Righthaven says it might have to file for bankruptcy

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Despite its backing by the billionaire Warren Stephens family, Las Vegas copyright lawsuit filer Righthaven LLC warned today it may have to file for bankruptcy because of a series of setbacks in its litigation campaign.

The warning came in an emergency request by Righthaven to a federal judge in Las Vegas that he stay his order that Righthaven pay $34,045 in legal fees to attorneys who successfully defended Kentucky message board poster Wayne Hoehn against a Righthaven lawsuit.

Righthaven has already appealed U.S. District Judge Philip Pro’s fee award to the 9th U.S. Circuit Court of Appeals.

Righthaven is also appealing the underlying rulings by Pro finding Righthaven lacked standing to sue Hoehn and – even if it had standing – that Hoehn was protected by fair use in posting an entire Las Vegas Review-Journal column on a sports betting website message board.

Righthaven says its lawsuits are necessary to deter rampant online infringement of newspaper content, but attorneys for Hoehn and other defendants claim Righthaven's suits are frivolous and are based on sham copyright assignments and are merely part of a get-rich-quick scheme.

Righthaven’s bankruptcy warning came a day after MediaNews Group, the owner of the Denver Post and other newspapers, revealed it won’t renew its contract with Righthaven for copyright protection services in the form of its controversial no-warning lawsuits.

While the Righthaven bankruptcy warning may sound ominous, a bankruptcy filing wouldn’t prevent Righthaven creditors from asking the bankruptcy court for permission to seize Righthaven’s assets. Such a filing also would require Righthaven to reveal detailed financial information that so far has been secret as it's a private company.

And Righthaven copyright lawsuit defendants considering countersuing Righthaven over what they call sham copyright claims would likely target not just Righthaven, but its deep-pocketed newspaper partners including the owners of the Review-Journal and the Post.

In today’s court filing in the Hoehn case, Righthaven noted its litigation campaign has stalled this summer while judges in Nevada, Colorado and South Carolina determine whether it has standing to sue over R-J and Post material.

Not only is Righthaven paying attorneys to litigate over the stalled and appealed cases, it has held off on filing new copyright infringement lawsuits until judges definitively rule on whether Righthaven has standing to sue under its amended lawsuit contract with the owner of the Review-Journal.

The R-J’s owner is Stephens Media LLC, controlled by billionaire Little Rock, Ark., investment banker Warren Stephens and his family. The Stephens family also owns half of Righthaven.

Righthaven today said the gridlock over its lawsuits has hurt its finances – and expressed concern that attorneys for prevailing defendants like Hoehn may seize its assets and put it out of business.

Those assets consist largely of scores of copyrights Righthaven claims to own to R-J and Post material that are the basis of its 275 lawsuits filed since March 2010.

"While these circumstances have not exhausted Righthaven’s resources, it certainly brings the value of its intangible intellectual property assets to the forefront of any judgment enforcement efforts. Permitting such judgment enforcement efforts to proceed during pendency of Righthaven’s appeal unquestionably exposes the company to the threat of irreparable harm," Righthaven said in its filing.

"Righthaven faces the very real threat of being forced out of business or being forced to seek protection through bankruptcy if the court does not stay the (attorney’s fee) judgment pending resolution of the company’s appeal to the 9th Circuit," Righthaven’s filing today said.

The company expressed concern that seizure and liquidation of its copyrights would compromise litigation in the future, even if Righthaven were to prevail in its appeals to the 9th Circuit.

"Any new holder of an assigned copyright could compromise potential future infringement actions by granting releases from liability to suspected infringers," Righthaven’s filing said.

Righthaven also claims to own software that detects infringements of newspaper material – though anyone can find such infringements with free searches using Google and other search engines.

"If a stay is not granted pending appeal, this valuable software may be seized and liquidated in an attempt to satisfy the judgment. Liquidation may result in the software being sold to a competing organization or entity. Alternatively, the software could be sold to any one of a host of infringers or other supporting organizations that would attempt to reverse engineer the software in order to devise methods for evading detection," Righthaven warned.

