Righthaven’s Secret Contract Revealed: Will Its Strategy Collapse?

Angered at Righthaven’s behavior, a Las Vegas federal judge unsealed the company’s heretofore confidential agreement with the Las Vegas Review-Journal late on Friday. The contract reveals that the controversial copyright-enforcement company and LV R-J parent company Stephens Media are splitting their net earnings from suing hundreds of bloggers on a 50-50 basis. It also shows that the LV R-J is still largely in control of Righthaven’s litigation strategy-a fact that could end up being ruinous for Righthaven’s campaign of copyright lawsuits.
The contract shows that it was Stephens Media who had ultimate control of who to sue. A clause of the contract (Section 3.3) allows Stephens Media to call off any lawsuit if a particular target is “a charitable organization, is likely without financial resources, is affiliated with Stephens Media directly or indirectly, [or] is a present or likely future valued business relationship of Stephens Media.” Notably, despite Stephens Media’s ability to stop lawsuits, Righthaven went on to sue people in all of those categories, apparently without objection from the newspaper. Righthaven has sued charities, impoverished hobby bloggers, reporters, and the newspaper’s own sources.
This agreement is under attack by defense lawyers-and if those attacks are successful, it will undermine Righthaven’s entire business. Righthaven sued political blog Democratic Underground in August for printing an excerpt of an article from the LV R-J. DU hooked up with pro bono lawyers from the Electronic Frontier Foundation, who are now arguing that this agreement to move around copyrights and sue over them is invalid and a “sham.” The problem is that Stephens Media didn’t actually assign any of the rights related to copyright to Righthaven except the right to sue-and that’s arguably illegal under case law. (Copyright geeks, see Silvers v. Sony Entertainment for more detail.) In other words, none of the important things that come with a copyright-such as the right to make copies of a work, or distribute it, or make “derivative works”-were handed off to Righthaven. Only the right to sue was given, and that makes the copyright transfer bogus, argue DU lawyers.
If the lawyers representing DU are successful in this argument, it would undermine every lawsuit Righthaven has filed based on LV R-J copyrights. Righthaven has filed more than 250 lawsuits, mostly against small blogs and websites; every one defendant now has access to this unsealed agreement. If Righthaven’s agreement with MediaNews and The Denver Post is similar, it really could destroy their whole project, since those are their two main clients.
DU lawyers want to go after attorneys’ fees-and there is now a scenario in which it’s not just Righthaven but its newspaper clients that will have to pay. Since Stephens Media never truly lost control of its copyrights, it should be brought into the lawsuit as a party, DU lawyers argue. Attorneys’ fees in a case like Democratic Underground-which is employing top IP lawyers from both the Electronic Frontier Foundation and Fenwick & West, one of Silicon Valley’s go-to law firms-could easily run into the low six figures. (These lawyers have taken the DU case on a pro bono basis, but that doesn’t mean they can’t collect attorneys fees at market rates.)
So what began as a business deal in which there was no downside for Stephens Media now looks like a situation where the company could be on the hook for a serious chunk of change. It’s worth noting that the contract actually has a specific clause (see Section 11) in which Righthaven indemnifies Stephens Media in the event that attorneys’ fees need to be paid to an opponent. But could Righthaven really fulfill that obligation? What assets does Righthaven really have? Likely not much; it’s a company set up just to file lawsuits. One generous estimate is that the company has made a couple hundred thousand dollars of gross revenue in the single year it’s been in business. That’s surely been distributed to attorneys and staff. That means that a situation where newspaper companies ultimately end up on the hook for payments is a real possibility.
Righthaven wanted to keep these documents sealed, but they utterly failed to convince U.S. District Judge Roger Hunt to take their side. The judge decided that other defendants, and the public at large, should have a right to view the contracts, as well as DU’s arguments that they are a sham, which were sealed until Friday. “Because these cases have generated a great deal of public interest, particularly in the media and on the internet, that there is a right of the public to this information which overrides any claimed confidential commercial rights,” Hunt wrote in his order.
Hunt also shows how peeved he is at Righthaven’s litigation behavior. (The company truly seems to have a knack for angering judges.) Judge Hunt criticizes how Righthaven has attacked opposing counsel, writing: “There is an old adage in the law that, if the facts are on your side, you pound on the facts. If the law is on your side, you pound on the law. If neither the facts nor the law is on your side, you pound on the table. It appears there is a lot of table pounding going on here.”
Case Documents:
»  Righthaven’s Contract With Stephens Media [PDF]
»  Judge Hunt’s Order To Unseal [PDF]
»  Democratic Underground Memorandum Describing Flaws Of Righthaven Contract [PDF]