Late Friday, the federal district court in Nevada issued a declaratory judgment that makes it harder for copyright holders to file lawsuits over excerpts of material and burden online forums and their users with nuisance lawsuits.

The judgment – part of the nuisance lawsuit avalanche started by copyright troll Righthaven – found that Democratic Underground did not infringe the copyright in a Las Vegas Review-Journal newspaper article when a user of the online political forum posted a five-sentence excerpt, with a link back to the newspaper's website.

Judge Roger Hunt’s judgment confirms that an online forum is not liable for its users’ posts, even if it was not protected by the safe harbors of the Digital Millennium Copyright Act’s notice and takedown provisions. The decision also clarifies that a common practice on the Internet – excerpting a few sentences and linking to interesting articles elsewhere – is a fair use, not an infringement of copyright.

Righthaven CEO Steven A. Gibson dreamed of making himself rich off of lawsuits over trivial uses of newspaper articles. Instead, his company is in ruins, his legal theories have been emphatically rejected and he is under investigation by the Nevada State Bar. His financial backer, an LLC affiliated with the Stephens family (who own the Review-Journal), lost a substantial investment with nothing to show for it. Hopefully this example will serve as a warning to those who are considering profiteering through the court system. In the mean time, we can take some small comfort that the debacle led to good rulings on fair use and online infringement.

This case began when Democratic Underground -- represented by the Electronic Frontier Foundation, Fenwick & West LLP, and attorney Chad Bowers -- was sued by Righthaven. The copyright troll asserted, falsely, that it owned the copyright in the article, which remains available for free on the Review-Journal website. Democratic Underground countersued, asking the court to rule that the excerpt did not infringe copyright and is a fair use of the material, and brought Stephens Media, publisher of the Review-Journal, into the case.

Last June, the Nevada federal court dismissed Righthaven's infringement case because the newspaper publisher was the true owner of the article, but Democratic Underground's counterclaim against Stephens Media continued. After initially attempting to defend the bogus assertion of copyright infringement, Stephens Media conceded it was incorrect, paving the way for the court’s declaration.

The original lawsuit against Democratic Underground was dismissed when Judge Hunt found that Righthaven did not have the legal authorization to bring a copyright lawsuit because it had never owned the copyright in the first place. Righthaven claimed that Stephens Media had transferred copyright to Righthaven before it filed the suit, but a document unearthed in this litigation -- the Strategic Alliance Agreement between Righthaven and Stephens Media -- showed that the copyright assignment was a sham, and that Righthaven was merely agreeing to undertake the newspaper's case at its own expense in exchange for a cut of the recovery. In addition to dismissing Righthaven's claim, Judge Hunt sanctioned Righthaven with fines and obligations to report to other judges its actual relationship with Stevens Media. Righthaven, however, has refused to pay the sanctions, without explanation.

Righthaven has filed hundreds of copyright cases based on its sham copyright ownership claims. Despite several attempts by Righthaven and Stephens Media to re-write their Strategic Alliance Agreement, eight judges have ruled against the scheme to turn copyright litigation into a business.

Righthaven, which was founded by Las Vegas attorney Gibson exclusively to file lawsuits, has never won a single case, and has been held liable for several defendants’ attorneys fees.

While Righthaven has appealed seven of the district court decisions against it, it failed to meet important filing deadlines in the appeals court, and only three cases are currently moving forward in the Ninth Circuit Court of Appeals. After Righthaven failed to pay the fees judgments against it, a receiver was appointed to auction off its assets and pay its debts. Righthaven’s domain name was auctioned earlier this year, and last week another Nevada federal judge ordered Righthaven’s intellectual property assets transferred to the receiver.

Meanwhile, Righthaven has continued to refuse to cooperate in the collection efforts against it, failing to pay judgments, provide documents about its assets or -- lately -- even show up at court hearings. Righthaven was ordered to show cause why it should not be held in contempt of court in another case, Righthaven v. DiBiase. EFF, Wilson Sonsini Goodrich & Rosati, and Chad Bowers represent Mr. DiBiase. A contempt hearing is set for March 20, where we will be seeking sanctions against Righthaven and CEO Gibson.