For several weeks EFF and co-counsel Fenwick & West have been trying to persuade a federal district court to unseal a critical document Stephens Media produced in Righthaven v. Democratic Underground. The document, the Strategic Alliance Agreement between Righthaven and Stephens Media (publisher of the Las Vegas Review-Journal), and our accompanying supplemental brief were unsealed on Friday.

As the court explained, “Righthaven and Stephens Media have attempted to create a cottage industry of filing copyright claims, making large claims for damages and then settling claims for pennies on the dollar, with defendants who do not want to incur the costs of defending the lawsuits.” While Righthaven’s business is suing bloggers for copyright infringement, it is not a publisher. It does not produce the works that are the basis for its numerous lawsuits. Instead, it trolls the Internet, looking for news articles published by Stephens Media (Las Vegas Review-Journal) or Media News Group ( Denver Post) and, when it finds them, gets the publisher to “assign” the copyright so it can file a lawsuit. At least, that was the public story.

Getting this assignment right was essential because copyright law does not permit a person to sue for infringement unless that person’s own copyrights (e.g., the rights to reproduce and distribute a work) are actually being infringed. In other words, you have to have some real skin in the game. Thus, in each lawsuit, Righthaven alleged ownership of the copyright rights. For example, in Righthaven v. Democratic Underground, Righthaven alleged that:

35. Righthaven holds the exclusive right to reproduce the Work, pursuant to 17 U.S.C. § 106(1). 36. Righthaven holds the exclusive right to prepare derivative works based upon the Work, pursuant to 17 U.S.C. § 106(2). 37. Righthaven holds the exclusive right to distribute copies of the Work, pursuant to 17 U.S.C. § 106(3). 38. Righthaven holds the exclusive right to publicly display the Work, pursuant to 17 U.S.C. § 106(5).

Righthaven also alleged that, as the owner of the news article, it is suffering an ongoing “irreparable harm” due to the infringement. All of the Righthaven lawsuits have similar allegations.

The problem is that the unsealed Strategic Alliance Agreement shows these allegations to be false. This Agreement is the master agreement that governs all the “assignments” of Stephens Media news articles Righthaven has sued upon. Section 7.2 expressly denies Righthaven any rights other than to file lawsuits:

7.2 Despite any such Copyright Assignment, Stephens Media shall retain (and is hereby granted by Righthaven) an exclusive license to Exploit the Stephens Media Assigned Copyrights for any lawful purpose whatsoever and 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.

Moreover, Section 8, entitled “Stephens Media’s Right of Reversion” states: “Stephens Media shall have the right at any time to terminate, in good faith, any Copyright Assignment (the ‘Assignment Termination’) and enjoy a right to complete reversion to the ownership of any copyright that is the subject of a Copyright Assignment . . . .”

In short, the “assignment” is a sham, Righthaven’s claim has been baseless from the outset. Stephens Media, which has struggled to hold the litigation at arms length, is the true and exclusive owner of the copyright and the only entity with standing to bring a copyright claim..

So why didn’t the public know this until now? Stephens Media and Righthaven have gone to great lengths to conceal their scheme, starting long before they challenged our request to unseal their business agreement.

In the Nevada Federal Court, Righthaven is required to list all the entities who have a “direct, pecuniary interest” in the outcome of lawsuit – i.e. everyone who is going to make money if Righthaven wins – right at the beginning of the lawsuit. Righthaven, however, omits to mention Stephens Media even though the Agreement splits the recovery 50/50 with the publisher (Section 5).

When another defendant challenged Righthaven’s ownership, the litigation factory incorrectly claimed that “Righthaven is the owner of both the exclusive rights in and to the Work and the owner of all accrued causes of action.” The Agreement, however, makes clear that Righthaven does not own any exclusive rights to the copyright – Stephens Media does. Numerous other defendants also challenged ownership, but – without access to the Strategic Alliance Agreement – failed to get their cases dismissed.

After Democratic Underground filed its Counterclaim against Stephens Media, contending that the assignment was a sham and that the publisher was a proper party for declaratory relief, Stephens Media strenuously denied it. The newspaper publisher claimed “Stephens Media’s involvement with Righthaven, as well as its involvement in this lawsuit, is limited to its role as the assignor of the subject copyright.” However, the Agreement, shows that Stephens Media is an active partner in the improper litigation scheme. For example, (1) it is part of an “integrated transaction” with a separate Operating Agreement that required one of the owners of Righthaven be a “Stephens Media Affiliate,” which “is presently and shall throughout the Term be Controlled by common owners [with Stephens Media] with no material variation in said ownership” (Section 2); (2) that Stephens Media controlled the choice to “assign” rights in this particular news article (Section 3.1) and controlled whether the news article would actually be sued upon (Section 3.3), and (4) Stephens Media has the right to take back the copyright at any time (Section 8).

Moreover, Stephens Media recklessly asserted that “[c]omplete ownership of the work being sued upon has been transferred to Righthaven without any ambiguity” and that “Stephens Media assigned Righthaven the totality of rights in and to the” news article (emphasis added). Again, the Agreement belies this assertion.

Section 7.2 of the Agreement also makes clear that Righthaven has no right to license the news article, with Stephens Media retaining this exclusive right. However, when questioned in open court in Righthaven v. CIO, Righthaven’s counsel said “if we have assignment of the [news article], we can also license that work to others.” (The complete transcript of that hearing is well worth a read).

Likewise, in arguing against fair use, Righthaven has continued to assert that it is entitled to a presumption of harm to its market for the work, which makes no sense given that it is contractually prohibited from exploiting the work financially.

As the Court correctly noted, “consider[ing] the multitude of cases filed by Righthaven, on the claimed basis that Righthaven owns the copyrights to certain Stephens Media copy, it appears to the Court that there is certainly an interest and even a right in all the other defendants sued by Plaintiff to have access to this material.” Now that the Agreement is public, Stephens Media and Righthaven have a lot of explaining to do. Per the Court’s order, the companies might start by explaining why the Strategic Alliance Agreement does not torpedo their case against Democratic Underground (their justification is due by May 8). We look forward to responding.