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Copyright, IP, IP Asset

Nevada Court Says Stephens Media GetsThe Goldmine, Righthaven Gets The Shaft

If Stephens Media wishes to assert claims against Democratic Underground, it may do so separately.

There it is, in black and white from Judge Roger Hunt in the District of Nevada.  The DU is not out of hot water, and the actual question of copyright infringement is far from over, but the Judge decides to hit a reset button instead of advance the case toward the merits. Focusing on these procedural formalities, rather than cutting to the heart of the real issues (i.e. should users pay to license use of Stephens Media’s content, and on what terms) is one of the many reasons why litigation is a such counter-productive forum for IP licensing.  Why did he do this?

As I mentioned before, assignment agreements transferring copyright ownership to Righthaven include an exclusive license for Stephens Media to continue to use and exploit the work.  While I looked at that fact, and thought, quite logically, that if Righthaven had not obtained ownership of the copyright, there would have been no need to convey an exclusive license, the judge saw it differently.  He interpreted the exclusive license as giving all substantial rights back to Stephens Media, leaving the actual copyright owner without standing to file suit.  Normally, battles over “standing” go the other way, where a licensee tries to enforce an IP right, and a court saying the IP owner needs to be joined.

Needless to say, I disagree with the outcome here. Intellectual property is meant to be freely alienable and divisible. In the patent context, rights are constantly being divided and subdivided, allowing for multiple parties to benefit from a single source of rights.  Further, the reason for the standing requirement is to ensure the party bringing the lawsuit has the power to license the defendant, which was clearly the case here.

For Righthaven’s part, while they could appeal this decision, the smarter play might be to develop a new set of agreements and re-file their cases, and I have some thoughts on how to do that below.  Even though I think the judge got it wrong, as a practical matter reversing it could take months, or even years … and time is money.  Plus, as Judge Hunt noted, Stephens Media is free to re-file its lawsuit, so really there’s no reason to wait.

Personally, I think it would have been wiser for Stephens Media to file these cases itself, or better yet, create an IP holding company to which it would transfer all of its copyrights.  The holding company would generate the veil of protection that Righthaven was supposed to provide, and  Righthaven could have still managed the enforcement and litigation processes for its 50% fee.  As it turns out, the Righthaven veil wasn’t too useful in the long run since DU’s third-party claim against Stephens is allowed to move forward.

There’s no doubt that yesterday was a bad day for Righthaven and Stephens Media.  In addition to this news, the companies, along with co-creator and Dickinson Wright Partner Steve Gibson, were sued in North Carolina for “barratry” and unfair trade practices, among other things.  Righthaven is new, different and aggressive, so it is naturally feared by its opponents.  As a wise fictional character once said, fear leads to anger, anger leads to hate… Unfortunately, all of this focus on the sideshow has prevented any real substantive advancement on the real issues, which include Stephens Media’s rights to control use of its content.  As a purely legal issue, the appeal from Judge Larry Hicks’ “fair use” decision could go a long way toward clarifying how to apply an affirmative defense during the pre-trial stage, and represents probably the single, most important watershed event in determining whether an ex post copyright licensing business model is viable.



11 thoughts on “Nevada Court Says Stephens Media GetsThe Goldmine, Righthaven Gets The Shaft

  1. Found your site through a comment on Techdirt.

    Just FYI, this is completely wrong:
    “the reason for the standing requirement is to ensure the party bringing the lawsuit has the power to license the defendant, which was clearly the case here.”

    If DU had gone to Righthaven and asked for a license, Righthaven would not have the ability to grant it to them. Righthaven does not, and never did, have the ability to license any content to anyone. Furthermore, Righthaven does not have any interest in the rights that are granted by Stephens (i.e. they do not receive royalties or other compensation).

    They are neither a “legal owner” nor a “beneficial owner” of a single one of the rights in 17 USC 106, and they never were.

    The judge got this one absolutely, 100% right.

