Righthaven LLC v. PAHRUMP LIFE et al

Filing 67

ORDER that parties submit by 8/30/11 further briefing re 64 Proposed Order Submission Dismissing Righthaven's Complaint and Denying Plaintiff's Motion to Amend Complaint. Signed by Judge James C. Mahan on 8/12/11. (Copies have been distributed pursuant to the NEF - EDS)

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1 2 3 4 5 6 7 LAURENCE F. PULGRAM (CSB No. 115163) lpulgram@fenwick.com FENWICK & WEST LLP 555 California Street, 12th Floor San Francisco, CA 94104 Telephone: 415.875.2300 Facsimile: 415.281.1350 CHAD BOWERS (NV State Bar No. 7283) chadalbertbowers@gmail.com CHAD A. BOWERS, LTD 3202 West Charleston Boulevard Las Vegas, Nevada 89102 Telephone: (702) 457-1001 8 9 Attorneys for Amicus Curiae Democratic Underground, LLC 10 LAW AT SAN FRA NCI S CO ATTO RNEY S UNITED STATES DISTRICT COURT 12 F ENWICK & W ES T LLP 11 FOR THE DISTRICT OF NEVADA 13 14 RIGHTHAVEN LLC, a Nevada limited liability company, 15 Plaintiff, 16 17 18 v. Case No. 2:10-cv-01575-JCM (PAL) [PROPOSED] ORDER DISMISSING RIGHTHAVEN’S COMPLAINT AND DENYING PLAINTIFF’S MOTION TO AMEND ITS COMPLAINT PAHRUMP LIFE, an entity of unknown origin and nature; MAREN SCACCIA , an individual; and MICHAEL SCACCIA, an individual, Defendants. 19 20 21 22 23 24 25 26 27 28 [PROPOSED] ORDER CASE NO. 2:10-cv-01575-JCM (PAL) 1 Presently before the court is the order to show cause why the court should not dismiss the 2 instant action for lack of standing (Dkt. # 21) and plaintiff Righthaven’s motion for leave to 3 amend its complaint (Dkt. # 45). cause (Dkt. # 30). Amicus Democratic Underground has filed a reply to Righthaven’s response 9 (Dkt. # 32) and a response to the motion to amend (Dkt. #57). Amicus Professor Jason Schultz 10 has filed an amicus brief and reply brief (Dkt. # 36 and 46). Amicus Citizens Against Lawsuit 11 Abuse, Inc., has filed an amicus brief (Dkt. # 48). Amici Democratic Underground, Professor 12 LAW memorandum (Dkt. # 62). Defendant Michael Scaccia has filed a response to the order to show 8 AT 45), a supplemental brief to its motion for leave to amend (Dkt. # 57), and a supplemental reply 7 SAN FRA NCI S CO brief to various amicus briefs (Dkt. # 44), the abovementioned motion for leave to amend (Dkt. # 6 ATTO RNEY S Righthaven has filed a response to the order to show cause (Dkt. # 25), an omnibus reply 5 F ENWICK & W ES T LLP 4 Schultz, and Citizens Against Lawsuit Abuse have together filed an omnibus reply to 13 Righthaven’s supplemental brief (Dkt. # 58). Amicus Media Bloggers Association did not file a 14 brief but argued at the hearing. Having considered all of those filings and the arguments of 15 counsel, the court makes the following findings and order: 16 BACKGROUND 17 On January 18, 2010, attorney Steven A. Gibson (through his company Net Sortie 18 Systems LLC), along with the family of Warren Stephens (through their investment vehicle SI 19 Content Monitor LLC), executed the Righthaven operating agreement (“RHOA,” Dkt. # 32-2, 20 Exh. 1), creating Plaintiff, Righthaven LLC. The RHOA describes Righthaven’s business 21 objectives. Righthaven seeks a “limited, revocable assignment (with a license-back) of copyright 22 from third Persons.” RHOA § 3.2(c). It then obtains copyright registrations listing itself as the 23 copyright owner and files lawsuits with the understanding that the real copyright owner “would 24 ultimately enjoy the copyright registration.” Id. §§ 3.2(c), (d). Righthaven’s initial partner was 25 Stephens Media, LLC (“Stephens Media”) (also part of the Stephens family’s investments), the 26 publisher of the Las Vegas Review-Journal. 27 28 Within two months of the execution of the RHOA, Righthaven’s litigation campaign began. See complaint, Righthaven LLC v. MoneyReign, Inc., No. 2:10-cv-00350 (D. Nev. Mar. [PROPOSED] ORDER 1 CASE NO. 2:10-cv-01575-JCM (PAL) 1 13, 2010). Since then, Righthaven has filed over 200 lawsuits in this district, including this case, 2 which was filed on September 14, 2010. Each of those lawsuits was premised on the allegation 3 that Stephens Media assigned various copyrights to Righthaven, which were documented by a 4 purported “assignment” of a Las Vegas Review-Journal article.1 The assignment in this present 5 matter (Dkt. # 26, Exh. 1) purportedly transfers “all