Warren Zevon: Lawyers, Guns & Money

The Framers embraced government provided services.

It never occurred to me that it would have to be repeated, much less come as a shock, that our country was founded on the assumption that the government would be the source of services needed by all. But Mark Brown, holder of the Newton D. Baker/Baker and Hostetler Chair at Capital University School of Law, fills us in on precisely this history, explaining that the Founding Fathers “believed that ‘essential’ services should be provided by government to the public at large for little or no remuneration. The costs of these services would be shared by the whole.” I’m not sure I agree with Brown’s characterization of this approach to governance as “socialism,” but I suppose he’s only deferring to the debased and a-historical way that term is being thrown around these days.

The EFF fights copyright overclaiming by means of public shaming

One of the problems of our legal system I’ve written about is the way its expense has conferred inordinate weight on sheer wealth. In copyright, this problem plays out in what is termed “copyright overclaiming” — the assertion of rights over content that is utterly misbegotten but not worth the expense of fighting. One means of fighting this abuse, I suppose, is public shaming, which is exactly what the Electronic Frontier Foundation is now doing with its “Takedown Hall of Shame,” a compilation of “[b]ogus copyright and trademark complaints have threatened all kinds of creative expression.”

Lawyers are beginning to learn that globalization means fewer jobs in the USA.

Did all the lawyer-lawmakers who bought into free trade realize that it isn’t just manufacturing jobs they might be selling off to other countries? Mark Kobayashi-Hillary notes that the prediction that legal services would be outsources is an old one, but he also believes that companies now are beginning to seriously explore these possibilities. One piece of evidence supporting his supposition is that “Lloyds Banking Group is negotiating a £400m acquisition of CPA Global, the patent and legal services group.”

What does CPA Global do? According to its website, CPA Global is “one of the leading legal outsourcing companies in the world, offering a full range of general legal and intellectual property (IP) support services.” Among other things, CPA Global provides

services such as document review, contract management and litigation support right through to top end intellectual property software, renewals and data management, research and consulting – assisting busy law firms and corporate legal departments throughout the litigation and IP lifecycle.

Law students and lawyers moan that if they work for “Big Law” they’ll spend years doing document review, but, hey, it’s a living. Without those jobs, the entire market, already shrinking, shrinks more. And now lawyers too begin to learn what globalization really means: selling to other countries with lower labor standards the jobs the U.S. labor market has spent a century making half-decent for the people who do them here.

Kids need to learn a lot, but they can teach us a lot too.

The information and communication revolution wrought by the internet is, among other things, a generational divider. While one generation bemoans the threat of the internet to newspapers and books, a new generation — the one I teach — appears to do the vast majority of its reading online. It is of course not all a matter of the younger generation having aptitudes for a new environment we old people resist adapting to. There is as much lost as is gained. (One of these days I’ll explore the loss I’ve noticed in researching skills, the ability to ferret out information that is not easily accessible or even immediately recognizable as important.)

But there is so much that is of great use in the new environment that too many of my contemporaries (and, also, too many of my students) don’t take advantage of. Social Media Law Student is a terrific site for helping us all find and learn how to use new tools. It’s run and written by law students. Yana Siganur writes today’s lead article, in which she takes the opportunity “to remind everyone of the efficiency that is Google” in a well-written and concise guide to a number of tools available from Google that can our professional lives easier.

Painting people whose images are protected — Alabama football, Tiger Woods, and Obama

The Tuscaloosa News reports that a decision is expected soon in the University of Alabama’s lawsuit against sports artist Daniel Moore. As the newspaper explains, the university “sued Moore for trademark violations in March 2005, alleging he painted scenes of Crimson Tide football games [such as the one at right] without permission from the university and reissued previously licensed prints without paying royalties. The university is seeking back pay for more than 20 paintings and wants Moore to license any future paintings.”

Although the decision is by no means binding on the court deciding the Alabama case, a lawsuit filed in 2000 by Tiger Woods and ETW Corporation, Wood’s licensing agent, against the artist Rick Rush might be illuminating. The focus of the Woods lawsuit were a group of Rush’s prints depicting Woods’s victory at the 1997 Masters. Woods sued to protect “his name and his image under right-of-publicity and trademark laws.” Rush, like Moore, argued his prints are protected by the First Amendment. The U.S. District Court and the U.S. Court of Appeals in Cincinnati (6th Cir.) agreed with Rush.

The Sixth Circuit’s decision is illuminating, not only with respect to the lawsuit between Alabama and Moore, but also with respect to the dispute between the AP, Manny Garcia, and Shepard Fairey. The court explained in reaching its decision that, like Andy Warhol’s paintings of celebrities, Rush’s paintings were sufficiently “transformative” to be entitled to First Amendment protection:

When artistic expression takes the form of a literal depiction or imitation of a celebrity for commercial gain, directly trespassing on the right of publicity without adding significant expression beyond that trespass, the state law interest in protecting the fruits of artistic labor outweighs the expressive interests of the imitative artist. On the other hand, when a work contains significant transformative elements, it is not only especially worthy of First Amendment protection, but it is also less likely to interfere with the economic interest protected by the right of publicity….