Pro has not yet indicated when he’ll rule on Righthaven’s emergency request that he stay his fee order that required Righthaven to pay Randazza Legal Group by Wednesday.

Separately, another copyright expert is commenting on the Denver Post’s decision to part ways with Righthaven.

Eric Johnson is an associate professor of law at the University of North Dakota and an affiliate scholar at the Stanford Law School Center for Internet and Society.

Here’s his statement:

***

The law has long had a special affection for newspapers. That's reflected in a long line of Supreme Court cases. Given that history, it has been very dispiriting to see newspapers try to game the law in pursuit of a quick-money scheme, especially one that involves suing readers.

The participation of MediaNews Group was especially troubling to me, given that they operate many of the nation's most important and well-respected newspapers. Thus, it is a great relief to see that MediaNews has parted ways with Righthaven.

A newspaper is sometimes described as a community talking to itself. Can a newspaper uphold that vision while partnering with Righthaven? I don't think so. And that's a point that I think most publishers understood as soon as Righthaven pitched them.

MediaNews Group was the only big news organization that put aside the sense of public trust we expect of newspapers to take part in this misadventure. They have shown integrity and good sense by now walking away.

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  1. Wouldn't it be delicious if the 'bankrupt' Righthaven had to turn over its so called copyrights of R-J content to those prevailing in lawsuits against Righthaven thus forcing the R-J to pay to publish its own stories.

  2. Righthaven brought suit asking not only for $150,000, seizure of domain names, computers, servers, everything right down to your power cables and modem. And they knew all the while that the law did not entitle them to anything beyond monetary damages. They included all the rest in order to intimidate and extort.

    The solvency of their business through appeals should be of no concern to the court. It has been shown to be an unlawful entity perpetrating sham lawsuits to frankly further a criminal enterprise. The deserve no quarter. True justice would have the court seizing all of their assets, felony indictments for fraud and a host of other charges, and a fair trial before sending them to jail for a few years.

  3. Couldn't have happened to a more deserving group of people. Best of luck to the R-J in unraveling this mess they created.

  4. Righthaven costs people Ten's of Thousands of Dollars and now they will wait until the judges are finished hitting them with judgments and they will fill to walk away from all the damage they have done.

    Welcome to the American way. When your scam bites you in the butt just file for BK and walk away.

    Is there anyone that did not see this coming months ago?

  5. I doubt that these claims against Righthaven can be discharged in bankruptcy if the creditors put up a vigorous fight.

    11 U.S.C. 523(a)(6) excepts from discharge any debt for willful and malicious injury by the debtor to another entity or to the property of another entity. Maybe the particular order of the Court to pay attorneys fees could be viewed as a "contract" debt, but the underlying tort by Righthaven which gave rise to the Order probably has not been merged into the order -- and that underlying claim seems to be Righthaven's intentional and malicious conduct.

    In the 9th Circuit, the factors for analysis are set forth in In re Cecchini, 780 F.2d 1440 (1986). It would seem that as far as Righthaven's conduct in these "infringement" cases would meet the standards of malice required to satisfy the Supreme Court in Kawaahuhau v. Geiger, 523 US 57, 118 SCt 974, 140 LEd2d 90 (1998), because legal fees and expenses was one of the things Righthaven stated they wished to cause their "infringers." And what appear to have been clear violations of the federal Fair Debt Collection Practices Act (15 U.
    S.C. 1601 et seq.) and the federal prohibition of what appear to have been extortions in interstate commerce (Hobbs Act, 18 USC 1951), along with the Judges' findings of fact and law would seem to fulfill the conditions for exemption from discharge in bankruptcy.

