Winning But Losing: Lessons From An Internet StartUp
from the the-deck-is-stacked dept
"Justice prevails" is often declared when a court case ends, honoring a system that produces the right result. Right, however, is not always just. The judicial system needs to address the exorbitant costs that accompany litigation, or a situation can happen when a company is sued by a deeper pocket plaintiff, wins the case, but has to shut down because the cost of litigation has exhausted its financial capital.Last month, in a unanimous decision, the Ninth Circuit affirmed, once again, a judgment in favor of Veoh Networks in a widely followed copyright case brought six years ago by Universal Music Group. Veoh, the court held, was entitled to rely on the safe harbors of the Digital Millennium Copyright Act, and was not liable for copyright infringement for user-uploaded videos that Universal alleged contained their copyrights, an important precedent that benefits YouTube and others. Veoh, the company I joined during the early stages of the digital video revolution in 2006, which pioneered long form viewing on user generated content sites, and was the first site to offer premium content from major networks like ABC and CBS, is not around anymore to capitalize on its victory. Three years ago, a few months after Veoh's win at the district court, its leadership surveyed the war torn company, wounded from a litigation battle designed to inflict the very damage the lawsuit had wrought, wondered, at what price victory and decided to sell the assets and closed the doors. Universal Music lost the case, but achieved victory, shutting down an innovative company that threatened their static business model.
From the outset of the case, Universal Music Group made sure Veoh would suffer financially. They issued many discovery requests, doing their best to make sure Veoh spent money to defend itself. Savvy plaintiffs know how to exert pressure by exploiting our judicial system's liberal rules regarding discovery. In this regard, advances in technology have not produced economic efficiencies. Millions of documents and casual conversations are stored on computers, readily accessible. These petabytes of data need to be prepared and reviewed by lawyers before being produced in response to a discovery request. The lawyers' bill increases very rapidly when an army of attorneys is reviewing all this data. Because the bulk of documents and discovery often lie with the defendant, plaintiffs can inflict maximum financial pain on a defendant, while producing relatively few documents themselves. This tilted playing field gives plaintiffs an unfair advantage. In the Veoh case, legal fees on discovery alone were enormous, exacerbated by the magistrate's decisions to compel the company at its own cost to store every single video on our system, and to even produce Skype conversations. Who suffers? The defendant. Recourse? None.
The company quickly recognized the economics of litigation and the lack of upside to being a defendant and offered to settle. However, Veoh never had meaningful settlement discussions; Veoh did not have the cash to pay the amount Universal was seeking. The company was left with no choice but to litigate, and spend money.
To counter the ticking clock and register, Veoh hoped for a quick resolution to lift the dark cloud Universal had placed on the company that handcuffed it from raising the additional funds the company needed to grow. The case, however, was not resolved in the district court for over two years and is now approaching the six-year anniversary.
Defendants need an option other than to just play defense and wait. It was well documented in the case that Universal never even sent Veoh any takedown notice for their content and was similarly undisputed that every time Veoh received a takedown notice from every other content owner, that Veoh took the content down. Universal could have achieved its goal of having its alleged content removed from Veoh's website by merely sending the company a letter. Our judicial system gave Universal the right to sue. Shouldn't Veoh have any rights or recourse, especially when a mere letter could have avoided an entire litigation?
Unfortunately, the only option available to Veoh was to file a motion to recover fees after it won the case, even though this avenue was too little too late; the mortal damage was already inflicted. Six years of combative litigation cannot be undone entirely by recovering legal fees. Yet, the standard for recovering fees is very high and Veoh was not successful. Despite its favorable decision on the merits of the case, the Ninth Circuit denied awarding Veoh its fees, instead remanding to the District Court to consider awarding Veoh its much lower court costs. The Ninth Circuit's ruling on this point only further weakens an already poor option for innocent companies.