Accordingly, First Amendment protection of such works outweighs whatever interest the state may have in enforcing the right of publicity. . . . [I]n Comedy III Productions, Inc. v. Gary Saderup, Inc., 25 Cal.4th 387, 106 Cal.Rptr.2d 126, 21 P.3d 797 (2001)] the California [Supreme] [C]ourt []stated the test as follows: “Another way of stating the inquiry is whether the celebrity likeness is one of the “raw materials” from which an original work is synthesized, or whether the depiction or imitation of the celebrity is the very sum and substance of the work in question.”

. . . citing the art of Andy Warhol, the court noted that even literal reproductions of celebrity portraits may be protected by the First Amendment.

“ Through distortion and the careful manipulation of context, Warhol was able to convey a message that went beyond the commercial exploitation of celebrity images and became a form of ironic social comment on the dehumanization of celebrity itself…. Although the distinction between protected and unprotected expression will sometimes be subtle, it is no more so than other distinctions triers of fact are called on to make in First Amendment jurisprudence.”  Id. at 408-409, 106 Cal.Rptr.2d 126, 21 P.3d at 811 (citations and footnote omitted). . . .

The evidence in the record reveals that Rush’s work consists of much more than a mere literal likeness of Woods. It is a panorama of Woods’s victory at the 1997 Masters Tournament, with all of the trappings of that tournament in full view, including the Augusta clubhouse, the leader board, images of Woods’s caddy, and his final round partner’s caddy. These elements in themselves are sufficient to bring Rush’s work within the protection of the First Amendment. The Masters Tournament is probably the world’s most famous golf tournament and Woods’s victory in the 1997 tournament was a historic event in the world of sports. A piece of art that portrays a historic sporting event communicates and celebrates the value our culture attaches to such events. It would be ironic indeed if the presence of the image of the victorious athlete would deny the work First Amendment protection. Furthermore, Rush’s work includes not only images of Woods and the two caddies, but also carefully crafted likenesses of six past winners of the Masters Tournament: Arnold Palmer, Sam Snead, Ben Hogan, Walter Hagen, Bobby Jones, and Jack Nicklaus, a veritable pantheon of golf’s greats. Rush’s work conveys the message that Woods himself will someday join that revered group. . . .

We find, like the court in Rogers, that plaintiff’s survey evidence, even if its validity is assumed, indicates at most that some members of the public would draw the incorrect inference that Woods had some connection with Rush’s print. The risk of misunderstanding, not engendered by any explicit indication on the face of the print, is so outweighed by the interest in artistic expression as to preclude application of the Act. We disagree with the dissent’s suggestion that a jury must decide where the balance should be struck and where the boundaries should be drawn between the rights conferred by the Lanham Act and the protections of the First Amendment.

In regard to the Ohio law right of publicity claim, we conclude that Ohio would . . . [apply] a rule analogous to the rule of fair use in copyright law. Under this rule, the substantiality and market effect of the use of the celebrity’s image is analyzed in light of the informational and creative content of the defendant’s use. Applying this rule, we conclude that Rush’s work has substantial informational and creative content which outweighs any adverse effect on ETW’s market and that Rush’s work does not violate Woods’s right of publicity.

We further find that Rush’s work is expression which is entitled to the full protection of the First Amendment and not the more limited protection afforded to commercial speech. . . .

In balancing these interests against Woods’s right of publicity, we note that Woods, like most sports and entertainment celebrities with commercially valuable identities, engages in an activity, professional golf, that in itself generates a significant amount of income which is unrelated to his right of publicity. Even in the absence of his right of publicity, he would still be able to reap substantial financial rewards from authorized appearances and endorsements. It is not at all clear that the appearance of Woods’s likeness in artwork prints which display one of his major achievements will reduce the commercial value of his likeness. While the right of publicity allows celebrities like Woods to enjoy the fruits of their labors, here Rush has added a significant creative component of his own to Woods’s identity. Permitting Woods’s right of publicity to trump Rush’s right of freedom of expression would extinguish Rush’s right to profit from his creative enterprise.

The difference between Moore’s case and Rush’s principally seems to be that Moore’s painting’s are far more “realistic” than Rush’s (as the painting pictured above demonstrates). In contrast, Fairey’s Obama Hope poster is more like Warhol’s paintings of celebrities. The funny thing is that I have no doubt Moore’s paintings take more time and effort — but time and effort are not what is protected by the fair use test; rather, originality of expression is.

Blackberry as ball and chain.

