Welcome back for another week of What’s Next, where we report on the intersection of law and technology. This week, copyright law is in the eye of the beholder as U.S. District Judge James Donato weighs in on a Jehovah’s Witnesses organization’s efforts to uncover the identity of a Reddit user. Plus, Facebook attempts to cleanup the fallout over the Cambridge Analytica data scandal, but it faces another challenger. And a district judge takes a stand on attorneys fees. Let’s chat: Email me at [email protected] and follow me on Twitter at @a_lancaster3.

U.S. District Judge James Donato of the Northern District of California.

Copyright Infringement or Censorship?

A federal judge cast more doubt Thursday over a case that a Jehovah’s Witnesses group calls a copyright dispute, and that a digital rights group fears is a pretext for silencing detractors.

In last week’s hearing, U.S. District Judge James Donato of the Northern District of California raised an eyebrow over the continued legal avenues for Watch Tower Bible and Tract Society of Pennsylvania, the Jehovah’s Witnesses’ administrative organization that subpoenaed Reddit in January for the identifying information of a foreign user who reportedly infringed two of Watch Tower’s copyrights.

The user allegedly infringed the copyrights when he posted a one-page magazine advertisement encouraging readers to make online donations to the church, and a Watch Tower chart that describes its personal data gathering policies. Both the works have since been removed from the site.

“The poster is outside the territory of the U.S.; the church’s main concerns have been addressed by the takedown,” Donato said. “Isn’t that enough to call it a day?”

Let’s backtrack a bit. Earlier this year, Reddit declined to share the identity of the anonymous user. That person, identified only as Darkspilver, uses the forum to question the teachings of the church without fear of excommunication or “disfellowship” from the Jehovah’s Witnesses community he was raised in.

The subpoena seeks Darkspilver’s subscriber information, name, telephone number, address, email and IP addresses, citing infringement under the Digital Millennium Copyright Act. In June, U.S. Magistrate Judge Sallie Kim of the Northern District of California ruled that Reddit must reveal the identity of Darkspilver, but only to attorneys involved in the case. The internet freedom advocacy group Electronic Frontier Foundation intervened on behalf of Darkspilver to try and quash the subpoena, which the EFF argues is a thinly veiled attempt at uncovering the identity of a “leaker.”

So, before getting into the merits of the case during Thursday’s hearing, Donato had to determine whether Kim’s order stood.

EFF argued that Darkspilver never officially consented to a dispositive motion in front of Kim, which is required for a magistrate judge to have the authority to issue an order. That argument came despite Darkspilver’s attorneys submitting briefings and appearances in the case.

Known among my colleagues for being the most prepared person in the room, Donato rattled off several cases, including Roell v. Withrow, to suss out implied consent. In Donato’s opinion, “if you come to the party and drink the punch, you can’t say you weren’t a guest.” However, precedent says otherwise in Allen v. Meyer. “The circuit has expressly declared that simply submitting briefs and attorney arguments just is not enough,” he said. “I’m not sure if that’s the answer, but that’s the answer I’m left with.” Donato subsequently suggested taking Kim’s ruling as a recommendation instead of an order.

With that out of the way, the judge returned to the copyright argument. Watch Tower’s in-house counsel Paul D. Polidoro said the church became a digital media organization virtually overnight. Polidoro claimed the infringing posts drew traffic away from the organization’s website and Watch Tower had a right to protect its site, an official conduit for Jehovah’s Witnesses teachings.

“That’s what the notification and takedown process is for,” Donato said. 

Alex Moss, an EFF staff attorney representing Darkspilver, said the DMCA could be invoked to unmask other anonymous internet posters who won’t have the EFF or anyone else defending them if Donato rules in Watch Tower’s favor. However, Moss said Donato’s questions had her leaving in a good mood.

“We weren’t surprised that Judge Donato came to the hearing extremely well-prepared, but we were pleasantly surprised by the indications he gave, particularly with respect to procedural questions about the appealability of the magistrate judge’s order and the practical necessity of Watch Tower getting access to client’s name now that the images at issue have since been removed from Reddit,” she said. “We hope that Judge Donato’s decision will take into account the nature of our client’s fair use and the harm that compelling Reddit to disclose a user’s identity under these circumstances would do for the anonymous fair use commentary.”

Facebook’s Legal Tug of Wars

In an attempt to shield itself from Cambridge Analytica blowback, Facebook maneuvered to prevent the release of documents that could help plaintiffs lawyers build their shareholder derivative lawsuit in district court.

Attorneys at Gibson, Dunn & Crutcher filed a motion for a permanent injunction on behalf of Facebook last week in the U.S. District Court for the Northern District of California. In March, U.S. District Judge Haywood Gilliam Jr. nixed most claims in a shareholder derivative suit against Facebook there, ruling that shareholders have to make their state law claims through the designated Delaware Court of Chancery. Facebook’s injunction motion asks Gilliam to dismiss a similar 143-page complaintin the Superior Court of the State of California, on the grounds that the judge had already routed the litigation to Delaware.

“This Court already has ruled that the Delaware exclusive forum provision in Facebook’s charter is enforceable and applies to shareholder derivative claims brought under the California Corporations Code,” wrote Gibson Dunn lawyers Orin Snyder, Kristin Linsley, Brian Lutz, Joshua Lipshutz and Paul Collins. “In a transparent attempt to obtain a different result on this identical issue, another Facebook shareholder represented by lawyers closely aligned with lead counsel in this action filed a substantially similar derivative lawsuit in San Mateo County Superior Court, seeking a declaration that Facebook’s exclusive forum provision is invalid and does not apply to California Corporations Code claims.”