Our judicial system needs a solution to rectify the devastation that unfounded litigation causes companies ultimately proven innocent. Courts need to be sensitive to the new entrant and pay respect to the scales of justice when a deep pocket plaintiff goes after a financially weaker opponent. Instituting "loser pays" into the concept of commercial litigation in appropriate situations improves the chances for defendants, and could reduce meritless litigation. While this concept has been debated for decades, another standard needs to be introduced, one that holds plaintiffs and their lawyers equally accountable. Plaintiffs' lawyers should be compelled to pay any 'loser pays' fee along with their clients. In a world where plaintiffs' lawyers share in multi-billion dollar settlements, it seems only fair that if they lose a case they should pay. This will force lawyers to think twice about the merits of their clients' case, as opposed to what strong-armed litigation tactic they can use to extract a settlement. If lawyers are held accountable for their - and their client's - actions in a manner never before applied, we will see what everyone wants: a precipitous drop in the number of cases in our judicial system. We can even adopt a three strikes policy and ban law firms and their clients for twelve months if they are found guilty of such abusive behavior on more than two occasions. How refreshing that would be.
Fewer litigations will reduce the dockets of federal and state courts, reducing the need for our government to increase the number of judges and court staff, thereby saving taxpayers' money. Plaintiffs will pay more attention to increasing defendant's legal fees lest they lose. Legal fees and costs will decline, which will lead to a downward pressure on insurance premiums. Most importantly, productivity will increase. Companies will spend previously allocated monies to litigation on research, development, hiring, and expansion of operations.
Veoh encountered a plaintiff set on its destruction. They were unable to defeat Veoh in the world of technology or in the world of business. With those avenues closed, Universal sued. The judicial system provided Universal with what it could not achieve on a level business playing field. Veoh won the case but is not around to continue to grow. That is wrong. UMG and its lawyers should be required to pay for the damage they have done. Strike one to a plaintiff and its lawyers. Fairness in our judicial systems dictates such an outcome.
Joshua Metzger is an Internet consultant. He was SVP Corporate Development & General Counsel for Veoh Network and before that was chief legal officer for Overture Services, which was acquired by Yahoo!.
Filed Under: copyright, dmca, legal threats, liability, loser pays, online video, statutory damages
Companies: universal music, veoh
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More likely ripped off by your own lawyers.
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Re: More likely ripped off by your own lawyers.
That doesn't make a lick of sense. Veoh likely got as swift a trial as possible. But in civil litigation in the US, parties are entitled to discovery. Lots of discovery, in fact. I've seen cases where discovery dragged on for years, due to a large number of documents which have to be checked to see if they have to be turned over, and then looked through once they have been. It's inescapable so long as parties are obligated to help one another investigate the facts.
Frankly, you sound like your knowledge of litigation is self-taught based on half-remembered episodes of Matlock and what you've read on the back of cereal boxes.
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Re: More likely ripped off by your own lawyers.
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I'm sorry your company was crushed. This seems to be occurring rather frequently. Perhaps you should strap in for another round nonetheless and help change the situation.
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These are the reasons.
But I do not blame the gun for having been used to kill.
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Re: These are the reasons.
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The fact that people are involved doesn't help, but is necessary.
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Universally despised Universal Music
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Bring the British system to the US
So called consumer advocates (who are really representatives for plaintiff's attorneys) hate the idea for the very reason it is a good idea. Increasing the risk associated with bringing a questionable lawsuit means there will be fewer lawsuits. Fewer lawsuits mean fewer lawyers getting paid, and less expenditure of resources in nonproductive ways by all concerned.
A true consumer advocate should accept this idea because if a corporation has wronged a consumer or group of consumers, the offender would be quicker to settle if it knew there was a good chance of losing not only the judgment, but also the opponent's legal fees. There is less chance that a true offender can just stall until the claimant runs out of money and gives up.
Loser Pays means fewer frivolous lawsuits, fewer attempts at legal bullying and less expensive justice. Period.
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You would be raising the risk on one side, and all but entirely removing the risk to those who offend. That would be incredibly unfair.