When I left practice, the firm I worked for, like every one I knew of, was still too paranoid about security to be online. And I didn’t have a cell phone. I should be grateful. Technology is, like every advance, both a blessing and a curse. I hate when I have lunch with my former colleagues and their attention is on the Blackberry under the table. But at least I understand the dilemma they face. At Quinn Emanuel (the firm a good friend recently moved to), Above the Law reports, a partner’s email made very clear to all that one is on call every waking hour, adding in for good measure a firm-wide swipe at an associate who had actually done a good job but hadn’t checked his email after 7:30 p.m. The email, in part, reads as follows:

You should check your emails early and often. That not only means when you are in the office, it also means after you leave the office as well. Unless you have very good reason not to (for example when you are asleep, in court or in a tunnel), you should be checking your emails every hour. One of the last things you should do before you retire for the night is to check your email. That is why we give you blackberries. I can assure you that all of our clients expect you to be checking your emails often. I am not asking you to do something we do not do ourselves. I can assure you that John Quinn, Peter Calamari, Mike Carlinsky, Faith Gay, Fred Lorig, etc. all check their emails often.

Yesterday I was working with a relatively new associate on a project which both he and I knew was a rush. It was for a relatively new client whom we were trying to impress. The associate did a nice job under pressure. Before I left the office at about 7:30 I sent an email to this associate asking him to perform a task—fax a draft letter for review and comment. I assumed the task was done. Turns out the associate left the office and did not check his emails until this morning. I assumed the task had been completed. It had not been. In this case it was no harm no foul, but I think we can all imagine scenarios when this could be a disaster.

Using the legal system to intimidate — Cook County Prosecutor and Northwestern’s Medill Innocence Project

Before beginning my teaching career, I was a commercial litigator for almost 12 years. As a result, many think I’m one of those people ready to sue at the drop of a hat. But I think that litigators might be among the most litigation-averse people around — we know the price litigation extracts, and we know it’s one of the least desirable means of dispute resolution around. (That’s not to say it isn’t crucial — one has to resort to bold and difficult measures when others fail.)

So litigators know too that suing people — forcing them into litigation — is a powerful weapon. Sometimes it is used flat out to intimidate. An example of litigation being used for, apparently, nothing but intimidation is pointed out by techdirt:

The Medill Innocence Project at Northwestern University “gives undergraduate students firsthand experience in investigating wrongful convictions.” The Project’s efforts have freed 11 prisoners, including 5 who were on death row. But now, according to the Chicago Tribune, in preparation for a hearing the Project’s efforts have won for another prisoner, “[t]he Cook County state’s attorney subpoenaed the students’ grades, notes and recordings of witness interviews, the class syllabus and even e-mails they sent to each other and to professor David Protess of the university’s Medill School of Journalism.”

I can’t say I disagree with Northwestern’s lawyer, who said the prosecutors subpoena is “an unwarranted fishing expedition that focuses on the messenger — rather than on the possibility that an innocent man has spent more than three decades behind bars. Prosecutors, he said, ’seem to be peeved’ at the Innocence Project for uncovering a wrongful conviction.”

Make your point and move on; Fairey lied, but AP won’t establish he always does.

As I’ve said over and over again, lying messes you up. It robs you of credibility, a problem which inevitably is going to infect the decision maker’s view of the merits of your case. But when facing a liar, you can get carried away by his lies and take your eye off your own case. AP seems prone to this danger in its case against Shepard Fairey. Having established Fairey lied about knowing which photo he used in creating the Obama Hope poster, AP is now contending that Fairey lied when he claimed in January 2009 that he didn’t recall which photo he used.

I’m not sure why AP is pushing this point. First of all, it does not bear on the question of fair use at the heart of the case. Second, they’ve just been successful in establishing Fairey’s a liar. What more do they want? It will be far, far more difficult — and, as far as I can imagine, impossible — to establish that in January Fairey didn’t remember which photo he used (rather than incorrectly claiming later, after he’d reviewed his materials in connection with the preparation of the poster, which precise photo he’d used). And it’s not as if AP doesn’t have its own problems with credibility that it should make every effort to avoid.

And, again, as I wrote previously over at Remix America: Fairey and AP’s counter-accusations of illegitimate conduct are interesting but really irrelevant to the question of fair use in connection with the Obama Hope poster. So is the possibility that Garcia is lying about being angry at Fairey when Garcia first realized that the source of the poster was his photo. Of course, Garcia’s failure to realize this fact until he was told, even though he was very familiar with the poster, may be relevant — if the photographer didn’t realize the source was his photo, isn’t that some evidence the poster so thoroughly transformed the photo it stands on its own as a creative work?

But, more to the point of this post: if Garcia didn’t realize in January the photo was the source of the poster, isn’t it credible that Fairey didn’t either? AP gained ground this week in outing a lie; now it may be trying to go to that tactic too often.

The new economy, the billable hour, and law school tuition — change is afoot.

When things change, things change.

I’ve written at length before about the perversities created by the hourly rates charged by lawyers. Hourly billing has been the standard practice in most of legal practice for the past 50 years or so. The practice on its face is troubling — just as our current health insurance scheme provides incentives for doctors and hospitals to do and bill more (and, conversely, to engage in less preventative medicine), so too does the billable hour provide incentives for lawyers to do more and, therefore to bill more.

