Individual freelance writers and writers groups sued the big online publishers for copyright infringement, on the grounds that material originally provided for a limited use had been made available in the publishers’ databases without permission: In re Literary Works in Electronic Databases Copyright Litigation (2d Cir. 17 August 2011) [Link available here].

Mediation ordered by the US district court arrived at a settlement, which divided the plaintiffs into three classes: categories A (holders of registered copyright, eligible for statutory damages under the Copyright Act), B (registered but too late to be eligible for statutory damages) and C (eligible for statutory damages if registered, otherwise able to seek common-law remedies against infringers). Writers could have works putting them in multiple categories. Category C comprised about 99% of the proposed class.

The settlement also imposed a formula to ensure that total damages never exceeded $18 million. If the figure was heading north of that, damages payable to category C members (and, if necessary, A and B members) would be reduced pro rata. There was also to be a release of all future claims unless a class member opted out altogether or exercised a right to bar future use.

Ten class members objected to the settlement on a number of grounds. The Second Circuit held that the proposed release was fine and that the objectors were taking too narrow a view if they thought it could not apply to future claims of infringement or extend to sub-licensors of the publishers. The majority of the court did think, however, that the class should never have been certified in the first place because of the fundamental conflict between holders of category C rights only and class members in one or more of categories A, B and C. Even though there was overlap between categories, the settlement permitted members only in category C to be sold out by members in other categories; the latter could sacrifice their category C rights in favour of more valuable A or B claims. The damages-reduction formula also affected those in C disproportionately. Straub DJ dissented on the conflict point: he thought the settlement mitigated the conflicts and was preferable to creating needlessly complex sub-classes with separate counsel.