does not deprive a federal court of all authority to decide. When Congress intends a restriction on federal court power to be jurisdictional in nature, the Department argued, it uses language to that effect specifically.
Professor Merritt’s brief on the merits, supporting the Second Circuit’s interpretation, argued that Congress “drew an emphatic jurisdictional line” in putting the disputed provision into the Copyright Act. It has been viewed “for a full century,” by Congress, the courts and copyright experts “as an unwaivable constraint on federal jurisdiction.” It would defy Congress’ intent and “undermine a complex statutory scheme” to change this view, the professor asserted. The provision, she said, lies “at the heart of copyright law.” Congress designed it “to further free trade in copyrighted works; shield the courts from ill-defined infringement claims; protect defendants from frivolous suits penalizing expression; and maintain the world’s largest library.”
She summed up on the general point: “Congress did not trust any of these public goals to the caprice of private litigants. It imposed an unwaivable mandate requiring authors of United States works to register their copyrights publicly before invoking federal judicial power to enforce their claims.”  The brief added that, even if the Court were to allow the jurisdictional provision to be waived, the publishers and the settling authors could not do so because they relied upon it in fashioning a compensation scheme that treats registered works as most-favored. If the provision is now set aside, that scheme will be undermined, and the fairness of the deal put into question, the professor asserted.
Finally, Merritt contended that there is no public interest factor justifying waiver of the restriction on court authority. She asserted that those involved have no obligation to preserve the historical archives. The settlement is so complex it will not save courts’ time but rather will add to court administrative burdens, and the conduct of the parties in making “flip-flopping arguments” during contentious settlement talks should not now be rewarded because it would encourage similar litigation tactics in the future.
The publishers and the settlement deal itself have drawn amici support from various news organizations and other publishers, and by the Intellectual Property Law Association. The Second Circuit’s ruling is supported by the Computer & Communications Industry Association and “Netcoalition,” a trade group that speaks for Google, Yahoo, Amazon, eBay, Wikipedia and other Internet-based entities.
Analysis
The fact that only eight Justices will be reviewing the case (because of Justice Sotomayor’s prior involvement in one phase of the electronic database controversy) raises at least the prospect of a 4-4 split on the Court, which would uphold without comment the Second Circuit ruling scuttling the settlement.
That does not seem like a realistic prospect, however; four Justices still on the Court were in the majority when the Court decided the Tasini case in 2001 (indeed, Justice Ruth Bader Ginsburg was its author), and those four supported the idea of pursuing a settlement. They seem to have at least a chance of picking up a fifth vote, if they see the Second Circuit ruling as undercutting Tasini. Perhaps that is why the publishers and the settling free-lancers stress that point heavily.
Moreover, a majority of the Court has seemed, in recent years, to be skeptical of treating ambiguous federal laws setting conditions for lawsuits as if they determined basic jurisdictional authority. That would clearly work against the Second Circuit decision, too.
On the other hand, Professor Merritt has submitted a soundly reasoned brief favoring the jurisdictional ruling, that raised the stakes for Copyright Act understanding beyond the factual confines of this specific case, and leveled telling criticism of the conduct of the parties in working out a deal that clearly favored their interests in an arguably unfair way.