The system has maintained itself in the same way many of our economic practices have maintained themselves — by means of an every increasing pie. And from the provider end the inflation worked its way down to every level — bills, salaries, hours, and law school tuition all skyrocketed. The tuition rise could be paid for by loans that could be paid with inflated salaries. The inflated salaries were paid by inflated bills, which were produced by inflated hours.

And in 2008 the whole edifice came crashing down. Now, all the talk is about different billing practices.

We’re all still waiting for the change, however. One outcome of a change would be, I hope, a decrease in the use of sheer economic weight to out-litigate an economically disadvantaged adversary. As things stand, as much as I hoped always to be efficient for my client, the adversary would require me to do more than I otherwise would if the adversary chose to contest every matter and to thoroughly investigate every single piece of discoverable evidence (no matter how trivial or irrelevant).

And U.S. students are desperate for relief from the tuition costs the billing practices have raised. Legal jobs are scarce, and those that exist are at depressed salaries. But tuitions have not yet come down. They’re going to have to.

Don’t lie, even if you think it doesn’t matter. Fairey, Garcia, and AP.

Now we’ve got 2 liars in the Shepard Fairey/Manny Garcia/AP lawsuit. As I mentioned the other day, there’s reason to believe Garcia is at least being highly misleading regarding his initial reaction to realizing that Shepard Fairey’s Obama Hope poster was based on his photograph. And now Fairey admits that he lied in contending that the image everyone knows he used was not the image he used. And, of course, AP is not exactly the most reliable source for legal positions on copyright and fair use.

All of these events are not particularly shocking to anyone who’s litigated for a living. Whether or not Garcia considered a lawsuit when he first realized his photograph was the source of the photo, whether or not Fairey used another photo other than the one most people had concluded he’d used, and whether or not AP is taking ridiculous positions in copyright cases are all matters that do not really bear on whether or not Fairey’s poster constitutes fair use of the photograph Garcia took (and in which Garcia and AP each claim, in opposition to one another, ownership of the copyright).

But Fairey sure didn’t help himself by lying. Nor did Garcia if it turns out he lied too. As much as a lie doesn’t change the legal question at issue in a case, there’s no denying the fact that someone’s credibility affects any court’s willingness to find in their favor.

As a lawyer, you try to tell someone never to lie. Sometimes they think you’re just “supposed to be” telling him that, and that a nod-nod, wink-wink accompanies the advice. It doesn’t.

Excellent acount of fair use in educational setting.

The American University Center for Social Media has published a Code of Best Practices in Fair Use for OpenCourseWare. As the site explains, “a code of best practices designed to help those preparing OpenCourseWare (OCW) to interpret and apply fair use under United States copyright law. ” While the document is limited in application (to educational settings), its nuance and sophistication makes it stand out among online discussions of fair use.

Shepard Fairey and Manny Garcia: is Garcia lying, or is Tom Gralish(?)? Or is there some other explanation?

As much as law students and law professors want legal questions to resolve into nice, neat abstract questions, they seldom do.

Legal questions are only answered definitively by courts when those questions are necessary to resolve lawsuits, and lawsuits necessarily involve all the messy reality of human life, a messy reality which seldom allows one to merely hone straight in on some nice, neat question (like, hey, what is fair use (in some nice, easy-to-follow rule so we can definitely predict what we can and can’t do)?

One problem — the most important one for lawyers — is figuring out what happened. It’s amazing how people take the facts for granted, as if we have God’s videotape to play to a jury or something. Instead, we have conflicting evidence. And the court has to decide what it all means.

So, when Manny Garcia first learned Shepard Fairey had used his photograph for the Obama Hope poster, did he think what Fairey had done was cool and not even conceive of getting involved in a lawsuit, or was he angry at Fairey and already contemplating legal action?

Last January 23, Tom Gralish, a photographer for the Philadelphia Inquirer who also writes the blog Scene on the Road, wrote that, in a conversation with Manny Garcia two days earlier, Garcia “was quick to add he is not mad at Fairey, and he’s not looking at any lawsuits. ‘I know artists like to look at things; they see things and they make stuff. It’s a really cool piece of work. I wouldn’t mind getting a signed litho or something from the artist to put up on my wall.’”

In paragraph 45 of his Answer to Fairey’s Counterclaim, filed on September 8 in the lawsuit between himself, Fairey, and the Associated Press, Garcia “denies he stated in interviews that he was not ‘angry with Fairey or interested in joining any lawsuits.’”

Does that mean he never stated precisely those words? Or does it mean he did not express to Gralish what Gralish reported? It certainly seems to be the latter. And, if that’s the case, then is he calling Gralish a liar?

Welcome to the law.

