In re: Literary Works in Electronic Databases Copyright Litigation, USCA Second Circuit

The U.S. Court of Appeals for the Second Circuit reversed the U.S. District Court for the Southern District of New York’s certification of a class of freelance authors and approval of a settlement of their copyright infringement claims. The Second Circuit vacated that settlement on the basis that the district court lacked jurisdiction over the class because most of the class members had not registered their copyrights.

The class action arose from the unauthorized electronic reproduction of various written works. Named plaintiffs and class members consisted mainly of freelance writers who contracted with publishers to author the works for publication in print media, and retained the copyrights in those works. The contracts did not grant the publishers the right to electronically reproduce those works or license them for electronic reproduction by others.

Plaintiffs then brought the class action on the theory that such electronic reproduction infringed their copyrights. Although registration of a copyright is a prerequisite for commencing litigation, few of the members of the class had registered copyrights in their works. After years of negotiation, class and defense counsel agreed on a settlement and the district court certified the class and approved the settlement. The settlement reached by the parties would have allocated substantially more of the damage award to the claimants who had registered their work(s).

The settlement was objected to and appealed by a group of freelance writers who thought it failed to allot sufficient funds to the claims of authors of unregistered works.

The Second Circuit first reasoned that the Copyright Act’s registration requirement is jurisdictional and therefore the registration requirement limits a district court’s subject matter jurisdiction to claims arising from registered copyrights only. The court then determined that each class member’s claim must arise from a registered copyright and only when each claim satisfied the jurisdictional prerequisite could a district court “exercise [its] jurisdiction over the various individual claims in a single proceeding.”

Finally, the court determined that the supplemental jurisdiction statute could not remedy the jurisdictional defect because the statute only confers supplemental jurisdiction in a diversity class action over deficient state law claims and not over jurisdictionally-deficient federal claims asserted together with jurisdictionally proper claims.

There was, however, a substantial dissent in which the dissenting judge concluded that the fact that some of the otherwise presumably valid copyrights had not been registered was insufficient basis for undoing the class action settlement.
Two of the circuit judges issued a separate opinion explaining that they were probably members of the plaintiff class (because articles or law review articles they had written were probably included in one or more of the electronic databases), but they chose not to recuse themselves from consideration of the case. When the judges learned of their membership in the plaintiff class, they asked the Committee on Codes of Conduct of the Judicial Conference to provide an opinion abut their involvement in the case, and the Committee recommended that they not serve on the panel hearing the case. Nonetheless, the two judges explained in a 16-page opinion that they chose not to follow the committee’s recommendation and held that “a judge who learns that he is a party to a class action lawsuit by virtue of his possession of a small financial interest in one of the parties or in the subject matter of the lawsuit, and who has devoted substantial time to consideration of that case, but who promptly divests himself of the otherwise disqualifying financial interest, need not recuse himself from continued participation in the disposition of that case.”