    But, of course, all of that requires Righthaven's and Stephens Media's victims to incur more expense preserving their claims in the bankruptcy process -- so they will have been doubly victimized by the time the bankruptcy is over. (Actually 3 times, because they will have to test to see whether this LLC was inadequately capitalized so as to make its' members personally liable for their misdeeds while hiding behind the legal fiction of their LLC.)

  6. Part 1

    I have a cousin whose copyrighted intellectual property, about 1,000 pages of academic text, was literally stolen by a meat head in California by having it scanned into a computer, lightly edited, and then broken into books which are being sold on a well known internet book sales site. The meat head also is teaching body building courses, throughout California, Nevada and other major states, using the copyright infringed books. So the cousin and I made our way to the UNLV Law Library, and sat and read several basic law books on how to sue for copyright infringement.

    The books said current copyright law allows the plaintiff to sue for the greater of $100,000 or "actual damages". If the copyright owner can't prove actual damages equal to $100,000, the jury can still award up to $100,000 in damages if that is what the jury decides is a fair punishment for the defendant's actions.

    So that's why we're seeing Righthaven including in each complaint what seems to the ordinary person to be a large amount of damages for an insignificant offense. However, that's what Congress decided was a reasonable way to deter and punish copyright infringement. As a result, to me, the Sun's criticism of Righthaven for suing for that sum has seemed illiterate and off.

    The one thing which puzzles me about these lawsuits is that there was nothing in the legal treatises at UNLV Law Library about the copyright law containing provisions allowing for judicial awards of prevailing party's attorneys fees. Prevailing party's attorneys fees are an anomaly in American litigation.

    My cousin had decided, based on those UNLV Law Library books, not to bother to sue the meat head for infringement of his copyrights, based on a cost/benefit analysis of having to fork out hourly attorneys fees only to be at the mercy of a jury in terms of whether his damage award equaled what he spent on attorneys fees.

    So I'd be very interested to see the STATUTORY basis for Las Vegas' federal judges awarding attorneys fees against Righthaven. If there is no statutory basis for the attorneys fees awards against Righthaven then I guess we're off in the often Constitution-contradictory Federal case law which outrages conservative and environmentalist activists alike.

  7. Part 2

    In the "real world", i.e. New York, it is very common for companies and individuals to sell their right to sue others, on high dollar cases, to investors. There is a whole class of investors who join together in what amounts to partnerships, buying litigation claims. Under Federal bankruptcy law, a litigation claim is an asset, just like a desk or a computer. As a result, it does not surprise me that Stephens thought it could assign or sell its copyright infringement claims to Righthaven, and retain the ownership of the copyrights themselves.

    To me, it seems that what Stephens did was legitimate, in terms of selling its copyright infringement claims, as well as in seeking to enforce the copyright damage laws as written by Congress. While Stephens' actions may be considered "mean" to small copyright infringers, if their actions are outside of the fair use exception, Congress intended that they be sued.

    I hope Righthaven files a Chapter 11 because they will be able to continue their legitimate business of enforcing copyright infringement claims while having the protection of the automatic stay against enforcement of judgments protect their assets. The parade of horribles for Righthaven spelled out in the story above was not likely to immediately happen, but Chapter 11 is certainly a firewall.

    When Righthaven first began filing its lawsuits, my cousin planned on going to them, to ask them to enforce his copyright claim against the meat heat who stole my cousin's 1,000 pages of intellectual property verbatim. However, the turns of events in the Righthaven case proved the wisdom of my original advice to him: "Federal judges are imperious and unpredictable; so is Federal court case law; and it's just not worth the aggravation because the meat heat has few assets to enforce a judgment against." The sad reality is that the Righthaven case proves there is no meaningful remedy for infringement of copyright. Maybe Congress secretly knew that's how things would turn out when they passed the most recent version of the copyright law.

  8. For those who are interested, we've posted the defendant's attorney's fee motion that was granted by Judge Pro.

    According to this, Fed. R. Civ. P. 54(d) and 17 U.S.C. 505 allow a prevailing party to recover attorney's fees and costs in copyright cases.