ADDENDUM: Tom Gralish’s series of posts chronicling his efforts to identify the photograph that served as the source of Fairey’s Obama Hope poster are here. The posts re-enforce something I have suggested before: Garcia’s photograph just isn’t that original. Since the nature of the copyrighted work is relevant to any fair use analysis, and since the copyrighted work is entitled to less protection to the extent it is less creative, the generic nature of the photo militates in favor of Fairey. But I still think Fairey’s work is so obviously “transformative” that it constitutes fair use. Why? Because it had a resonance in the nation that none of the photos Gralish examined would have had on their own. If Fairey’s ability to confer that kind of power upon the source photo isn’t transformative, I ‘m not sure I know what is. And, incidentally, most of my previous posts on the case are here.

Teaching legal imagination: Harvard dean calls for it, I am grateful, but a lot of work remains.

Kristopher Nelson of in propria persona graduated from Harvard Law School in May and now is a graduate student in the history of science. He astutely observes that law school emphasizes training its students to practice law but does a rather poor job of actually doing so: “Law school . . . while pushing the prac tical, does not teach it.” As I’ve made clear, I think his criticism is particularly well placed when it comes to Harvard.

So I am happy to see that Nelson points to an article written by co-written by Martha Minow (pdf), the new dean of Harvard Law School, in which Minow and her co-author, Todd Rakoff, explicitly acknowledge that law students need more. What do they need? I think Minow and Rakoff are right to identify it as “legal imagination”:

[S]tudents need more, and they need more not for arcane or unusual careers, but simply to be good lawyers. While an expert in differentiating mental skills could probably produce a raft of labels for what they also need, when we think of what students most need that they do not now get, we think: “legal imagination.” What they most crucially lack, in other words, is the ability to generate the multiple characterizations, multiple versions, multiple pathways, and multiple solutions, to which they could apply their very well honed analytic skills. And unless they acquire legal imagination somewhere other than in our appellate-case-method classrooms, they will be poorer lawyers than they should be.

How will they be taught this legal imagination? By being given “cases” more like students are given in business school than students are given now in law school: complex problems in which the students are required to generate real world alternatives, recommend the best, and be evaluated on the quality of their judgment:

[T]he type of materials we have in mind can be described in general. Students ought to be presented with relatively dense materials that lay out a situation, experienced as a problem for a person, or group of people, for legal treatment. Students should face a choice that challenges them to identify options and that permits multiple resolutions, sometimes within a relatively tight ambit. Such resolutions might include issues such as which settlement offer would make it sensible to forego litigation. Sometimes these choices might be within broader (but still specifiable) alternatives, such as whether trying to get particular legislative language adopted would be feasible and preferable to private ordering. The problems ought not to be situated in one doctrinal area, but should present opportunities for mental maneuvering around the legal universe. Teaching should emphasize generating alternative solutions as well as appropriate grounds for choosing among them. And criteria for resolution should include legal, normative, and practical considerations.

Of course, Minow and Rakoff also believe that “following the business school model, we think that case writers will need to get their materials from practitioners.” Why isn’t this already going on throughout law school? One reason, I’ve always believed, is that law professors are those who have done best in law school (not necessarily, or even usually, as lawyers), so they perpetuate the existing institutional model in their belief that if law school has identified them as the best and brightest it must be well designed. Law professors are not unique in this tendency. Anyone who succeeds in an institution has a vested interest in believing the institution’s promotion procedures are very good at judging genuine merit. 90% of law firm partners will tell you their firm is better than most at judging associates. And Minow even recognizes this impediment to the change she calls for:

Law professors were good law students, and given the history of legal education, this means that they almost universally feel comfortable handling appellate opinions in the classroom even if they have no experience doing so in practice. By contrast, for many of us, the arenas of the legislature, the agency, the political movement, the media— perhaps even the trial courts—are ones we may only remotely watch. Ideally, case studies and teachers’ notes could be crafted so that they could be taught by professors as we know them in law schools as we know them. But, frankly, many of us will need to learn some new things.

I am thrilled that the dean of Harvard Law School is making these arguments. As goes Harvard, so goes virtually every law school in the country. But there is also another piece of the puzzle that needs to be put into place, as I’ve previously written about: how in the world can we measure whether we are effectively teaching “legal imagination”? In many ways I think I’m ahead of Minow in trying to do what she calls for. But until I can prove that what I am doing in fact teaches students how to be lawyers better, I’m afraid that I won’t have a ton of influence. Fortunately, Minow, merely because she is the dean of Harvard Law, can have influence even without first proving what she is arguing for works.

Cleveland Museum of Art allowed to use 50% of income from trusts for expansion; 1st time in Ohio since 1955.

A follow up to my posts (here and here) regarding the power of museums to deviate from the terms of a donor’s limitations on the use of money donated:

Last week, the Cleveland Museum of Art won permission from a Cuyahoga County Probate Court judge to use 49.99% of the income (not the principal) from 4 trusts over a period of 10 years (up to an amount not to exceed $75 million) to finance the museum’s ongoing renovation and expansion. The 4 trusts were established in 1920, 1935, 1938, and 1952. It is the first time since 1955 that the museum has sought such relief from the terms of a donor’s trust, which is also the last time such relief has been sought by any museum in Ohio.

These facts plainly do not justify the fears the museum’s critics hold up as the consequence of such rulings.

