Last Friday, the federal district court in Nevada held that the non-profit organization Center for Intercultural Organizing’s posting of a copyrighted news article was a non-infringing fair use. The well-reasoned opinion sets a powerful precedent for fair use and against copyright trolling.

The newspaper article at issue was originally published by Stephens Media’s Las Vegas Review-Journal newspaper. Per its standard practice, copyright troll Righthaven LLC found it online and entered into a scheme with Stephens Media, under which the publisher purportedly assigned the right to sue to Righthaven. The litigation factory would then carry on the litigation at its own expense, splitting any proceeds with Stephens Media (less expenses).

This scheme was fatal to Righthaven’s infringement claim, because it greatly strengthened CIO’s claim to fair use. When analyzing fair use cases, courts must consider four statutory factors – the purpose and character of the use, the nature of the work, the amount and substantiality of the use, and the harm to the copyright holder’s market. These factors are balanced “in light of the purposes of copyright,” which are “[t]o promote the Progress of Science and useful Arts and to serve the welfare of the public.” (see Perfect 10 v. Amazon)

While considering the purpose and character of CIO’s use, the court compared the use made by CIO with the use made by Righthaven. The court wrote: “Although the former owner, the LVRJ, used the article for news-reporting, the court focuses on the current copyright owner’s use, which, at this juncture, has been shown to be nothing more than litigation-driven.” This led to the court to conclude that the purpose and character of the work was “transformative,” meaning it was used for a new purpose and therefore weighed towards fair use.

Likewise, when analyzing the “market harm” factor, the Court noted that Righthaven “failed to allege that a ‘market’ exists for its copyright at all.” Indeed, recently unsealed evidence shows that Righthaven is unable to make that allegation, as it is contractually prohibited from licensing the works in question. The court also noted that “Righthaven cannot claim the LVRJ’s market as its own and is not operating as a traditional newspaper.” The court cited to eBay v. MercExchange, a landmark Supreme Court from 2006, which refused to presume harm to the markets of patent trolls (entities that buy up patents solely for purposes of litigation). Taken together, this meant that the “market harm” factor favors fair use where Righthaven is concerned.

Finally, the court’s overall balancing clearly disfavored copyright trolling. The Court noted that Righthaven’s “litigation strategy has a chilling effect on potential fair uses of Righthaven-owned articles, diminishes public access to the facts contained therein, and does nothing to advance the Copyright Act’s purpose of promoting artistic creation.”

The decision confirms that a non-publishing entity that uses copyrighted works for litigation is in a materially worse position than the original publisher in a fair use analysis. While Stephens Media would likely have lost anyway, the business model promoted by Righthaven ensured that at least two of the four factors and the balancing favored fair use.

Righthaven’s decision to focus its efforts on news articles also contributed to its loss. While news reports may involve planning, research, interviews and a great deal of effort by a reporter, the Supreme Court has rejected the notion that copyrights may be based on the ‘sweat of the brow.’ Instead, the question is whether the nature of the work is informational or creative; if the former, the use is more likely to be found to be fair. While other copyright trolls will not necessarily focus on informational works, once again Righthaven’s business model contributed to its loss.

As we explained last week, the recently unsealed Strategic Alliance Agreement between Righthaven and Stephens Media shows that the purported assignment of the copyright is a sham. If the court agrees with this assessment, as we believe it should, it may well overshadow this fair use ruling for future Righthaven decisions. However, last week’s decision serves as a warning to others that purchasing a copyright solely to profit from litigation against bloggers and websites is not a good business decision.