AXANAR enters DISCOVERY! (Part 1)

It’s time for Star Trek discovery! No, not the new TV series. I’m talking about the next phase of the Axanar copyright infringement lawsuit: legal discovery.

Last week, former Axanar marketing director and tech guru, Terry McIntosh, posted on Facebook that he had just been subpoenaed by CBS and Paramount to be deposed as part of the copyright infringement lawsuit against Alec Peters and Axanar. Terry is not in any legal peril himself, as no other defendants other than Alec Peters were named in the lawsuit. Instead, the studio lawyers will probably just ask for copies of all of Terry’s correspondence (e-mails, IMs, chats) with members of the Axanar team, and the studios might set up a deposition to ask Terry some (maybe even a lot of) questions either in person or over the phone.

And this means that the (coincidentally named) DISCOVERY phase of the lawsuit is now in full swing. So what does that mean?

In civil law in the U.S., before a case goes to trial, there is a period known as discovery where both sides are allowed to request evidence from the other party, and all requests must be honored. Failure to turn over relevant evidence at discovery can result in sanctions from the judge or even a mistrial. Discovery can take the form of submitting questions for the other side to respond to in writing, requesting documents, and/or taking depositions during interviews with key witnesses and involved individuals.

It’s only after all the evidence is shared back and forth during discovery that the trial itself happens. And no matter how many legal dramas you watch on TV, that moment when something unexpected is revealed during the trial and everyone is suddenly shocked…that almost never happens in real life. The reason is that both sides know everything that’s going to come out in court because it’s already been covered in discovery. In fact, if one of the legal teams tries to ambush the other side with a piece of evidence that didn’t come out during discovery, the other side can object to the evidence, and the judge will typically disallow it.

Very likely, Terry McIntosh won’t be the only witness subpoenaed.  I’m guessing Alec Peters, Rob Burnett, and a host of other Axanar team members–past and present–are also being contacted by the studios’ attorneys.  And it won’t just be the studios doing the subpoenaing. In fact, it’s very likely that Axanar’s team of lawyers from the firm of Winston & Strawn are going to be requesting a great deal of documentation from Paramount and CBS…most probably going back 50 years! And I wouldn’t be surprised if a few top-level executives from both the licensing and legal departments of CBS and Paramount end up having fairly grueling deposition sessions.

The two sides in the case were reportedly in negotiation to settle the lawsuit until recently. For all I know, they might still be in negotiations. But no settlement has been announced as yet, and so, with the sending out of subpoenas, discovery has begun. The trial is scheduled to begin on January 31 of next year (not all that far away!), and two questions emerge:

1) Will the case even make it to trial, or might there still be a settlement (or even a chance of the case being dropped completely) before the end of January?

2) If the case does go to trial, which side is most likely to win?

I know a lot of fans are already debating these questions with all sorts of armchair lawyering, and I’ve read many of the arguments. But the one thing I haven’t seen written about yet is an analysis of this case NOT from a legal standpoint but from a BUSINESS perspective. As things move closer to trial, will it actually be worth it for CBS and Paramount to continue to pursue this case…or will it be safer to settle or even drop the case entirely?

I know there are some people out there who want to see Alec Peters obliterated both financially and professionally by this case in the name of justice, and they’re not going to like what I’m about to write. Others who are Axanar supporters will rally around this article as further proof that Alec is in the right and should never have been sued in the first place.

In the words of Lt. Uhura, “Sorry, neither.”

My goal in this editorial is not to defend Alec Peters or Axanar nor to argue the merits of this case on a legal level. Instead I want to present a different and hopefully unique take on what might happen. Note, I did not say “will” happen. This is just my opinion, mixed in with some perspective I’ve received from legal consultants who are familiar with the Axanar lawsuit (but not working on the case professionally or directly). And I need to state for the record that my wife (who is an attorney) has not been involved with this case, nor has she advised me on the writing of this blog post in any way.  In fact, she refuses to discuss the Axanar case with me at all.

So let’s jump into the water, shall we?

As most of you already know, after Alec Peters was sued by CBS and Paramount for copyright infringement in late December of last year, he quickly went out and found a law firm that specializes in intellectual property to represent him, Winston & Strawn…and they agreed to take the case pro bono. That means that Alec will not have to cover any legal fees for the lawyers’ time (saving him literally hundreds of thousands of dollars). Alec will still have to cover certain costs during discovery, such as travel for depositions, court reporters, videographers, and the such. But the lion’s share of the financial burden will not be his.

Granted, Alec could still lose the case, and with 57 listed instances of alleged copyright violations priced at up to $150,000 each, the legal verdict could reach well into the millions of dollars! But it could also be a lot lower, as $150,000 is a penalty level for willful violation of copyright, which is a challenge to prove. Non-willful violation penalties are only $7,500 per instance and can be as low as $200. I’ll go more into the differences between willful and non-willful violations in part 2, but the point is that those expecting a financially devastating verdict (like CBS, Paramount, and certain folks out there with an Ax to grind…get it?) might be surprised by a much, much lower judgment.