ADDENDUM: The Art Law Blog was right on top of this, and also has written, commented upon, and linked to articles about the background.

Credit Default Swaps and Mortgage Backed Securities: a Primer.

I’ve previously noticed Mark Labaton’s writing. Labaton is a lawyer in LA, and he writes with the kind of clarity and precision that is crucial to effective lawyering. In the most recent issue of LA Lawyer (pdf), he applies those writing skills — in the article entitled “Swap Meet” — to explaining “derivatives,” those financial instruments central to our current economic disaster. I’ve tried to do a similar thing here a few times (here, for example), but Labaton’s account is much more comprehensive. It’s an important piece. I can’t say enough to my students that they have to reject any idea that the stuff they have to face is too complicated for them to understand. We were told again and again that credit default swaps were too complicated to understand (see below, from a CNBC Telecast in November 2006). That’s hogwash. Accepting the myth our financial markets were dealing with risks too complicated for anyone to understand (even the most active participants in the markets!) put us in this mess an is keeping us from getting out of it as quickly or effectively as we might. Labaton not only understands this point, he also provides a very useful explanation for the rest of us.

Why are you working harder for less? Scientific Management, management consulting, and leveraged buyouts – a century of being conned.

I described leveraged buyouts the other day — in connection with the demise of the maker of the Simmons Beauty Rest Mattress — as a symptom of why we don’t trust Wall Street. You might wonder why, if I’m right, we allow people again and again to “buy” companies by borrowing enormous sums of money — in essence, we allow the buyers to suck money out of successful companies for their own benefit in the same way we allowed home owners in a rising housing market to suck money out of their homes by means of home equity loans.

It’s perfectly clear why we allowed homeowners to do that — all involved figured the market would continue to rise at least until they could make their money and get out. But why do we let this keep happening on a much larger scale on Wall Street?

I hadn’t considered the question specifically at the moment I wrote that post about Simmons. It was enough for me that throughout the 25 years of my career both practicing (in connection with, among many things, leveraged buyouts) and teaching I’ve seen the phenomenon again and again. But this week I came across Jill Lepore’s article “Not So Fast” in the New Yorker, an article which asks the question, “Scientific management started as a way to work. How did it become a way of life?” Lepore’s article is about the rise in the early 20th Century of “Scientific Management,” the foundation of modern “Management Consulting.” Scientific Management was created by Fredrick Winslow Taylor, who, as Lepore writes, sold himself as someone able to make businesses more efficient:

Speedy Taylor, as he was called, had invented a new way to make money. He would get himself hired by some business; spend a while watching people work, stopwatch and slide rule in hand; write a report telling them how to do their work faster; and then submit an astronomical bill for his services. He is the “Father of Scientific Management” (it says so on his tombstone), and, by any rational calculation, the grandfather of management consulting.

The problem, as Lepore notes, is that Taylor was a fraud, and Taylorism’s grandchild, management consulting, is as well.

What does all this have to do with leveraged buyouts? Plenty. The entire rationale of the leveraged buyout is that the buyers can take a company with a lot of unrealized value and realize it. How? By making the company more “efficient.” The debt taken on to buy the company (and to reward the “buyers” with profits along the way) will, the argument goes, easily be paid off given the as yet unrealized efficiencies. Thus, we’ve had decades of “downsizing” (massive layoffs), “consolidations” (elimination of competing businesses), and arguments that advances in productivity brought about by our new technologies would redound to the benefit of all (when the only benefit would redound to whoever could pull the money out quickest).

We’ve been had.

At least we have one consolation — none of us have been alone in being conned. The focus of Lepore’s work is Louis Brandeis, someone I’ve always thought was a very bright guy and who against all evidence remained convinced his entire life that Scientific Management would benefit the working person:

Neither unions nor businesses have lived up to Brandeis’s optimism. “If the fruits of Scientific Management are directed into the proper channels,” he wrote, “the workingman will get not only a fair share, but a very large share, of the industrial profits arising from improved industry.” Lately, that share has been going to shareholders and C.E.O.s. Home and work, separated since the first stirrings of the Industrial Revolution, have been growing back together again: BlackBerry on the nightstand, toaster in the photocopy room. Efficiency was meant to lead to a shorter workday, but, in the final two decades of the twentieth century, the average American added a hundred and sixty-four hours of work in the course of a year; that’s a whole extra month’s time, but not, typically, a month’s worth of either happiness minutes or civic participation. Eating dinner standing up while nursing a baby, making a phone call to the office, and supervising a third grader’s homework is not, I don’t think, the hope of democracy.

You’ll also find worthwhile on this topic the New York Times video series entitled “Flipped: How Private Equity Dealmakers Can Win While Their Companies Lose“

How do we decide how a long buried corpse would want his art treated? And is the corpse’s former intent all we care about?

