On August 17, the Second Circuit Court of Appeals sent the parties in the long-running class action suit known shorthand as Freelance back to the drawing board, rejecting an $18 million settlement struck in 2005. The case stems from the central rights dispute of the digital age, Tasini v. New York Times, in which publishers were found to have infringed the copyrights of freelance writers by licensing or republishing articles in electronic databases without permission or compensation.

The case has had a long and winding legal road. In 1997, then district court judge Sonia Sotomayor ruled in favor of the publisher defendants. In 1999, an Appeals Court reversed Sotomayor. In 2001, the Supreme Court affirmed that reversal, leaving publishers to deal with millions of potential infringement claims. In 2005, a class action settlement was announced and quickly approved. However, a handful of objectors appealed. The Second Circuit heard the appeal—but ignored the merits of the case, and instead surprised everyone by rejecting the settlement on jurisdictional grounds, saying the court could not approve payments to writers with unregistered copyrights. That put the objectors in an unusual position: working to persuade the Supreme Court to uphold the settlement's jurisdictional basis, so they could then kill the deal on its merits in a lower court. Last year, the Supreme Court did reverse, sending the settlement back to the Second Circuit, which has now rejected the settlement.

PW takes a look at what the rejection mean for publishers, writers, libraries, consumers, and the prospects of a revised Google settlement.

For Publishers & Database Operators

Periodical publishers and electronic database operators are clearly the big losers. The original settlement, announced in 2005, was capped at an affordable $18 million. In return, publishers would have been released from liability for millions of articles contained in digital editions of newspapers and other databases. Viewed that way, the settlement was quite a bargain for publishers. Now, publishers must return to the negotiating table with the digital market booming and more awareness than ever of what's at stake, thanks in part to the Google settlement. And remember, unlike the Google settlement, where the underlying claims have not yet been litigated, publishers and digital aggregators have a Supreme Court ruling against them. They are infringers, that much is decided, so it's not a matter of if they will settle, but how much that settlement will cost. While it's hard to say where negotiations will go, it's worth noting that some of the defendants, including Reed Elsevier, are multibillion-dollar businesses. Suffice it to say, some think the $18 million settlement figure is a tad low.

For the Plaintiffs

Writers who claim to be owed substantial sums under the rejected settlement are sure to be disappointed. In a court filing, one Illinois freelancer, told the court she's waiting on more than $100,000 from the settlement. She'll have to wait longer. But on the plaintiff side comes the great irony. The organizational plaintiffs, including the Authors Guild and the National Writers Union, fought the objectors all the way and sought to marginalize their concerns. But now that they've lost the battle to have the settlement approved, they stand to win big. "We are currently reviewing our options with our lawyers," states a message on the NWU site, adding "much has changed. Rights to electronic distribution of written works, including newly published work and archives of work originally published in print form, have proven to be much more valuable than was generally recognized at the time the original settlement was negotiated." The writers' organizations may be able to forgive the objectors, especially if the end result is a better deal. It remains to be seen, however, if that forgiveness will flow both ways. Members who still disagree over whether the original settlement should have been approved agree on one thing: this settlement was botched by their organizational leadership.

For Libraries and the Public

Since the original lawsuits were filed, publishers and aggregators have warned that, if successful electronic databases like Lexis-Nexis would become less comprehensive, as publishers would be forced to pull unlicensed articles from their archives. Indeed, reports suggest that may have happened in a few cases, but by and large, the chaos predicted by publishers has not come to pass while the settlement was in process. Now, those fears are renewed, and libraries that have paid big bucks for database access might find themselves wondering if they are getting their money's worth. If not, some may begin asking for refunds or
credits. Most observers, however, say pulling content would be an overreaction. "I don't think that will be an outcome of this," Miami-based copyright attorney Patrick O'Connor said. "There is no question that there is a lot of money to be made in these comprehensive databases," he explained. "The question here is simply how to divide it."

For the Google Settlement

Here's the good news: in its Freelance ruling, the Second Circuit explicitly rejected the objectors' challenge to the so-called "license by default." That means, in theory, there can be a class action settlement that releases future copyright claims. The not so good news for the Google settlement parties is that the court put a relatively high bar on certifying classes for such relief. Specifically, the kind of sweeping, broad author class certified in Google is no longer possible in light of the Second Circuit ruling in Freelance. Rather, a sufficient number of subclasses, each with its own lawyers, is required to even get to the starting line. For that reason, experts agree, the Google settlement is all but dead. Not because a settlement can't happen, but because it's not worth the effort. "The expense would be absurd—it would take months, or, more likely, years to pull off," observed New York Law School's James Grimmelmann, "and I still can't imagine those negotiations succeeding."