copyrights requisite to have Righthaven 6 recognized as the copyright owner of the Work for purposes of Righthaven being able to claim 7 ownership as well as the right to seek redress for past, present and future infringements of the 8 copyright.” In this case, Righthaven asserts that Stephens Media assigned it the copyright to an 9 August 14, 2010, Las Vegas Review-Journal article entitled “Warden, other employees resign 10 from prison in escape fallout.”2 However, Stephens Media and Righthaven entered into the “Strategic Alliance 11 14 court until recently as a result of other litigation. (Righthaven LLC v. Democratic Underground, 15 LLC, 2011 WL 1457743 (D. Nev. April 14, 2011) (unsealing the SAA)). Instead of the usual benefits of copyright ownership, under the SAA, “Righthaven shall have no right or license to Exploit or participate in the receipt of royalties from the Exploitation of the Stephens Media Assigned Copyrights other than the right to proceeds in association with a Recovery.” SAA, 19 Section 7.2. In addition, the SAA provided that “Stephens Media shall have the right at any time 20 to terminate, in good faith, any Copyright Assignment (the “Assignment Termination”) and enjoy 21 a right of complete reversion to the ownership of any copyright that is subject of a Copyright 22 Assignment.” SAA, Section 8. While Stephens Media is entitled to half of the recovery from 23 Righthaven’s lawsuits (less costs) (SAA, Section 5) when Righthaven filed its complaints, it did 24 LAW Copyright Assignment.” SAA, Section 7.2. The SAA was not disclosed to the public or to this 18 AT 13 17 SAN FRA NCI S CO Agreement” (“SAA,” Dkt. # 26, Exh. 2) that explains what actually happens “[d]espite any such 16 ATTO RNEY S F ENWICK & W ES T LLP 12 not list Stephens Media as a party with “a direct, pecuniary interest in the outcome of the case” as 25 26 1 27 2 28 To the Court’s knowledge, the sole exception is Righthaven v. Allec, Case No. 2:2011-cv-00532-KJD (filed April 8, 2011), in which Righthaven allegedly acquired the copyright at issue from a different third party. The article is available, for no charge, on the Las Vegas Review-Journal website: http://www.lvrj.com/news/warden-other-employees-resign-from-prison-in-escape-fallout-100678314.html. Number: [PROPOSED] ORDER 5347168 2 CASE NO. 2:10-cv-01575-JCM (PAL) 1 required by Local Rule 7.1-1 (Dkt. # 5).3 This failure to disclose Stephens Media’s interest 2 subsequently resulted in an order of sanctions. Democratic Underground, Dkt. 138. Before the SAA was disclosed publicly, Righthaven misled “the district judges of this 3 4 district to believe that it was the true owner of the copyright in the relevant news articles.” 5 Democratic Underground, 2011 WL 2378186 at *6. It obtained numerous settlements of its 6 cases. Once the SAA became publicly known, however, several defendants challenged 7 Righthaven’s right to bring its lawsuits, contending that the arrangement between Righthaven and 8 Stephens Media failed to convey any of the exclusive rights under the Copyright Act, leaving 9 Righthaven without a cause of action. On April 29, 2011, this court issued an order to show cause 10 why it should not dismiss this case for lack of standing. 14 that it amends sections 7.2 and 8 of the SAA and replaces them with new sections 7.2, 8.1 and 15 8.2. Id. On June 14, Judge Hunt found that Righthaven did not own the copyright under the original SAA. Righthaven LLC v. Democratic Underground, LLC, No. 2:10-cv-01356-RLH, __ F. Supp. 2d __, 2011 WL 2378186 (D. Nev., June 14, 2011). On June 20, Judge Pro concurred and also found that Righthaven did not own the copyright under the Clarification. Righthaven, 19 LAW to Strategic Alliance Agreement.” (“Clarification,” Dkt. # 26, Exh. 3). The clarification states 18 AT 13 17 SAN FRA NCI S CO Righthaven and Stephens Media executed a document entitled the “Clarification and Amendment 16 ATTO RNEY S On May 9, 2011, the day its response to this court’s order to show cause was due, 12 F ENWICK & W ES T LLP 11 LLC v. Hoehn, No. 2:11-cv-00050-PMP, 2011 WL 2441020 (D. Nev. June 20, 2011). 