    For us non-attorneys, those are the Federal Rules of Civil Procedure and the Copyright Act.

    Righthaven is appealing, in part arguing that once Judge Pro found Righthaven lacked standing to sue, the case was over and Pro had no authority to issue further rulings on legal fees and fair use.

    There will likely be additional fee rulings and appeals for the 9th Circuit to deal with.

  9. Righthaven brings in Dale Cendali, a high-priced atty with Kirkland ans Ellis, who as a leading I/P atty who likly charges $10,000s.

    But Righthaven looks at a highly decorated Vietnam War veteran, like Wayne Hoehn who awarded $34,000, and who raised a comprehensively successful defense against these trolls; Righthaven's response is: Frack you.

    In light of the history of Righthaven debt [award] avoidment and its Rule 11 violation, Hoehn's award is non-dischargeable because of fraud and intentional misconduct exception for Righthaven's threated banktuptcy that places an automatic stay halting all collection litigation action.

    But Righthaven's moving assets around to avoid paying a debt is a big no-no.

    Looking forward to a ruling seizing and freezing these pukes' assets; and Mangano and Gibson getting disbarred.

  10. What a shame. And those people at righthaven are such nice folk. God works!

  11. Those of us who have followed this saga for some time are not at all surprised by this development. In fact it has been anticipated for some time. On June 23 I posted the following comment to another article here:

    "Should Righthaven exhaust it's capital (and who knows what that amount actually is) and declare bankruptcy, they seem to be doing everything they can to meet the requirements to have their corporate veil of personal liability protection pierced.

    Nevada corporate friendly law does make piercing the corporate veil more difficult than in other states, but even that has limits. Among the things considered by the court when a party moves to pierce the veil are: How adequate was the capitalization of the company, and were 'corporate formalities' followed? Was the company used as a personal 'alter ego' for the shareholders?

    And the big one...was there fraud? Would the preservation of limited liability facilitate or permit fraud, unfair dealing, or inequity?

    All of the above seem in question at Righthaven. Judge Hunt has already openly questioned whether Righthaven has created fraud upon the court in furtherance of its business (filing lawsuits), and time and again the case has been made (with much good evidence) that Righthaven exists as a tool of "legal" extortion used against defendants. While fraud is an intentional tort which must be specifically argued and has a high burden of proof, unfair dealing and inequity are generally more obvious on their face and require a lower specificity.

    Some questions I would have are: Has Righthaven made all the payments from lawsuit proceeds to Stephens Media as agreed...or are they using SM's share (with their blessing of course) as funding since things have gotten tough? Is there some 'additional' collusion in this with SM which blurs the lines between the two entities (alter ego), and further provides proof of the fraudulent nature of the whole setup. Their bank records better be impeccable when the subpoenas are issued."

    All of these points are even more relevant today.

  12. Good to see Gibson and his buddy, Mangled, on the way out.

  13. I am sure the paperwork is already being prepared for Righthaven's bankruptcy and eventual shuttering. I think Righthaven employees and lawyers would be wise to keep Righthaven off their resume's.

    Gibson may continue his law practice unless he is disbarred but his reputation is destroyed. Any potential future client of his doing a simple background check or Google search will have to give them pause on hiring him. I suspect his telephone has been ringing less and less of late accept for reporters and creditors. Wouldn't be surprised if his other companies start falling like dominoes.

    Haven't heard from Sgt Rock for a long time. Perhaps Righthaven can no longer keep him on the payroll?

  14. CynicalObserver - not a criticism but an addition to your post concerning statute and its role in court decisions. While it is true courts consider statute in decisions they also consider precedence. Thus, courts generally tend to abide by or adhere to principles established by decisions in earlier cases. This often leads to a slow dance wherein statute evolves as legislators react to the trend of precedents set by courts.