First posted November 3, 2011.

Supreme Court and U.S. District CourtInstapundit links to Donald Douglas’s blog post, Beating Righthaven.  Excerpt:

Righthaven files “no warning” lawsuits. That is, it gives no advance notification to defendants, which violates the norm of providing “take down notices” to those suspected of copyright violations. By doing this, Righthaven — which made a speciality out of suing small-time bloggers and “mom-and-pop” businesses — was able to scare the bejesus out of its targets, who then would settle out of court generally in the three to five thousand dollar range. Defendants were threatened with the possibility of a $150,000 judgment and the forfeiture of their website’s domain name (URL address). . . .

Righthaven’s model is entirely predatory, and the company soon earned everlasting enmity by filing lawsuits against folks who were unemployed, on public assistance or disabled. Righthaven, for example, sued cat-blogger Allegra Wong of Boston, who was unemployed and receiving “financial support from a companion.” Righthaven also sued Brian Hill of North Carolina. Hill is autistic and chronically ill and is supported by Social Security disability benefits. My attorney David Kerr successfully defended Hill, whose story was featured in the New York Times, “Enforcing Copyrights Online, for a Profit.”

There’s a lot that’s “frightening as hell” going on out there with IP “enforcement” — a word I didn’t put quotes around when I used to do it for Brands You Must Know, because the kind I used to do didn’t need them.  It was legitimate, based on easy to comprehend ownership rights, consumer protection concerns and, yes, a concept of fair warning even to a lot of defendants who didn’t deserve it all.

Now IP is a racket.  Most of the readers of this blog practice IP law, and know exactly what I mean — because of what they do and, well, because they read this blog, and have surely detected a turn in my attitude toward the topic from years past.

Practical lawyering in an area of law I actually like often disgusts me now.

Look, I “majored” (not really how they designate this where I went to school, but stick with me) in economics — focusing my learning not in money or finance, which I know little about, but the prediction of human behavior when incentives are provided, withdrawn or distorted.  And I “minored” in political science.

So I was not born yesterday.  I have always understood that much of what is happening in IP law is entirely predictable once we understand that the value of the estates in intellectual property has skyrocketed, for any number of reasons, unpredictably.  But from that premise, it is not news that the incentive to capture rent — get as much of the action as possible — will rise concomitantly, leading to a rational increase of investment by stakeholders in making changes in the regime governing the allocation of such rights.  

So, yeah, Hollywood and Big Fashion and other major players are going to drop major bucks on whatever is for sale — legal talent, lobbyists, legislators — to “protect their assets” and just keep stacking the deck legislatively in their favor. (I’m not even getting into how that plays into patents, patent reform… not here, not now….)

Trademark lawyer Ron ColemanTen years ago, though, I was — with no pricks of conscience — personally walking through the corridors of the House and Senate with other members of an IACC task force to make damned sure that eBay would not be able to secure a legislative extension of Section 230 of the DMCA to trademark law, even as judges were beginning to toy with inventing just such an extension themselves.  That seemed like the thing to worry about at that the time, and indeed I have never changed my views that eBay got away with murder, albeit less so now, by enabling and profiting from the sale of counterfeit merchandise, and that the Tiffany case was sloppy work.  But.

We’ve got a bigger problem now.  A few.  But I will focus only on the copyright / Righthaven angle right here:

IP has become, as economics predicts, a commodity, and a monetized one.  So Righthaven went a little too far trying to monetize it, and it got hung up on a couple of problems:  First the Copyright Act itself, in its wisdom, bars its business model, which was basically to purchase choses in action for litigation purposes — “champerty.”

I’m astonished that Big IP hasn’t already acted, by the purchase of appropriate legislation, to relieve itself of this limitation on the alienability of it equity, but that was a lousy break for Righthaven.  So was the fact that their ersatz “assignments” of rights were so overlawyered that they didn’t just do what most of us would do:  Really buy the rights outright for pennies.  Because they were, after all, economically worthless to anyone but Righthaven.  There were plenty of ways to send money back to the original copyright holders without the complex reversions, reservations and really complicated stuff they ended up having to cough up and which got all those judges in Nevada so sore.

If all that had not happened, would the fair use rulings that have been a by-product of this litigation have happened? I doubt it, and I doubt it a lot.

See, here Righthaven managed eventually to get on the wrong side of enough judges that it was doomed.  That’s all it takes in any area of law, but in IP law, unfortunately, that reality is becoming far more menacing.  One reason (there are lots) is that notwithstanding the reality of the commoditization and monetization of IP rights, Big IP has, through its handmaiden the U.S. Congress, given the courts the ability to actually create financial “value” where there is in reality none at all.

Thus by virtue of statutory damages and awards of costs and attorneys’ fees, and the broad-broad-broad grant of judicial discretion vested by the statutes in deciding when and how much of each to award, essentially worthless intellectual property — assets in name alone — such as old newspaper articles and trademark registrations that essentially float free from any market or financial significance — have been made fantastically valuable as assets to be used for the purpose of litigation.

Political economists call this sort of thing a “distortion” of market forces:  By toying with the allocation regime to this extent, owners of assets are incentivized to act in ways that would otherwise be irrational with respect to the “true” market value of the assets in question.  (Economist economists just say, hey, that’s just a policy choice among many.  Let the games begin!)

The Copyright Act’s present structure does not create wealth, but it transfers it, and hard.

Righthaven’s brilliance was to approach copyright owners and say, look, why should you split this wealth with high-fee “IP enforcement attorneys”?  Righthaven can get you a better deal.

Wait — cut out the law firms that suck at the teat of fake IP litigation driven by attorneys’ fees and make-believe statutory damages?  Deprive them of massive fees for litigating wrongs that cause no discernible economic harm?

Well, that, my friends, is one thing the law would not forgive.

By Ron Coleman

I write this blog.

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