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October 29, 2008 10:45 AM

The Am Law Litigation Daily: October 29, 2008

Posted by Joe Phalon

Edited by Andrew Longstreth

IP
Google Settles Book-Scanning Suit With Publishers and Authors for $125 Million

Three years ago, the Authors Guild and a group of publishers sued Google, claiming that Google had committed sweeping copyright violations in connection with its efforts to put books online. But what started out as litigation quickly became a negotiation. For the last two years, authors, publishers, and Google have been working out a complex, multifaceted intellectual property agreement. Yesterday, those parties announced they had reached a deal that will give Google access to the books it wants and also provide payment to copyright holders. As part of the settlement agreement, Google will contribute $125 million to establish a Book Rights Registry, which will collect and distribute money to copyright holders, and to pay authors whose works have already been downloaded.

Throughout the negotiations, according to the Recorder, Google was represented by Daralyn Durie of Keker & Van Nest, Suzanne Bell of Wilson Sonsini Goodrich & Rosati, and in-house Google lawyers. (Kilpatrick & Stockton's Joseph Beck represented the company during the litigation phase.) Michael Boni and Joanne Zack of Boni & Zack represented the authors; Bruce Keller and Jeffrey Cunard of Debevoise & Plimpton negotiated for the publishers. (Also involved in the negotiations was Howard, Rice, Nemerovski, Canady, Falk & Rabkin partner Ronald Star, who represented the libraries that have provided books to be scanned by Google.)

Yesterday we caught up with Cunard of Debevoise, who discussed the various complexities of the deal. The parties had to figure out, among other things, the scope of authorization Google would receive, what kinds of books were covered by the deal, and how much Google would have to pay to use them. For Cunard, who heads the media corporate practice at Debevoise in addition to being a copyright litigator, it was an opportunity to put all his skills to the test.

"As soon as we moved into settlement mode, this became one of the most complicated and challenging multiparty licensing transactions that I can think of," said Cunard.

APPELLATE
Posner to Class of Sears Dryer Purchasers: You're All Wet

If you get a chance, read the opinion issued yesterday by Seventh Circuit Judge Richard Posner in Steven J. Thorogood v. Sears, Roebuck and Co. It's typical Posner: cranky, funny, and dripping with wit. The case involves a Tennessee man, Steven Thorogood, who sued Sears for deceptively advertising that its Kenmore dryers were made of stainless steel. Thorogood found that part of the dryer's drum was not, in fact, stainless steel, but instead a metal that rusted and stained his clothes. Thorogood and his lawyers at Krislov & Associates claimed to represent purchasers of about a half million Kenmore dryers across 28 states and the District of Columbia. Chicago federal district judge Harry Leinenweber granted their request to certify a class.

Yesterday, a Seventh Circuit panel reversed that decision. In writing for the panel, Posner takes a whack at what he regards as misuse of the class action system. "The plaintiff claims to believe that when a dryer is labeled or advertised as having a stainless steel drum, this implies, without more, that the drum is 100 percent stainless steel because otherwise it might rust and cause rust stains in the clothes dried in the dryer," he writes. "Do the other 500,000 members of the class believe this? Does anyone believe this besides Mr. Thorogood?" And therein lies the problem, according to Posner. There was no "single understanding of the significance" of Kenmore's claims, and therefore no reason to treat all purchasers of Kenmore dryers as a class. (Parenthetically Posner adds this line, which we cite in case you're interested in the Seventh Circuit's dirty laundry: "At argument, the plaintiff's lawyer, skeptical that men ever operate clothes dryers--oddly, since his client does--asked us to ask our wives whether they are concerned about the rust stains in their dyers. None is.")

Squire Sanders & Dempsey partner Joseph Weinstein represented Sears. (Robin Weaver argued before the Seventh Circuit.) Weinstein told us that as a result of the appeals court's decision, the district court is "now left with only the claims of Mr. Thorogood."

Clint Krislov of Krislov & Associates, who represents Thorogood, was not immediately available for comment.

ERISA
After Six Years, North Carolina Judge Certifies Class Action Against RJR

As we've previously noted, the slow but steady disappearance of individual smoker suits doesn't mean the tobacco companies have stopped worrying about litigation. Yesterday the Winston-Salem Journal reported that RJR Tobacco is facing an ERISA suit, which alleges that the company breached its fiduciary duty as trustee of its employees' 401(k) retirement plan. Last month, Greensboro federal district court judge Carlton Tilley, Jr., granted the lead plaintiff's request for certification of a class of about 3,500 current and former RJR employees.