My post last week about art museums and the doctrine of deviation provoked in the comments precisely the kind of discussion/argument that I tried to point out is the whole point: how do we decide how to apply rules or other written expressions when they are applied in contexts that have radically changed. To literally apply the words written by a donor that restrict the use of a gift by an art museum when doing so would threaten the entire point of the gift (a thriving art museum) seems pretty absurd to me. If what we’re trying to do is discern a donor’s intent, shouldn’t we be a little more flexible?

Thus, I am particularly pleased to note Donn Zaretsky’s reference to the Philadelphia Inquirer’s conclusion that the new Barnes Foundation building (the subject of a couple of those comments to my original post) shows “obvious respect for Barnes’ legacy – for his idiosyncratic view of how art should be displayed and appreciated – should reassure supporters of the move.” That’s precisely the point: Barnes’ original bequest might have forbidden the move, but the result of his restriction, 60 years after his death, was the closing off of a multi-billion dollar collection of art to the wider public, strife between the Foundation and its neighbors, and a threat to the very existence of the Foundation itself. Isn’t it at least arguable that satisfying much of Barnes’ obvious intent — precisely how the art is housed and shown — while making it accessible to the world in a location where it is welcome is a reasonable effort to accommodate what he would have wanted? And isn’t it appropriate that we have institutions like courts to decide whether that reasonable argument or the opposing one (Barnes stated in his bequest the collection should never be moved, so it should never be moved, even if there are circumstances now that he did not anticipate and we could not predict his reaction to)?

And that’s not even to mention that there is a public interest involved. Are we to so honor “property” rights that we would sacrifice billions of dollars of the world’s culture to the whim of the owner? As Zaretsky asks in another post:

What if Barnes’s Will had provided that the works were to be exhibited in Merion for exactly 50 years — and then were to be burned in a big bonfire?

Should we honor donor intent in that case?

Or can we agree that sometimes the public interest trumps the donor’s intent?

Want to become a practicing lawyer? Don’t go to Harvard! Nesson and Tenenbaum again.

Some of my favorite and most respected former colleagues in practice went to Harvard Law School, but, based on what I’ve been seeing out Charlie Nesson in his role defending Joel Tenenbaum in Sony BMG Music v. Tenenbaum, I have to seriously wonder what Harvard is teaching about the actual practice of law.

I took Nesson to task recently for using his role as lawyer in the case to fight a crusade against the music industry, not to give his client the best defense possible. That attitude alone destroys my confidence in Nesson’s ability to train anyone to be a lawyer.

Now Nesson has proven he can’t write a brief. Yesterday on behalf of Tenenbaum he filed in the court that produced the $675,000 judgment against his client a document entitled Defendant’s Opposition to Entry of Judgment and Injunction (pdf)(the “Brief”). There are some non-frivolous arguments somewhere in that self-righteous screed, but they’re so buried in Nesson’s preference for rhetorical flourish over lawyerly detail that, as a responsibility to the students I am teaching to be lawyers, I have to call him out on his incompetence. A lawyer’s job is to win the judge to his client’s side through persuasive reason and argument; it is not to throw a mess at the judge that may or may not contain winning arguments and leave it to the judge to find those winning arguments.

It’s a dirty little secret that lawyers don’t like to make too much of: lawyers, not judges, win and lose cases. Lawyers don’t like to make too much of it because they want judges to believe they’re the ones from on high pronouncing judgment. But if you convince the judge you’re right and give him the tools to rule your way, you’ll win. It is remarkably pleasing to get an order from a judge ruling in your client’s favor and realize the order is merely a cut-and-pasted version of your brief. Why shouldn’t the judge steal my words if they explain his result as well as he can figure out how to explain them, and why should he trouble himself trying to find better ways to do so?

But Nesson doesn’t give the judge he’s seeking to persuade anything to work with. First, he’s asking the judge not to enter an order that would impose the jury’s verdict and the injunction against his client. But on what basis? Is he asking for judgment notwithstanding the verdict? What procedural rule is he filing his opposition to the entry of the judgment on? His Brief sure doesn’t explain the basis. Nor does it explain what he is asking the judge to do in lieu of entering the order? Dismiss the case? Lower the damages? Lift the injunction? Any or all?

Listen, students: when you write to the judge make sure she knows what you’re asking her to do and the legal basis she has for doing it.

I won’t get into all of the merits of Nesson’s arguments. I think he may well have a due process argument on the excessiveness of the statutory penalties, but even that one is a stretch.

But the argument he considers “first and foremost” is that “the statute in question does not permit a lawsuit against an individual consumer for statutory damages.” Brief at 1-2 (emphasis added). Having not graduated from Harvard myself, perhaps I am missing something. The operative statute, 17 U.S.C. Section 504(c), provides that “the copyright owner may elect . . . to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, . . . .” (emphasis added)

Nor is there anything in any authority to suggest that Nesson’s incomprehensible conclusion that the statute does not contemplate imposing statutory damages on individuals is founded in sources to obscure for me to know.

