In Sherlock case, 7th Circuit spurs war on copyright ‘extortionists’

By Alison Frankel
August 5, 2014

Judge Richard Posner of the U.S. 7th Circuit Court of Appeals has confessed to reading the occasional legal thriller, but he’s no fan of the estate of Arthur Conan Doyle, the author who created the indelible detective Sherlock Holmes.

In June, Posner wrote an opinion holding that the Conan Doyle estate can’t interfere with the publication of an anthology of stories by modern authors inspired by Conan Doyle’s characters. All but 10 of Conan Doyle’s 60 Sherlock stories and novels are in the public domain, Posner wrote, and the estate’s attempts to extend its rights over the characters – chiefly by arguing that Sherlock Holmes and his sidekick, John Watson, weren’t fully developed until Conan Doyle wrote the final 10 works protected by copyright – have no basis in the law. On Tuesday, Posner and his 7th Circuit colleagues, Joel Flaum and Daniel Manion, underlined that decision by awarding about $30,700 to Leslie Klinger, the anthologist, for his legal fees in the appeal.

The circumstances of the Sherlock case are interesting enough on their own, but Posner’s fee opinion isn’t just a curiosity. It’s a call to arms against copyright “extortionists.”

That’s what the 7th Circuit considers the Conan Doyle estate. As its two opinions in the case explain, when Klinger first put together an anthology of Sherlock-inspired stories by modern writers, the estate demanded that Random House, Klinger’s publisher, pay a $5,000 license fee. (Even though Conan Doyle’s pre-1923 Sherlock works are in the public domain, the estate’s basic argument is that the post-1923 Sherlock stories rounded out the history and personalities of Holmes and Watson, so works based on their characters implicate Conan Doyle copyrights.) Random House agreed to pay the fee.

Klinger made plans for a second Holmes-inspired anthology, which was to be published by Pegasus Books. The Conan Doyle estate, which learned that one of the invited writers for the anthology wanted to use a character who appeared only in Sherlock works under copyright, again demanded a $5,000 license fee. Pegasus said it wouldn’t publish the book unless Klinger obtained the license. Instead, Klinger sued for a declaratory judgment that the anthology does not infringe Conan Doyle’s copyrights.

The estate didn’t exactly argue infringement when it demanded that Pegasus license Conan Doyle’s work, according to the 7th Circuit. Conan Doyle’s executors implicitly threatened infringement litigation, the appeals court said, but explicitly warned Pegasus that they’d work with Amazon.com, Barnes & Noble and other book retailers to block sales of the anthology unless Klinger’s book was licensed.

That strategy, as the 7th Circuit saw it, was both simple and effective: “charge a modest license fee for which there is no legal basis, in the hope that the ‘rational’ writer or publisher asked for the fee will pay it rather than incur a greater cost, in legal expenses, in challenging the legality of the demand.” But that business model is also, according to the 7th Circuit, “a disreputable business practice – a form of extortion.”

I should interject here that the Conan Doyle estate believes the appeals court’s description of its business model to be unfair and at odds with copyright law, according to estate counsel Benjamin Allison of Sutin Thayer & Browne. Conan Doyle’s brief opposing Klinger’s fee request points to affidavits from legal experts and Sherlock authorities who agree that it’s “extremely difficult if not impossible to create new stories about Holmes without using copyrighted character aspects.” Klinger himself admitted that his first Sherlock anthology made use of copyrighted material, according to the estate, so there was nothing improper about the estate’s demand that he obtain a copyright license for the second anthology.

The estate also argued that under the U.S. Supreme Court’s test for fee-shifting in copyright cases, the 1994 case Fogerty v. Fantasy, it shouldn’t have to pay Klinger’s fees. (In case you’re wondering, the Forgerty opinion does indeed involve copyright claims by Creedence Clearwater Revival lead singer John Fogerty.) The Conan Doyle estate’s appeal from the trial judge’s summary judgment was not frivolous or objectively unreasonable, the estate said, especially because Klinger wasn’t required to submit a finished version of the anthology to the court. “That this court has now taken a new and unprecedented approach to declaratory judgment actions in an infringement context does not make Conan Doyle’s position unreasonable,” the brief said.

Posner’s opinion, however, does not mention the Fogerty test. Instead, he cited two academic studies discussing the phenomenon of copyright trolling. The more recent of them, a 2013 article in the Notre Dame law review by UC Hastings law professor Ben Depoorter, discusses how litigation costs deter challenges to unfounded copyright demands, which gives a “sheen of legitimacy” to subsequent demands. “This, in turn, leads to rent-seeking by copyright holders, driving up the transaction costs for licensees on the basis of artificial demand,” the paper said. “In this way, copyright false positives incentivize weak claims by copyright holders, heighten fears of liability, and create risk-aversion and chilling effects among creative artists, for whom even the cost of licensing may be financially unpalatable.”

One good way to end the vicious cycle, according to Posner and the 7th Circuit, is to make sure that folks like Leslie Klinger aren’t stuck with the cost of successfully challenging an improper copyright demand. Klinger “performed a public service,” Posner wrote, acting as a private attorney general to combat an unsavory business practice.

“The willingness of someone in Klinger’s position to sue rather than pay Doyle’s estate a modest license fee is important because it injects risk into the estate’s business model,” Posner wrote. “As a result of losing the suit, the estate has lost its claim to own copyrights in characters in the Sherlock Holmes stories published by Arthur Conan Doyle before 1923. For exposing the estate’s unlawful business strategy, Klinger deserves a reward but asks only to break even.”

As you probably remember, a U.S. Supreme Court ruling this term, Octane Fitness v. Icon Health, makes it easier for patent litigation winners to force losers to pay their legal fees – a decision widely regarded as a blow against licensing demands by non-practicing entities (otherwise known as patent trolls). With the Conan Doyle opinion, Posner appears to be striking the same blow against extortionate copyright holders.

Conan Doyle estate counsel Allison said in an email that he will appeal both of the 7th Circuit’s rulings to the Supreme Court. “Judge Posner has declined to follow or even acknowledge the Supreme Court’s cases on attorneys’ fees,” he wrote. “Posner also declines to acknowledge the estate’s argument, which is that unless Mr. Klinger is required to show his new book to the court, no one knows if it infringes the estate’s copyrights. The 7th Circuit has now split from all other courts on that issue, due to Posner’s insistence on using this case to further his views. Whether those views comport with the law of copyright will now be for the Supreme Court to decide.”

(Reporting by Alison Frankel) (Reporting By Alison Frankel)

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