Though similar ERISA class actions were all the rage after the corporate scandals earlier this decade, this case has its roots way back in 1999, when RJR was spun off from Nabisco. The lead plaintiff, RJR employee Richard Tatum, claimed that he objected to the company's retirement plan to sell securities in Nabisco stock funds after the spin-off. While the Nabisco stock funds dipped shortly after the spin-off, the lawsuit notes that they rebounded. Tatum filed suit in 2002.

Robert Elliott of Elliot Pishko Morgan in Winston-Salem, who represents the plaintiffs, told the Journal that the ruling was "momentous for this case, considering that Reynolds has tried to block the class-action certification for more than six years." He also said the damages in the case could reach into "multimillions of dollars." A spokesperson for RJR, which is represented by Kilpatrick Stockton, said that the company had appealed the class certification ruling to the Fourth Circuit.

WHITE-COLLAR
Former Adams and Reese Partner Ordered to Jail Pending Trial

The story of James Perdigao just keeps getting weirder and weirder. For those who haven't followed the saga to date, Perdigao is a former Adams and Reese partner who was indicted last year on charges that he stole $30 million from the firm. Apparently not one to go quietly, Perdigao returned fire, filing a 73-page civil RICO complaint earlier this year against Adams and Reese. The suit apparently makes for some sensational reading.

We learned this week Perdigao will have to await his criminal trial, scheduled to begin on December 1, in the clink. The reason? He hacked into the computer system at Adams and Reese. According to the New Orleans Times-Picayune, an FBI agent who arrested Perdigao earlier this month turned up evidence that the onetime partner had been gaining access to Adams and Reese computers for years, dating all the way back to his first arrest in 2004.

The FBI agent also told a New Orleans magistrate judge that Perdigao failed to inform federal authorities that he had been arrested in February for shop-lifting in a Wal-Mart. The Times-Picayune reports that Perdigao faces a December trial date in that case as well.

SECURITIES
Trial Underway Against Bank of America Over Sale of Asset-Backed Securities

Is there a financial-services company with a bigger docket than Bank of America? Seems like a week doesn't go by when we don't report on its many litigation matters.

Here's one that's been around for a while: Way back in 2003, B of A was sued for underwriting asset-backed securities offered by the erstwhile low-end furniture retailer Heilig-Meyers Company, which went into bankruptcy in 2000. Big Wall Street investors, like American International Group, Travelers Insurance, Allstate, and Société Générale, alleged that Bank of America wasn't truthful about the financial state of Heilig-Meyers when it sold them securities backed by interests in pools of Heilig-Meyers receivables.

According to the New York Times, trial was scheduled to begin yesterday before New York federal district court judge John Koeltl. Bank of America is represented by George Covington at King & Spalding.

The plaintiffs are represented by David Spears of Spears & Imes, who most recently made news with his stalwart defense of one of the former KPMG executives indicted in the government's gigantic tax shelter case.

MALPRACTICE
Report: Auditing Firms Should Prepare for Litigation

If you have an auditing firm client, the next few years should be very busy for you. The Am Law Daily has pointed us to a report in Compliance Week that warns auditors they should expect to be targeted for their role in the credit crisis.

Maybe not a big surprise there. The question, Compliance Week notes, is how likely the audit firms are to be found liable for the poor investments their clients made in mortgage-backed securities. Foley & Lardner partner Patrick Daugherty seems optimistic about the audit firms' chances. The problems companies face today, he said, involve complex rules of asset valuation, which is a far different story than the accusations in the WorldCom/Enron era that auditors abetted management fraud.

"I suspect [audit firms] are going to have to defend some of this, but I also suspect they're going to win," Daugherty told Compliance Week. "I would expect they'll get rid of these suits earlier and at less costs than was the case in Sarbanes-Oxley-inspired litigation following Enron and WorldCom."

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In regard to the Sears dryer case in the 7th Circuit (Thorogood v. Sears), I argued the case in the 7th Circuit. Please correct your story.

Robin G. Weaver
Partner
Squire, Sanders & Dempsey L.L.P.
4900 Key Tower
127 Public Square
Cleveland, OH 44114-1304
216.479.8572
216.479.8780 - Facsimile
Rweaver@ssd.com

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