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I for one think that a litigant must at the very least be absolutely certain beyond all doubt that he will eventually win a case before suing.
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I feel this is important enough to give it it's own little spot, so here it is: Bringing, or even threatening to bring lawsuits against someone should never be something a company does casually or without thinking carefully about it first. If a 'loser pays' system causes companies to be less lawsuit happy and willing to sue everyone they think they even might have a case against, and forces them to consider things more before suing, then that's all for the better.
A loser pays system would make companies actually stop and think before letting the lawyers loose, cutting down the 'sue to shut a competitor down' situations, while still enabling those that are obviously violating the law/copyright to be gone after.
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On the other hand, if you sue me willy-nilly over some half-cocked notion, you place an unfair burden on me to defend myself. If it is determined that you were in the wrong, why should I have to pay legal fees?
Under "loser pays" you'll think twice before you try to pervert the legal system by turning it into a weapon.
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Otherwise, they just go suing everyone for no other reason than to bring the burden on them, which is a mockery of justice.
I'm not sure many other justice systems actually have this degree of an issue with people suing without proper cause. Perhaps looking at how some other systems handle this might be worthwhile.
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In England when you sue you think twice before litigation and make sure you have your facts right and a good chance of winning or it is expensive for the plaintiff to proceed should you lose. So crap like Veho does not happen in England.
Veho is not an isolated case and the broken justice system is one of the reasons patent trolls are running rampant.
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Currently, whether or not you have a solid case, all a company has to do is force you to spend more than you can afford and they win. And if you're lucky enough to win, despite all the costs you suffered? Guess what, all they have to do is appeal until you can no long afford to fight.
Under a 'loser pays' system though, they wouldn't be able to bleed you dry like that, as a win for you would mean a full recouping of expenses, allowing you to continue fighting if they appealed.
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" if I am harmed by an enormous company and sue; if I lose"
you mean " if I am *not* harmed by an enormous company", (since you lost).
If you were harmed (in the eyes of the law of course, other harm is irrelevent), you would have won, and therefor wouldn't need to pay
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This would discourage the claimant form ever doing this again.
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Again, at least here in Canada, it doesn't matter whether you're the plaintiff or defendant. If you lose, you typically pay some portion of the other side's legal fees.
I guess the rationale is that it's unfair that the plaintiff had to pay all that money just to protect their rights. You were the one who acted 'badly', so you should have to pay some of that.
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Can't say I'm sorry to see freeloading grifters go out of business. But it sounds like you, as general counsel humped up the legal strategy beyond belief. Now you come here blaming the system for your own failure? Pretty weak.
Why would an impoverished party ever litigate a matter with an affluent one? Often times paying the rich guy's (inflated) legal costs would be ruinous and have a chilling effect an most of the litigation out there.
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Or did you not see that part where UMG admitted they had not sent a single akedown notice before suing.
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You do realise multiple courts found that Veoh were actually not "freeloading grifters" right? That's kinda the main point of the story...
"Now you come here blaming the system for your own failure?"
Veoh didn't fail in court, they won every time. You seem to be failing to grasp the basic stuff here.
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Not only have you not worked out why that word you keep using doesn't mean what you think it means, but you're commenting on a story where the people being accused of that were found NOT GUILTY. Multiple times. Are you so afraid of reality that you have to pretend that this means a guilty verdict now? Sometimes when reality doesn't say what you wish it did, that means that the truth is not what you want it to be. Deal with reality.
"But it sounds like you, as general counsel humped up the legal strategy beyond belief."
Talking about reality, the article states quite clearly that Veoh tried to settle, but they couldn't pay the demanded amount and were left with no option but to continue legal defence. It also states that Universal had the option to get the content removed without litigation, but insisted on the legal route. The "general counsel" who humped up the legal strategy were the lawyers for Universal.
Another instance where you somehow read words and come out with the exact opposite of what they say. You live in a fantasy world.
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loser pays
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loser pays
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Ready.gov?
Sadly there are tons of issues that need to be addressed that I would easily support.
