In the early morning on June 9, we reported that CalPERS had engaged in systematic copyright infringement by operating a daily news site that had published the full text of news stories from many publications for years.
Because CalPERS refused to take down its website even after it was caught out, we set out to determine the full extent of the misconduct.
From the inception of the site on August 2, 2009 through June 9, 2017, CalPERS has published the full text of over 50,000 articles. These articles were on an internet address open to any member of the public. All the articles were in a standardized format. None had any indicators that the CalPERS had paid the license fees to allow it to present them to its roughly 2,700 employees and board members, such as notices of copyright that publishers typically require for authorized republication.
To perform our analysis, we downloaded and archived all of the articles from the CalPERS site. At the end of this post, we have embedded a page from one of them, along with a second document with full list of publication names and the number of articles per name.1
Here are the sources from which CalPERS heisted the most articles:
Our efforts to understand the scope of CalPERS’ exposure did not just get the attention of some major publications but also prompted swift action. The New York Times sent a cease and desist notice to CalPERS’ CEO Marcie Frost before the start of business in Sacramento on Thursday, June 14, less than a week after our story. CalPERS posted its news summary that day but had no New York Times articles in it. It then took the entire site down sometime between Thursday night and Friday morning.
The New York Times’ letter threatened legal action if CalPERS did not remove the articles within three business days and reserved its other rights. Under copyright law, the Times has up to three years in which to pursue damages from CalPERS. Given the magnitude of the potential recovery and CalPERS’ financial resources, it would seem reasonable that the Times and other major publications may seek restitution. The Wall Street Journal, which has had the most articles purloined by CalPERS, was the first major publication to move to a subscription model. Its parent, Dow Jones, has been vigilant about seeking damages for copyright infringement, even minor-seeming ones. We know at least two other major publishers have their lawyers looking into the matter seriously.
Please note that CalPERS having removed and potentially erased the contents of the site does not shield it from legal action. We had our colleague Michael Olenick, who has created and managed very large databases, download the entire contents of the CalPERS news site last weekend. He has all of the news articles and will provide them to any interested publisher.
As we explain in more detail, every lawyer with copyright or intellectual property expertise that we consulted said that for publications that registered their copyrights, CalPERS has no defense.
They were also stunned at the scale and brazenness of the infringement. CalPERS is liable to the Times and Dow Jones alone for over $10 million each. Other publications have significant claims they could pursue.
Why Did We Pursue This Story?
Frankly, ever since I first learned about CalPERS’ news site, I debated whether I should expose it with the intent of getting CalPERS to shut it down. Since 1989, I have made my living selling intellectual property. Preventing theft of copyrighted material has become a life-or-death issue for most publications. Many online publishers have been placing more restrictions on their online editions to get more readers to subscribe.
As we explained in our initial post, when we first discovered the CalPERS news site, it had been doing a fair-minded job of presenting CalPERS-related reports, including critical stories like ours. That was important enough to our objectives of private equity reform and trying to get CalPERS to address its governance failings that we thought it better to focus elsewhere.
But over time the site descended into presenting only internal propaganda and ignored unflattering stories on CalPERS, even ones by major newspapers. The equation for us changed when the news site omitted a recent Wall Street Journal article that criticized how CalPERS misrepresented its private equity costs.
Despite putting a harsh headline on our post, CalPERS Internal News Site Ignores Unfavorable Stories, Steals Copyrighted Material, we actually gave CalPERS a break. We didn’t publish the URL of the site, which was open to anyone. That not only kept publishers from finding it but also kept it from being indexed on search engines, which meant it continued to be hidden from internet searches.
There is no question that the pension fund’s media department has a Google alert on “CalPERS” and would have seen our post. We were shocked that CalPERS didn’t take the site down immediately and instead continued to add copyrighted articles to it.
So we decided to dig further. The extent of the misconduct was far greater than we imagined.
The Scale of Potential Damages
17 U.S. Code § 504 describes the remedies for copyright infringement. If the plaintiff has not registered the copyright with the Copyright Office, the damages are the greater of lost profits of the creator of the work or the profits earned by the infringer. Even though the Times and Dow Jones would seem to be able to assert eye-popping damages using that method2, I am told it is more common for major publications to settle based on statutory damages, an option available only to holders of registered copyrights.
Statutory damages are from $750 to $30,000 per registered work, and in the case of willful infringement can be as high as $150,000 per infringement, with infringement being counted as the number of registered copyrights infringed upon. A creator or publisher has up to 90 days after publication to register a copyright. Since some publications may copyright only entire issues, and not individual articles, they would be entitled to only a single charge per issue infringed, regardless of the number of articles CalPERS stole. Some of the blogs that CalPERS republished regularly, like Calpensions, may not have filed with the Copyright Office at all. However, even those publishers could pursue CalPERS to recover lost profits. Nevertheless, given that the Times and Dow Jones are both licensing individual articles, our assumption is that they have registered all their articles in recent years with the Copyright Office. That means each article misappropriated would trigger separate damages.
