July 15, 2011 | By Kurt Opsahl

Righthaven Ordered to Pay $5,000 in Sanctions for Its Misrepresentations to Court

Yesterday in Righthaven v. Democratic Underground a federal court in Las Vegas ordered the notorious copyright troll Righthaven to pay $5,000 in sanctions and to file the court transcript containing its admonishment in hundreds of other copyright cases. EFF represents Democratic Underground.

Righthaven tried to build a business out of suing hundreds of bloggers and websites for allegedly infringing the copyrights in Las Vegas Review-Journal newspaper articles, but was stopped short by evidence EFF uncovered: the secret "Strategic Alliance Agreement" between Stephens Media (publisher of the Review-Jounal) and Righthaven, which showed that the assignment of the copyrights was a sham.

In the decision dismissing Righthaven's case, Judge Hunt also ordered Righthaven to explain why it should not be sanctioned for its failure to disclose media giant Stephens Media's financial interest in the lawsuits.

The Strategic Alliance Agreement required Righthaven to pay half of the lawsuit proceeds to Stephens Media (publisher of the Review-Journal). Nevertheless, Righthaven and Stephens Media asserted that the media company did not have an ongoing interest in the litigation. These misrepresentations not only concealed Stephens Media's role, but allowed Righthaven to continue to litigate hundreds of cases for months over a right that it did not have, raising defense costs and resulting in settlements that may never have happened if the truth had been known.

In its written response, Righthaven refused to accept responsibility, instead presenting several convoluted arguments that it hoped would get it off the hook, including - most brazenly - that the Court did not have authority to sanction it. As EFF explained in response, none of those arguments held water. Nevertheless, Righthaven apparently did not take the matter very seriously -- when asked about the Order to Show Cause in a television interview, Righthaven's CEO Steven Gibson called it a minor technical issue, and showed no remorse.

Yesterday, Righthaven appeared before the Court for one last chance to explain why it should not be sanctioned. Judge Hunt rejected all of Righthaven’s arguments.

The Court said that Righthaven's argument that the Local Rule "could have arguably been reasonably construed to not require the disclosure of Stephens Media's interest in any recovery" was "in the Court's opinion, is, frankly, ludicrous."

The Court found that the failure to disclose Stephens Media's role was "not negligence," but an "intentional avoidance of disclosing information and specific direct statements contrary to that." This was "part of a concerted effort to hide Stephens Media's role in this litigation."

The Court continued that Righthaven "claimed that it had various exclusive rights when it knew that the ability to exercise those rights were retained exclusively by Stephens Media. It constantly and consistently refused to produce the [Strategic Alliance] agreement." The Court went on to hold that "[t]he representations about the relationship and the rights of Righthaven were misrepresentations. They were misleading." Moreover, Court held that "having looked at all this evidence, [the Court] finds that they are intentionally untrue."

Based on this, the Court ordered Righthaven to pay $5,000 to the clerk of the court, and to provide the judges and the defendants in hundred of other cases with copies of (1) the Court's decision finding Righthaven did not own the copyright, (2) the Strategic Alliance Agreement and (3) the transcript of yesterday's sanctions hearing.

During the hearing, the Court also addressed Righthaven itself, noting, "In the Court's view, the arrangement between Righthaven and Stephens Media is nothing more nor less than a law firm, which, incidentally, I don't think is licensed to practice law in this state, but a law firm with a contingent fee agreement masquerading as a company that's a party." While this was not at issue for purposes of yesterday's sanctions hearing, it's not good news for Righthaven. Under the Nevada Rules of Professional Conduct, a law firm may not share legal fees with a non-lawyer or have non-lawyer investors. Righthaven is owned by Net Sortie Systems LLC (Steve Gibson's shell company) and SI Content Monitor LLC (the investment vehicle for members of the Stephens family, who also own Stephens Media). Righthaven has the opportunity to respond to the contention that it is a law firm practicing without a license in writing on July 25, 2011.

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