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Coincidentally, most politicians appear to be pretty well off...
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When you have a Judge who has an ex-parte hearing to reopen a case, the Clerk of the Courts who sends the lawyer back his paperwork after filing it and that same Judge denying discovery because he didn't like reading the paperwork in the case (Wisconsin, Waukesha County 2012sc400) it doesn't matter how 'savvy' you are as the Judge controls the show.
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The concept of making prosecuting lawyers responsible for losses along with the plaintiff is fascinating and have not heard of it before. Since lawyers do share in the proceeds of litigation by a large percent it would be a great deterrent to baseless, unfounded, meritless lawsuits. Most of the risks are presently assumed to be on the person hiring the lawyer. Not sure how that would be implemented.
Is sad that the 9th circuit court did not allow the defendant to recoup defense litigation expenses. In this case it seems appropriate that Veoh should be able to. Its possible that the judge is not very tech savvy and might not see the disparity in accusation vs substantial proof.
Universal seems like a dark entity with no good standing. If they went bankrupt in an economically horrible way it might be good thing.
But. All of that observing is kind of irrelevant to the real problem; If copyright term limits were reasonable and not eternal in length there might be much less to contest about.
Considering that Mr. Metzger was likely in the business of profiting from eternal copyright its not surprising this was not mentioned. Putting forth the question; How would Veoh benefit from copyright terms of 14-28 (or less) years? Its likely that the base of its operations would have been reduced in size unless they could find a way to benefit from Public Domain Rights. The business model would still work though.
Reactionary,
Loser pays might be a good thing for companies. For people maybe not. (many posts) Companies end in bankruptcy, and that happens, but people end up in the gutter and that is bad.
Mike Brown; “You're darn right the burden is on the "offended." That's where it belongs.”
This is not a bad attitude in respect to the way burden of proof is upon the accuser and that the defendant is innocent until otherwise found guilty. Its MENT that there be a high level of confirmation (first person witness etc) for any evidence. For any firm to profit by just leveling an accusation is beyond the scope of civil law. Courts are not always up on new technology and its implications.
However this suggests that there be new legislation that requires the judicial branch to demand a higher level of evidentiary proof of harm or damages before allowing a civil lawsuit. This might be a nice thing to see.
That One Guy; “All the ones who go around accusing all and sundry of the most heinous acts for daring to have a different opinion on something, are, I can only assume, guilty of those very acts, and in an attempt to deflect their guilt they go around blaming everyone else.”
Hypocrisy is one of the first symptoms of a lier/perpetrator. Its one of the easiest ways to measure the “something going on” thing. Hilarious is the fact that many times even the lairs/perpetrators themselves wholeheartedly believe that they are not lying or doing anything wrong and that they were the first to be duped.
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Loser pays
Section 505:
So, to some extent, there is already a 'loser pays' system in the US when it comes to copyright law. Obviously it didn't help much in the Veoh case. I don't know the details of the case, so I don't know why that is.
Also, at least in Canada (and I assume in the UK as well) 'loser pays' almost NEVER means 'loser pays ALL of the other sides legal fees'. Even if you win, you're lucky to get 50% of your costs covered. There are exceptions to this, the big one being if the other side was engaged in vexatious or unethical conduct. But if they had a reasonable case and they argued it in an appropriate manner and lost, 50% is about as much as you can hope to get.
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Universal wants to sue a company out of existence, fine. They loose, whats left of the company has a right to 3 months profit from universal.
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How much for the website and software?
Sorry to hear about the demise of your company. Also am very sorry to hear that you must sleep in plastic tent, eat tree bark and birds for food.
As Supreme Leader of the Democratic People's Republic of North Korea, I, Kim Jong-un would like to extend you a loan of 100 million North Korean won, facilities in our industrial complex in Yongbyon and the assurance that you will be able to set up your business with no interference from the United States or DPRK governments.
Sincerely,
Kim Jong-un
despotic Great Leader and Hollywood Film Buff
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