    Posted by Karl | June 15, 2011, 1:39 pm
    • Karl,

      Thanks for the comment. I disagree, but I understand your point. I also disagree with the judge’s focus on the enforcement agreement rather than the assignment document itself.

      Also, FYI, if your logic holds, then the licenses Righthaven has granted to the numerous defendants who have settled with it are ineffective unless signed by Stephens Media. Could mean trouble.

      Posted by Patrick | June 15, 2011, 1:55 pm
  2. If Stephens Media had of filed the lawsuits rather than doing it underhandedly they would have had much stronger cases. I doubt very much though after the Righthaven fiasco they will risk filing cases themselves. They may realize like the RIAA did that fighting copyright infringement via lawsuit is far more expensive than the infringements themselves particularly when they went after people of little means and counted on the high cost of defense to force a settlement. That part was by far the most offensive to people’s sense of justice and fair play.

    Lawyers in IP have been severely damaged by Righthaven. It has made your job much harder. The best thing for copyrights and IP is for Righthaven to go away.

    Posted by Ken Bingham | June 15, 2011, 8:35 pm
    • Ken,

      I don’t know if the RIAA is still filing lawsuits, but I believe the MPAA (or at the very least, independent studios) are being aggressive about file sharing. For these entities, the fight is less about the money and more about sending a message. To paraphrase, IP monetization is business, not personal (or, in my view, it should be). Using litigation to “send a message” counts as personal in my book, and whenever you make it personal, you can quickly lose focus on the bottom line.

      Also, I don’t think Stephens Media’s use of Righthaven was necessarily “underhanded.” Companies frequently take advantage of incorporation to prevent liability from spreading between business units and affecting the investors. As far as this judge is concerned, their chosen business structure left Righthaven without the right to sue. I don’t think Righthaven will simply go away. I think their execution needs to be tightened up and their business processes refined, or they will not last long in this industry.

      Posted by Patrick | June 16, 2011, 8:33 am
  3. “Intellectual property is meant to be freely alienable and divisible. In the patent context, rights are constantly being divided and subdivided, allowing for multiple parties to benefit from a single source of rights.”

    These are not imaginary property, these are copyrights. Congress had clear intent to limit what could be “divided”, and put them in the law. You should know that.

    Posted by Hans | June 15, 2011, 10:51 pm
    • You’re mixing two arguments, but my point is that alienability of property is what makes it valuable. IP is unique in this respect and the possibilities to maximize its value are astounding as compared with land and personal property.

      Posted by Patrick | June 16, 2011, 8:39 am
      • Are patent rights actually divisible? My understanding was that, unlike copyright, they were not. For example, an exclusive licensee of a right under copyright is considered the legal owner of that right. My understanding was that is not true in patent law. Am I mistaken here?

        Posted by Karl | June 16, 2011, 1:36 pm
  4. There is one difference with IP and real property such as land or tangible goods and that is scarcity. Music, movies, digitized books etc are no longer bound to the law of supply and demand which in a real economy will tend to drive the cost of the item towards zero. That is basically what is happening and it is normal market forces that is driving it and not so much “piracy”. When supply will always match the demand infinitely then there is no real way to control prices except for artificially controlling supply. For example imagine an apple tree that provided an apple to anyone who wanted it and the supply was infinite. This would drive the price of the apple to zero. The only way to control it would be to put someone in front of the tree with a gun and only allow the highest bidders to take the fruit even though the supply is enough to feed everyone. Copyrights act the part of the guy with the gun artificially restricting access.

    I was a real Star Trek fan, particularly The Next Generation. In Star Trek they had what was called a replicator. This could produce a perfect copy of anything, such as food, clothing, or any tangible object. It would take atoms and reconfigure them to copy another object. This is not a far fetched machine and very well could one day become a reality. If that was to happen all products would suddenly tend to zero because there would no longer be such thing as scarcity. The only way to stop or control it again would be artificially by outlawing the device which of course once invented could never be undone. Kind of like the internet today with intangible products like music, movies, digitized books etc.

    Posted by Ken Bingham | June 18, 2011, 8:39 pm


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