Nimmer on Copyright, Section 14.04[a] provides: “Under the current Act, the copyright owner may elect to recover statutory damages, instead of actual damages and defendant’s profits. He may, moreover, make such an election regardless of the adequacy of the evidence offered as to his actual damages and the amount of defendant’s profits, and even if he has intentionally declined to offer such evidence, although it was available. . . . The availability of statutory damages under the current Act, even under circumstances in which plaintiff’s damages or defendant’s profits are susceptible to precise evaluation, represents a departure from the pertinent provisions of the 1909 Act.Under that former law, the availability of statutory damages was to a degree discretionary with the court and turned largely upon the proof of actual damages and defendant’s profits.” (citations and internal quotation marks omitted)

Patry on Copyright, Section 22:153 states: “Statutory damages are damages whose assessment has been fixed by the legislature. They have existed in U.S. copyright laws since preconstitutional days and stand in contrast to common law actual damages and an accounting of defendant’s profits. Recovery of actual damages or profits varies according to the harm suffered or the benefit received, without an upper limit on the recovery. Statutory damages have been believed to be particularly valuable where such relief is difficult to prove. The purpose of statutory damages has been noted a number of times by the Supreme Court.”

Thus, the court in In re Mann, 410 B.R. 43, 49 (Bkr. C.D. Cal. 2009), quoting Columbia Pictures Television, Inc. v. Krypton Broadcasting of Birmingham, Inc., 259 F.3d 1186, 1194 (9th Cir.2001) (quoting Nimmer at § 1404[A] ), stated: “However, a plaintiff may elect statutory damages for copyright infringement ‘regardless of the adequacy of the evidence offered as to his actual damages and the amount of defendant’s profits.’” In Raydiola Music v. Revelation Rob, Inc., 729 F. Supp. 369, 374 (D. Del. 1990), the court explained that “the purpose of statutory damages is to remedy a wrong which would otherwise go unremedied if actual damages could not be proven.” See also Broadcast Music, Inc. v. Papa John’s Inc., 201 U.S.P.Q. at 305 (“Statutory damages were provided by Congress to create a remedy where actual damages [or profits] are not provable at law, but yet where it is proven that a violation of the copyright has occurred.”).”

In short, the plaintiff in a copyright infringement case has an alternative: he can prove and recover actual damages or seek the amounts allowed by statute. Such alternatives are common in situations in which it might be difficult for plaintiffs, even after having established statutory violations, to quantify their economic harm. It might even be argued that illegal downloading is precisely such a case — how can Sony BMG possibly quantify the sales, if any, it lost as a result of Tenenbaum’s unauthorized downloading of copyrighted songs.

Could I be wrong? Of course, but Nesson hasn’t begun to explain to me why. Instead, he’s made himself out to be someone who makes arguments that are patently false.

Don’t get me wrong here. I’m not on Sony BMG’s side. I think the music industry’s legal and business approaches to the technological revolution that has entirely undermined their old business models have been disasters, and I certainly don’t think Joel Tenenbaum should have to pay Sony BMG $675,000.

My problem is that Nesson is Tenenbaum’s lawyer and he hasn’t given me a good reason to believe he can get Tenenbaum free from that monumental verdict.

All the cash has been sucked from Simmons’ mattresses.

Is it any wonder we don’t trust Wall Street?

I saw it back in the 80’s up close and personal, when the debt was called “junk,” but the practice goes on and on and on. When credit markets are good, investors (called “private equity firms” or “merchant bankers” or “leveraged buy out firms” or the like among their peers and minions) will sell a company’s bonds to finance their purchase of the company, take fees for issuing those bonds, issue more bonds later on to take cash out of the company for themselves (and fees for the new issuance), and then, when the debt becomes to burdensome for the company, the purchasers of the bonds are left high and dry — that is, broke or, at best, with equity in a new, reorganized, and crippled company worth a fraction of what they paid for their bonds.

The latest victim? Simmons Bedding Company, the maker of the Simmons Beauty Rest Mattress. As the New York Times reports:

Simmons says it will soon file for bankruptcy protection, as part of an agreement by its current owners to sell the company — the seventh time it has been sold in a little more than two decades — all after being owned for short periods by a parade of different investment groups, known as private equity firms, which try to buy undervalued companies, mostly with borrowed money.

For many of the company’s investors, the sale will be a disaster. Its bondholders alone stand to lose more than $575 million. The company’s downfall has also devastated employees like Noble Rogers, who worked for 22 years at Simmons, most of that time at a factory outside Atlanta. He is one of 1,000 employees — more than one-quarter of the work force — laid off last year.

But Thomas H. Lee Partners of Boston has not only escaped unscathed, it has made a profit. The investment firm, which bought Simmons in 2003, has pocketed around $77 million in profit, even as the company’s fortunes have declined. THL collected hundreds of millions of dollars from the company in the form of special dividends. It also paid itself millions more in fees, first for buying the company, then for helping run it. Last year, the firm even gave itself a small raise.

Wall Street investment banks also cashed in. They collected millions for helping to arrange the takeovers and for selling the bonds that made those deals possible. All told, the various private equity owners have made around $750 million in profits from Simmons over the years.