20 On June 23, 2011, Righthaven moved to amend its complaint pursuant to Rule 15(a), 21 seeking to add the May 9 clarification to the allegations in its complaint (Dkt. #45). On July 7, 22 2011, Righthaven and Stephens Media executed a document entitled the “Amended and Restated 23 Strategic Alliance Agreement” (the “restated SAA,” Dkt. 57, Exh. 1). On July 11, 2011, 24 Righthaven filed a supplemental brief (Dkt. # 57), seeking leave to file a different amended 25 complaint that includes allegations about both the clarification and the restated SAA. 26 27 28 3 Following an order to show cause why it should not be sanctioned for failing to disclose Stephens Media’s interest issued in the Democratic Underground case, Righthaven filed a revised certificate of interested parties (Dkt. #43). Number: [PROPOSED] ORDER 5347168 3 CASE NO. 2:10-cv-01575-JCM (PAL) 1 2 DISCUSSION To show standing, Righthaven must plead an injury in fact at the time the complaint is 3 filed. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992); see also Newman-Green, Inc. 4 v. Alfonzo-Larrain, 490 U.S. 826, 830 (1989)) (standing is based upon the facts when the 5 complaint is filed). 6 Moreover, “[t]he right to sue for an accrued claim for infringement is not an exclusive 7 right under § 106.” Silvers v. Sony Pictures Entm't, Inc., 402 F.3d 881, 884 (2005). “Exclusive 8 rights in a copyright may be transferred and owned separately, but . . . [there are] no exclusive 9 rights other than those listed in § 106.” Id. at 885. These rights include reproduction, preparation 10 of derivative works, distribution, and display of copies. 17 U.S.C. § 106(1)-(6). 14 copyright may enforce a copyright.” Sybersound Records v. UAV Corp., 517 F.3d 1137, 1144 15 (9th Cir. 2008); see also Feist Publ’ns, Inc. v. Rural Telephone Serv. Co., Inc., 499 U.S. 340, 361 (1991) (ownership of the copyrighted work is an element of a copyright claim); Ellison v. Robertson, 357 F.3d 1072, 1077 (9th Cir. 2004) (same). Moreover, “[t]he Copyright Act [does not] permit holders of rights under copyrights to choose third parties to bring suits on their 19 behalf.” Silvers, 402 F.3d at 889, citing Eden Toys, Inc. v. Florelee Undergarment Co., 697 F.2d 20 LAW copyright infringement action. Id. Thus, “only copyright owners and exclusive licensees of 18 AT 13 17 SAN FRA NCI S CO legal or beneficial interest in at least one of the exclusive rights described in § 106” to bring a 16 ATTO RNEY S Accordingly, pursuant to Section 501(b) of the Copyright Act, a plaintiff “must have a 12 F ENWICK & W ES T LLP 11 27, 32 n. 3 (2d Cir. 1982). 21 Several decisions in this district have examined the SAA and correctly found that it does 22 not transfer true ownership of the copyrighted work to Righthaven. “[T]he SAA in its original 23 form qualifies the Assignment with restrictions or rights of reversion, such that in the end, 24 Righthaven is not left with ownership of any exclusive rights.” Hoehn, 2011 WL 2441020, *5; 25 accord Righthaven, LLC v. DiBiase, No. 2:10-cv-01343-RLH, 2011 WL 2473531 (D. Nev. June 26 22, 2011); Righthaven, LLC v. Barham, No. 2:10-cv-02150-RLH, 2011 WL 2473602 (D. Nev. 27 June 22, 2011). “[T]he SAA prevents Plaintiff from obtaining any of the exclusive rights 28 necessary to maintain standing in a copyright infringement action.” Righthaven, LLC v. Mostofi, Number: [PROPOSED] ORDER 5347168 4 CASE NO. 2:10-cv-01575-JCM (PAL) 1 No. 2:10-cv-01066-KJD-GWF, 2011 WL 2746315, *5 (D. Nev. July 13, 2011). “[T]he plain 2 language of the SAA conveys the intent to deprive Righthaven of any right, save for the right to 3 sue alleged infringers and profit from such lawsuits.” Democratic Underground, 2011 WL 4 2378186, *4. “[T]he SAA makes abundantly clear [that] Stephens Media retained the exclusive 5 rights, never actually transferring them to Righthaven.” Id. at *6 (emphasis original). 6 Moreover, it is clear from the language of the RHOA that it was never the intent of the 7 parties that created Righthaven for true copyright ownership to vest. Instead, Righthaven was 8 created solely to acquire a “limited, revocable assignment (with a license-back) of copyright from 9 third Persons.” RHOA § 3.2(c). That further supports the finding that Righthaven lacks the 10 requisite ownership rights to assert standing in this action. 