Last year, we exposed the fact that CalPERS had been engaging in massive, systematic theft of copyrighted material for many years, via an in-house website that reproduced the full text of article from major and even minor publications, ranging from the Wall Street Journal, the New York Times, the Los Angeles Times, to your humble blog.
We predicted that CalPERS would pay a large settlement to Dow Jones, which has been particularly vigorous in pursuing copyright abuses, and indeed that happened. As Pulitzer Prize winner Mark Maremont tweeted:
— Mark Maremont (@MarkMaremont) July 25, 2018
Dow Jones will receive a total of $3.4 million to settle claims that CalPERS, the California Public Employees’ Retirement System, improperly republished its content, including full-text articles from The Wall Street Journal…As part of the settlement, CalPERS will pay Dow Jones $2 million in cash, and will purchase an additional $1.4 million in products and services from Dow Jones over the next two years.
Note that taking part of the settlement as product sales is less of a concession than one might think. The perverse incentives of public ownership mean that subscription growth is more valuable to Dow Jones’ parent, News Corp, than a one-off cash payment.
Keep in mind that this loss to CalPERS beneficiaries and California taxpayers was completely unnecessary, and follows smaller settlement by the less bloody minded (and possibly less willing to create enemies) New York Times and Los Angeles Times.
As we described when we first publicized CalPERS’ systematic copyright theft, the California pension fund had been republishing the full text of articles from a huge number of publications for years. The general counsel, the CEO, board members, IT staffers, and plenty of other saw this going on yet did nothing to stop it. It was yet another manifestation of CalPERS acting as if it was above the law.
But what got my dander up was after we exposed that CalPERS was stealing from publishers all over the US, CalPERS refused to take its rogue website down. Our first article ran before the start of business on Friday, June 9, and the site was still up and even still un-password-protected as of the weekend.
So I enlisted tech maven, now INSEAD scholar Micheal Olenick to download and analyze the site, which he completed over the weekend.
On Monday June 12, the Daily News Summary site was still up and CalPERS had added yet more articles to it. That day, I e-mailed contacts at the New York Times, the Wall Street Journal, and the Los Angeles Times with the spreadsheets showing all the articles that had been taken from their publications and others.
On Wednesday June 14, before the start of business, the New York Times sent a cease and desist letter to CalPERS. From our post:
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.
Understand what happened: despite the brazenness of CalPERS’ copyright theft, I was willing to let the matter go if CaLPERS did the right thing when caught out and stopped ripping off journalists. But when CalPERS continued to add new articles to its purloined site, I took the steps necessary to enable the big dogs to go after CalPERS, as they did.
Put it more simply, if CalPERS had taken my original post seriously and had done the right thing, they’d have saved their pensioners at least $4 million1 Keep in mind the magnitude of the Dow Jones settlement, plus the fact that the Los Angeles Times also got $445,000 when they have been much less aggressive about charging for content than Dow Jones, might lead other publishers that have sat on the sidelines to saddle up. That could include not only McClatchy (publisher of the Sacramento Bee and other publications that CalPERS ripped off) but smaller ones that are very restrictive about access and have very high subscription prices, like Private Equity International.
We also described last June who should be held accountable for this fiasco:
CalPERS will be inclined to throw the current head of the Communications and Stakeholders, Brad Pacheco, who is a direct report to CEO Marcie Frost, under the bus. That would be scapegoating. The news site was launched in 2009, long before Pacheco in charge of the communications function. The media department did not launch its Daily News Summary in the dark of night. Its budget had to have been approved at a higher level and the development of the site fell to IT personnel, or in current CalPERS-speak, members of the Operations & Technology Department.
Moreover, Pacheco is not an attorney. His former boss and predecessor, Robert Glazier, was an attorney and was in that role from at least 2012 through 2015. The former Chief Executive Officer, Anne Stausboll, was also an attorney…
In other words, even though Pacheco is technically responsible, media relations is politically weak and not a control function. Even if Pacheco had cleared his throat, the odds were high that he’d be accused of being a worrywart…
The most clearly culpable party is the General Counsel, Matt Jacobs. He joined CalPERS in July 2014. One of his most important duties as incoming General Counsel was to review the adequacy of controls. As we stated in our companion post, an intellectual property audit is a standard housekeeping procedure in any well-run large organization. For non-tech companies, the main purpose is to assess the exposure to intellectual property claims from outside parties and take preventive steps.
And independent of an IP audit, it is inconceivable in the course of the last three years that Jacobs did not see the Daily News Summary. His failure to take notice of the flagrant copyright abuse is incompetence of the first order…
Another group that bears direct responsibility for the huge bills that CalPERS is likely to face comprises the board members on the Risk and Audit Committee. Their duty is to make sure that CalPERS has adequate controls in place. CalPERS appears to have neither an intellectual property nor an information technology audit….
The members of the Risk and Audit Committee are:
Dana Hollinger, Chair
Ron Lind, Vice Chair
The worst of this shameful affair is that Marcie Frost is likely to refuse to hold anyone accountable, and might even try running the barmy defense that CalPERS got off well for paying comparatively little for its brazen theft. CalPERS had the Attorney General handle the negotiations, and it’s possible that copyright theft is so pervasive in state agencies that the AG gave Dow Jones the impression it would fight the publisher all the way even if it was assured an ultimate loss as a way to cut the damages Dow Jones almost certainly could have gotten more; someone with direct knowledge of past Dow Jones settlements said in similar cases Dow Jones had gotten much more than it agreed to take from CalPERS.
I hope that CalPERS beneficiaries will do what they can to hold CalPERS accountable. If you live in California, please forward this post to your state Assemblyman and Senator, as well as to the two state-wide officials on the board, Controller Betty Yee, who is up for re-eletion, and Treasurer John Chiang.
Note also that Board President Priya Mathur, who was asleep at the wheel at the Risk and Audit committee, is up for re-election for her seat as Public Agency representative. If you know anyone who is an employee of a California public agency, they are eligible to vote this fall. Alert them to Mathur’s dereliction of duty that has cost pensioners serious money and urge them to consider the challenger Jason Perez. The fastest path for fixing CalPERS is to get rid of the dead wood on its board.
1 The New York Times settled for a mere $150,000 when CalPERS had misappropriated 6,878 articles. Why they accepted so little is beyond me. The Los Angeles Times, which I believe was later to move to a subscription model than the New York Times, and had 5,575 articles stolen by CalPERS, got $445,000. And no, we did not get nor did we seek any compensation for passing Olenick’s spreadsheet to them, even though we paid him hard dollars to download and analyze the site. We may post the Dow Jones settlement agreement when we get it via a Public Records Act request, but for the meantime, here are the ones from the New York Times and Los Angeles Times.New York Times-CalPERS copyright settlement
Los Angeles Times-CalPERS Copyright Settlement Agreement_3.29.18