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The 2d U.S. Circuit Court of Appeals has thrown out a settlement between freelancers and media companies that reprinted their works in electronic databases. In re Literary Works in Electronic Databases Copyright Litigation, nos. 05-5943-cv and 06-0223. The circuit ruled that Judge George Daniels of the U.S. District Court for the Southern District of New York did not have jurisdiction to preside over the case because the vast majority of participants in the freelancer class failed to register copyrights in their works. Individual authors and trade groups representing them sued two classes of defendants: companies like The New York Times Co. that publish original electronic content and companies that maintain databases with content licensed from publishers, such as Westlaw and its parent company, Thomson Corp. Daniels referred the parties to mediation. The defendants were skeptical about the value of a settlement because the vast majority of the freelancers had not registered their copyrights. Despite that argument, however, the 2d Circuit said that the desire for “global peace in the publishing industry” spurred the parties to three years of negotiations, which culminated in a settlement of up to $18 million. Objectors to the settlement terms appealed, at which point the circuit court became concerned about a potential jurisdictional issue. On March 6, 2007, on the eve of oral arguments, Judge John M. Walker Jr. said that he and Judge Ralph K. Winter “realized that there was a high probability that we held copyrights in works, such as law review articles and speeches, reproduced on defendants’ databases.” During March 7 oral argument, the judges announced that they would forgo any financial interest in the settlement. At that point, the judges were unaware that the claims period had expired on Sept. 27, 2005, making them ineligible for compensation. The Committee on Codes of Conduct of the Judicial Conference of the United States, whose opinions are advisory, advised the judges to recuse themselves. Under 28 U.S.C. 455(b)(4), judges are required to recuse themselves if they know they have a financial interest in a case. But Walker said Section 455(f) permitted him and Winter to stay on the case. That provision allows judges to avoid recusal where “substantial judicial time has been devoted to the matter” and the judges divest themselves of their interest. Walker also noted that all but two judges on the entire 2d Circuit had a potential interest in the freelancers’ settlement. One of the two judges without an interest was Chester J. Straub, who heard the case along with Walker and Winter. Straub and Winter formed the majority overturning the settlement. Walker dissented. Straub said, “We have held, albeit outside the class action context, that district courts lack statutory subject matter jurisdiction over infringement claims arising from unregistered copyrights.” The requirement that copyrights be registered, Straub said, has been “squarely” held on two occasions by the circuit to be jurisdictional and “there is widespread agreement among the circuits” on this point. Walker said the U.S. Supreme Court has urged judges to “more carefully distinguish between true jurisdictional bars and claim-processing rules that may be waived and to revisit our use of the ‘jurisdiction’ label in that light. “Following that instruction . . . as well as our recent holding that not all members of a settlement-only class need to possess a valid cause of action under applicable law, leads me to conclude that the fact that some otherwise presumably valid copyrights have not been registered is an insufficient basis for undoing this class-action settlement,” he said.

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