Courts are also permitted to and often do award the reimbursement of legal fees to successful plaintiffs.
Many readers might assume that damages would tend to be the statutory minimum, which based on our tally would put the total damages for infringement of Wall Street Journal articles at $6.8 million and for the Times, $5.2 million.3 But even if either publication were to use this basis for arguing damages, the actual exposure is much greater. As Boston-based intellectual property lawyer Dan explained:
The assignment of damages is intended to have a punitive effect. If the plaintiff goes for statutory damages, they are $750 to $150,000 per infringement based on willfulness. Courts have tended to award higher damages because otherwise users could look at the cost of getting a license versus paying minimum damages, and say, “I’ll take a chance. If I get caught infringing, I know my maximum downside and it’s worth playing the odds.”
The intention of the legislation is also to encourage copyright registration, which is another factor in courts in looking favorably upon plaintiffs who have registered their copyrights. Finally, in cases that are pretty cut and dried, judges are not keen about parties showing up in court because the defendant appears unwilling to pay a reasonable settlement and tend to weigh that in their thinking process.
And that is before considering that the copyright law explicitly allows for much higher damages in the case of willful infringement. In the event that CalPERS were so foolish as to not settle any claims out of court, it would be very difficult for CalPERS to rebut the contention that its infringement was willful. The misappropriation of over 53,000 articles from virtually every news publication in the US over a period of eight years was deliberate and programmatic. CalPERS could even more easily have prepared the same “Daily News Summary” page by linking to the chosen articles at the sites on which they appeared, just as Drudge, FT Alphaville, yours truly, and other sites do. The only plausible explanation for CalPERS having behaved the way it did was to evade paying licensing and subscription fees.
As Jim Moody, who has won high profile media and whistleblower cases, said:
I can’t tell you how shocked I am. As an investor, CalPERS should understand the importance of property rights. I don’t see how they have a defense. Copyright law is strict liability for statutory damages. The purpose of such strong protection, including criminal penalties for willful infringement, which seems apparent here, one of the few topics for Congress actually mentioned in the Constitution, is to properly protect and value the property we create. You might go easy on an infringing high school website, but not a large organization.
Another lawyer who has been party to copyright infringement negotiations said that copyright infringements of a scale similar to those suffered the Wall Street Journal and New York Times have gotten eight-figure private settlements.
Does CalPERS Have Any Defense?
CalPERS, in its Sacramento bubble, may think it can dodge this bullet. But if any major publisher goes after them, no lawyer I spoke to thought CalPERS had any hope of escaping very substantial damages.
CalPERS cannot credibly claim “fair use”. Copyright law does allow for limited excerpting of copyrighted material. But reproducing articles in full is so far outside the pale that CalPERS has no credible basis for asserting its conduct was kosher.
As another lawyer wrote:
The only defense against willfulness is when, say, there is ambiguity about when a republication contract expired. CalPERS didn’t have a contract. There’s no fair use defense: they republished entire articles. There’s no DMCA argument: they posted it themselves. It doesn’t matter whether it was for internal use or not (and, anyway, they published it literally to the whole world).
While 17 U.S. Code § 504 does allow for statutory damages to be reduced to $200 per violation if “infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright,” experts rejected the idea that CalPERS could try making that argument out of hand. As Jim Moody said, “You might get away with that in 1999. Any web designer by 2002 would know copying articles in full was not permitted.” That position is even less tenable today as more and more news sites are limiting access to articles and demanding registrations.
CalPERS does not have sovereign immunity. The 11th Amendment provides for states, and by extension, state agencies, to enjoy sovereign immunity from the reach of Federal courts. Our analysis above has been based on Federal law.4 California has waived sovereign immunity for most claims except the ones listed in this section of the California Government Code. Copyright infringement is not included.
CalPERS will not get favorable treatment by virtue of being a government agency. As one lawyer noted:
CalPERS is a perfect defendant: nobody especially likes them, they have unlimited money, they can’t plead stupidity (while managing $300B+), and the copyright infringement was over-the-top; it’s not like they passed around a few photocopied articles. The newspapers are the perfect plaintiff: they’ve suffered financially, they’re well liked by educated people, and they serve an essential function.
The movie and music studios routinely drag people to court to send a message. This could be a large enough verdict that every business would get the point: stop stealing articles. Buy each employee a subscription and circulate links. Besides a big pot of gold from CalPERS it could send a message and drive meaningful subscription growth.
CalPERS would not get favored treatment even in California. One strategy litigators often use is a war of attrition: to draw out a case and inflict high wear and tear, as well as costs, on the plaintiff. This is not likely to be productive with the larger publications, since they have deep pockets and have good reason to expect that they could recover their legal costs.