11 In the wake of multiple decisions finding that Righthaven did not own the copyright, 14 to consider the clarification instead of the original SAA.4 However, the clarification fails because 15 it is merely an attempt by Righthaven and Stephens Media to impermissibly change the facts as pleaded in the complaint to manufacture standing instead of truly clarifying an ambiguity or honest mistake in alleging those facts as they originally stood at the time this lawsuit was initiated. See Democratic Underground, 2011 WL 2378186, at *4. Moreover, as Judge Pro 19 found, the “May 9, 2011 Clarification . . . does not provide Righthaven with any exclusive rights 20 LAW May 9, 2011. In its motion for leave to amend (Dkt. # 45), Righthaven initially urged this court 18 AT 13 17 SAN FRA NCI S CO Righthaven and Stephens Media signed what they described as a “clarification” to the SAA on 16 ATTO RNEY S F ENWICK & W ES T LLP 12 necessary to bring suit.” Hoehn, 2011 WL 2441020 at *6. 21 After the Hoehn decision found that the clarification did not succeed, Righthaven and 22 Stephens Media tried once again to alter the SAA, creating the restated SAA on July 7, 2011, and 23 now seek permission in this case to file and serve a second amended complaint, alleging the 24 25 26 27 28 4 Righthaven moved to amend pursuant to Rule 15(a)(2). Rule 15(d) is the appropriate rule for “setting out any transaction, occurrence, or event that happened after the date of the pleading to be supplemented.” Fed.R.Civ.Proc. 15(d); U.S. for Use and Benefit of Wulff v. CMA, Inc., 890 F. 2d 1070, 1073 (9th Cir.1989). Because the execution of both the Clarification and the Restated SAA happened after the date of the Complaint that Righthaven seeks to supplement, Righthaven’s motion should have been pursuant to Rule 15(d). Id. The Court will treat the motion as a motion to supplement. Number: [PROPOSED] ORDER 5347168 5 CASE NO. 2:10-cv-01575-JCM (PAL) 1 restated SAA as the basis for standing in this action. However, this approach fails for two 2 reasons. 3 First, as with the clarification, the Restated SAA does not simply attempt to clarify or 4 supplement the facts pleaded in the complaint with additional facts that were present at the time 5 of filing; rather, the restated SAA presents a new set of facts with respect to the alleged copyright 6 ownership for the court to consider. That is impermissible under the Supreme Court’s 7 jurisprudence on standing. See Newman-Green, 490 U.S. at 830. Second, while Plaintiff 8 attempts to present the restated SAA as simply “restating” the original SAA document, the 9 restated SAA’s terms substantially contradict the original SAA and the clarification, as well as the LAW AT SAN FRA NCI S CO complaint. Righthaven cannot cure its lack of ownership at the initiation of this lawsuit by means 12 ATTO RNEY S business objectives of the RHOA. These contradictions cannot be reconciled with the original 11 F ENWICK & W ES T LLP 10 of a nunc pro tunc amendment. See Bushnell, Inc. v. Brunton Co., 659 F. Supp. 2d 1150, 1160-61 13 (D. Kan. 2009). Defective allegations may be amended, but not defects in the facts themselves. 14 CONCLUSION 15 16 Having considered both the parties’ written argument and oral argument at the July 27, 17 2011, hearing on the order to show cause, and in light of the above findings of fact and 18 conclusions of law, the court now requests further briefing regarding the relationship of 19 Righthaven’s ownership of the copyright at the time the suit was filed to (1) Righthaven’s 20 standing in this case and (2) the merits of Righthaven’s copyright infringement claim. The court 21 also requests briefing on how the relationship of these two issues affects dismissal of the case; 22 23 24 specifically, whether the matter should now be dismissed with or without prejudice. Accordingly, 25 IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the parties shall submit 26 further briefing, if any, regarding the above-cited issues by August 30, 2011. Thereafter, the court 27 will issue a written order disposing of the case. 28 Number: [PROPOSED] ORDER 5347168 6 CASE NO. 2:10-cv-01575-JCM (PAL) 1 2 August 12, 2011 Dated: _______________ By: The Hon. James C. Mahan United States District Court Judge 3 4 5 6 7 8 9 10 11 LAW AT SAN FRA NCI S CO ATTO RNEY S F ENWICK & W ES T LLP 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Number: [PROPOSED] ORDER 5347168 7 CASE NO. 2:10-cv-01575-JCM (PAL)

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