However, an injunction in the state court thwarts a plan from Cotchett, Pitre & McCarthy’s Joseph Cotchett and Mark Molumphy to enforce a writ for Facebook’s corporate books and records, which would help uncover which board members knew about the scandal, and were involved in it.

“We believe that’s going to be a treasure trove of insider information about board knowledge of this conduct—who was involved and when they knew,” Molumphy told The Recorder earlier this year.

Besides its class action woes, Facebook faced another hurdle to close it’s proposed $5 billion settlement with the Federal Trade Commission. The Electronic Privacy Information Center has filed a motion to intervene on behalf of users’ privacy rights and to safeguard the 26,000 consumer complaints submitted to the FTC against Facebook, which would be dissolved in the settlement.

The settlement also fails to safeguard the interests of Facebook users, according to EPIC.

“The proposed Consent Decree does not adequately address the consumer privacy complaints raised against Facebook by the FTC, numerous consumer privacy groups like EPIC, and individuals,” the group wrote.

Tigar Wants To Rewrite the Rules for Attorney Fees

A back and forth over $68 million in attorney fees in a $240 million class action settlement has inspired U.S. District Judge Jon Tigar to consider setting new standards for contract lawyer fees.

In a fairness hearing last Thursday, Tigar of the Northern District of California took issue with a motion for attorney fees filed by San Francisco’s Lieff Cabraser Heimann & Bernstein. The case involves a settlement with Wells Fargo shareholders over the financial institution’s widespread opening of unauthorized accounts to reach sales quotas and artificially inflate the company’s stock.

As co-lead counsel in the litigation dating back two years, Lieff Cabraser had calculated a fee for its contract attorneys that was about nine times higher than the attorney’s rate. Tigar suggested to Richard M. Heimann of Lieff Cabraser that contract attorney fees should be no different than a plane ticket and calculated as a cost. With no law or ruling that reflects such a shift in procedure, Heimann asked how it was fair that his team’s fees should suffer because the judge wanted to change the rules.

“If I think that should be the rule, how could I ever do that without an order?” Tigar responded.

As you might have guessed, the dispute has the fingerprints of Ted Frank of theHamilton Lincoln Law Institute’s Center for Class Action Fairness all over it. Frank initially raised the issue in his motion opposing the attorney fees, pointing out that the co-lead counsel paid contract attorneys between $40 and $50 an hour but requested about $415 an hour to cover their investment.

“The unreasonableness of co-lead counsel’s fee request is confirmed by the lodestar crosscheck,” Frank wrote in his opposition to the motion. “Using these rates, the lodestar figure is exaggerated by at least $5.5 million, but the precise amount is unclear due to counsel’s failure to submit daily billing records. This means the lodestar multiplier is actually about 4.04.”

With that kind of markup, Tigar said the use of contract lawyers could be considered a profit-seeking scheme. Heimann argued that the work and the overhead costs for staff and contract employees are the same in regard to training, supervision and providing workspaces. Tigar said the law firm wouldn’t contract out staff if it weren’t more profitable.

“Are you telling me with a straight face that you don’t make more money on contract lawyers?” the judge asked.

Heimann said that taking advantage of contract employees is only marginally more profitable—about 10% to 20% more than staff attorneys—but the primary reason the firm hires contract workers is to handle fluctuating caseloads.

Regardless of his pending ruling on the motion for attorney fees, Tigar told Heimann that $240 million is a big settlement.

“I promise you won’t lose money on this case,” he said.

(L to R) Silicon Beach Orrick partners Josh Pollick, Alyssa Caridis and Andrew Erskine. (Photo: Jason Doiy/ALM)

On The Radar

Law Firms Descend on LA’s Burgeoning Tech Scene Big Law has followed the footprints in the sand as tech entrepreneurs colonize a stretch of Los Angeles known as Silicon Beach. Over the past seven years, a handful of Silicon Valley outfits have set up shop in the area, including Gunderson Dettmer Stough Villeneuve Franklin & Hachigian; Orrick, Herrington & Sutcliffe; Cooley; and Fenwick & West. Some say the growth of the market resembles the early days of Silicon Valley. Read more form Xiumei Dong here.

Rigorous Legal Burdens for Software Companies An $8.6 million settlement over reported security vulnerabilities signals a “new environment” and greater legal risks for software providers, according to Mark Chandler, the chief legal officer of Cisco Systems Inc. Chandler says Cisco’s settlement over possible security issues with its video surveillance software sold to the government without evidence that a customer had actually been breached shows that “standards by which suppliers are judged … are changing.” Read more from Caroline Spiezio here.

A Tech Patent Throwdown Unfolding Over Frand The U.S. Court of Appeals for the Federal Circuit is scheduled to hear major tech companies’ arguments this week for how to set a fair, reasonable and non-discriminatory (FRAND) rate when dealing with large portfolios of patents. Several tech giants have weighed in as amici curiae, including Google, HP, Toyota, Uber, Interdigital, Nokia and Panasonic. More from Scott Graham here.

Thanks for reading. We will be back next week with more What’s Next.