And that brings us to a little story of a previous client of Winston & Strawn: a tiny company named Chapterhouse. Not much more than a few guys in a garage, Chapterhouse was being sued by a huge entertainment company called Games Workshop for millions of dollars for—you guessed it!—copyright infringement.

You can learn more about the Chapterhouse lawsuit here (scroll down the page to listen to the recorded discussion/analysis of the verdict). But in short, it was classic example of Goliath trying to stomp out David, and the odds looked heavily stacked against the little guy with a huge lawsuit and a potentially catastrophic financial judgment if the verdict went in favor of the plaintiff.

Winston & Strawn stepped in to represent Chapterhouse pro bono. (Don’t these guys ever charge a client???) Actually, yes, they do. And it’s because they win some very high profile cases. And this became a very high profile case…specifically because the judgment turned out to be the exact opposite of what most experts expected. After years in court, the ruling, while still against Chapterhouse, was miniscule: only $26,000 out of what could have been millions!

Games Workshop went into this fight expecting an easy win and instead came out with a whole bunch of headaches. Make no mistake; Goliath did still beat David, but only in a very small and nominal way. And after an appeal, the two sides eventually settled matters out of court. But the damage had been done. Games Workshop had to, quite literally, completely revise their business processes for new releases. Product lines had to be renamed and rebranded, resulting in unexpected marketing and printing costs. And shortly after the mid-2013 verdict, the senior legal counsel for Games Workshop, Gill Stevenson, quietly departed the company. (It’s assumed by many that she was fired.)

In many ways, CBS and Paramount are probably going into this case feeling just as confident as Games Workshop did…although things are already likely not going the way the studios had initially expected.

So what did they expect?

CBS and Paramount are used to threatening their way out of going to court in the first place because most people are scared to death of losing their house, their car, and their entire savings in a huge legal verdict. But Alec Peters rents his house. His car is nine years old. Ares Studios itself is just a monthly lease, so even that can’t be liquidated and taken…only shut down. So if Alec loses this case with a big financial verdict, he’ll likely just declare bankruptcy—which he’s done before for a previous company of his—and pay the studios nothing.

Now, I’ve heard some people who are rooting against Alec Peters predicting that he will somehow be “blacklisted” in Hollywood and “never work in this town again.” But Alec was never actually listed, so it’s hard to blacklist him. In other words, he didn’t really have a Hollywood career to ruin, so there’s not much there to take away. Also, no judge can order someone to be blacklisted as part of a legal remedy. So at worst, Alec would simply be the loser of a very public copyright infringement lawsuit. And even losing this lawsuit could be worth millions to Alec Peters. (Say what? I’ll go into that crazy comment in part 2!)

But back to the studios…

Their modus operandi is to try to intimidate the little guy as quickly and thoroughly as possible. It keeps the studios’ legal costs super-low. Just write up a really scary legal complaint (with staggeringly huge numbers) and file it in court. When faced with such a horrifying potential loss from a losing verdict, and looking at sky high legal fees for a protracted trial (lawsuits usually cost around $20K-$25K per month to litigate…or more!), most normal folks will pee in their pants, fall to their knees, and beg for a settlement, promising to do anything the studios demand of them. Unconditional surrender.

Had this happened with Alec Peters (I’m just guessing here), the studio would likely have agreed to settle the suit if Alec agreed to shut down his production completely, close the studio, return all the money collected from the donors, and probably never work on any fan production again. The “Battle of Axanar” would end with only one shot fired, this 15-page lawsuit.

But it didn’t happen that way. This upstart little pipsqueak Trekkie actually lawyered up, and worse, it was pro bono! He began working with a PR guy to get sympathetic coverage of this David and Goliath lawsuit in the press. And then those damn lawyers of his started forcing the studios and their lawyers to actually fight this battle, and fight hard.

The defense responded to the complaint with a motion to dismiss pointing out all the places where the original complaint was sloppy. This forced the studios to file an amended complaint where they had to actually do their homework and list the specific counts of infringement one by one. Alec and his legal team responded again, still seeking a dismissal. The studios then responded again (this had to be getting expensive for the studios), and then the defense came back one last time and actually added a counterclaim!

I can’t even imagine how shocked and pissed off the studios must be with how long this is taking and how much it is costing. Even though CBS general counsel Jonathan Anschel is a salaried employee of the studio, their lawyers at Loeb & Loeb are billing by the hour. CBS and Paramount’s costs at this point are probably already well over a hundred thousand dollars, and they will likely double in the coming months. Alec’s legal fees are only a small fraction of that for incidentals.

But for all that the studios are paying in legal services, added to the productivity lost by their own employees from the time being spent on this annoying distraction, CBS and Paramount actually have a great deal more to potentially lose…even if they win this case! And for this reason, I actually suspect this case will either settle or be dropped during the discovery phase…before it ever goes to trial. Remember, you read it here first.

Why do I believe this? Come back for part 2 and find out!