On top of that, CalPERS would be unwise to assume that if it were to lose at trial, it could appeal in a Federal court in California and get a home court break. As Dan explained:
Intellectual property rights of media companies are extremely important to the California economy. California judges almost without exception award damages above statutory minimums. They would be very unlikely to change from that practice here, particularly as this would be a case that the movie and music studios would watch closely.
CalPERS Faces Other Significant Disadvantages
CalPERS lacks the in-house expertise to analyze the magnitude of its liability against specific copyright infringement claims, much the less mount a defense. It will find it difficult to retain legal representation of the same caliber as major publishers. As one lawyer said:
They’re idiots. New York, California … they’re in the sink in either state. Both are home to the largest media companies. The New York Times and Dow Jones both already have national firms with local offices staffed by top IP lawyers. No top-tier copyright lawyer will want a case against the New York Times or Dow Jones: too much potential lost business in the future.
That’s before you get to the fact that CalPERS has infringed the copyright of virtually every news publication in the US. Even if a law firm had a copyright practice and had a qualified attorney who did not have a direct conflict, most would be loath to represent CalPERS due to the bad optics and the risk of alienating existing or potential media clients.
CalPERS will also suffer considerably in the court of public opinion. Public pension funds are already under attack. Newsrooms are fighting for financial survival. Even the highest profile publications on this list have made deep cuts in their staffing. For instance, both the New York Times and Sacramento Bee have fired or forced out reporters this year.
Any institutional investor expects to pay for research such as data feeds. The spectacle of a government agency with a huge budget and handsomely-paid top executives ripping off hard-pressed publishers is a public relations disaster and a grave injustice. Refusing to settle up on reasonable terms, pronto, with any firms that assert claims will only compound the damage.
1 Note that CalPERS was not consistent in how it labeled articles from various publications. For instance, Sacramento Bee articles are tagged both as “Sacramento Bee” and “The Sacramento Bee”. Our data maven Michael Olenick constructed a name standardizer for the larger and more easily reconciled names but it does not include many of the publications in the embedded PDF below. We recommend that reporters and business people search by distinctive words in their publication’s name to double check. As he explained by e-mail:
There are 4,583 unique publication names in the list. I reduced that to 4,064. You have to find the unique name that is obviously a different name. So it requires making a list by hand that the computer can use to join them up. The list I’ve made has 637 substitution entries. If any single publication wanted I could probably do better using specific searches but sorting through 4000+ different names, to match them, is a brute force exercise.
2 The New York Times’ licensing department made it very clear that there was only one “product” that would correspond to what CalPERS did, as in republishing full text. That was what they call an “e-print.” The Times does not care how many users there are in an organization that seeks to put an article up on its internal internet, since they correctly regard that as giving the party the right to unlimited use. The price for an e-print is $5,300 per article. There are no volume discounts or discounts for not for profits. And an e-print is valid for only twelve months of use.
So if you merely take the last twelve months, CalPERS would have had to have licenses for all the 6,878 articles we are using from the June 9 cutoff date for the purpose of our estimate. 6,878 x $5,300 = $36.5 million in revenues. From that the New York Times would have to deduct its costs. The reality is incremental sales are pure profit save the cost of the licensing personnel, but the convention may be to allocate some of the journalism and administrative overheads too. An estimate of 10% costs would seem generous, leaving $32.8 million in profits.
And mind you, that is only for the last twelve months. The statue of limitations is six years, so the New York Times would be entitled to recover on lost profits for the previous five years as well. The Times was hesitant about going to an online model, so its older licensing fees are likely to be comparatively modest. But anything on top of the most recent year would be gravy.
Surprisingly, Dow Jones’ price for what seemed to be a comparable product was only $1,900 per article for a one-year license for the most stripped-down version of electronic publication of an article, again no discounts for volume. While the Dow Jones staff were in theory willing to consider some sort of “customized solution that would fit your organization’s needs,” it was clear they had nothing off the shelf and were flummoxed about devising a “solution” similar to what CalPERS had done. The limited and perhaps lack of any precedents would seem to work in Dow Jones’ favor if they were to go this route. 9,011 articles x $1,900 = a comparatively modest $17.1 million. Taking off 10% for a generous estimate of expenses gives $15.4 million. That excludes other Dow Jones products, like the over 300 Barrons articles that CalPERS posted. And again, that’s for only the most recent of the six years of infringement. The Journal was the first to monetize its Internet site in a serious way, so it’s likely to have been charging higher licensing fees than the Times in the earlier part of the six-year period.
3 Our estimate is limited to the Wall Street Journal. We did not include articles other Dow Jones publications like Barron’s, which also suffered from CalPERS’ copyright infringement.
4 California has its own copyright law but most plaintiffs assert claims under Federal rather than state law.CalPERS Naked Capitalism 2014 Story