Better to Battle than Settle?: Copyright Class Action Settlement Rejected

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Waldman v. Thomson Reuters Canada Limited, a recent decision denying approval of a proposed settlement, is perhaps a signal that actions in which there may be a “prohibitively high-risk” the class will not succeed are not ripe for settlement.[1]

One reality in the class action context is that, once the certification threshold is passed, a pure cost-benefit analysis often leads to the conclusion that settling, whether the case is likely to succeed on the merits or not, outweighs the cost of many years of common issues and individual trials.

The United States Supreme Court recently heard argument that very few cases in the United States proceed once a class has been certified, and less than one-third of 1% ever get to a verdict.[2]  While common issues trials are beginning to increase in number in Canada, the balance may still be in the favour of settlement if an action is certified and it is not possible to determine the issues by way of summary judgment.

The recent Waldman decision may encourage defendants to resist settlement if the class claim is only marginally meritorious.  Waldman is a certified class action in which the class is made up of lawyers and others who have authored court documents which then appeared on Thomson’s Litigator service through their Carswell products.  Mr. Waldman argued that the copyright class members have in these documents was being infringed when Thomson sold the documents on their service without seeking the permission of any authors.

The settlement proposed, among others, the following terms:

  1. Thomson will modify its communications with subscribers in order to obtain various acknowledgments of the limits of use of the products to conform with the Copyright Act, as well as acknowledge that some material available on Litigator may be subject to third-party copyright;
  2. Class Members would grant Thomson a non-exclusive licence in respect of their court documents on Litigator;
  3. Thomson would pay $350,000 to a trust fund in support public interest litigation; and
  4. If the settlement is not cancelled vis-à-vis other operative terms, Thomson would pay $850,000 to class counsel for their fees.

The Court received numerous objections to the settlement.  Justice Perell agreed with some objections relating to counsel fees, including that the “optics [of such fees] were bad”, looking more like the entrepreneurial efforts than the advancement of class members’ rights.  However, the Court concluded that it would not approve the settlement even if the counsel fee amounts were reversed because the settlement overall was not substantively fair.[3]

The case was distinguished from Robertson, a similar class action regarding alleged copyright infringement in the online publication of works authored by freelance writers. Waldman, it was said, “was always about the principle and not about the money.”[4]   Justice Perell held that the settlement terms proposed in Waldman amounted to Thomson buying non-exclusive licenses, something of a substantial value, without giving any remuneration to the class members, and without ever admitting to doing anything wrong or having to submit to any meaningful behaviour modification.

 

The settlement gave Thomson something that it otherwise could not have achieved, even by a successful counterclaim, “namely, copyright licences and releases of copyright infringement claims by Class Members whose intention was to protect not to be paid for their copyright.”[5]  For these and other reasons, it was ultimately concluded that the proposed settlement was not in the best interests of the class.

 

In Kidd v. The Canada Life Assurance Company, Justice Perell also noted that court rejection of settlements in Canadian class actions is quite rare, and perhaps problematically so: “Very few settlements have been rejected, and it would be salutary for the institution of class actions if the standard for settlement approval was elevated by having regard to the institutional fairness of the settlement.”[6]

While certainly not the norm or the standard, these decisions may begin to pave the way for a more rigorous settlement approval test going forward.  At the very least, the case is a caution to parties embarking on negotiations that settlement approval is not simply a foregone conclusion in all cases.


[1] Decision at 2014 ONSC 1288

[2] Transcript of the recent hearing in Haliburton Co et al. v. Erica P John Fund, Case No. 13-317 at p. 23, available at  http://www.supremecourt.gov/oral_arguments/argument_transcripts/13-317_7n5f.pdf

[3] Waldman, at para. 98.

[4] Waldman, at para. 98.

[5] Waldman, at para. 99.  Recent decisions by the Supreme Court of Canada regarding copyright infringement provided a greater boon to Thomson’s substantive defence that no copyright had ever been infringed.

[6] 2013 ONSC 1868 at para. 132.

certification class action

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