Investors fear media companies in their portfolios face huge potential liabilities following a court decision over using free-lance copy on the web.
The 2nd U.S. Circuit Court of Appeals said it is a copyright infringement for a publisher to put a free-lancer's work on the web or otherwise re-use or re-sell it without the free-lancer's written permission.
The landmark decision by a three-judge panel came in a case brought by the National Writers Union against The New York Times. Other defendants were Newsday Inc.; The Time Inc. Magazine Co.; Mead Data Central Corp.; and University Microfilms International.
No one has put a dollar figure on how large the liabilities might be, but in the filing for a rehearing to appeal the decision, Bruce P. Keller, attorney for the defendants, wrote: "The panel opinion suddenly exposes all publishers of newspapers, magazines, anthologies and other collective works to enormous potential liability."
Few analysts have studied the matter. And it has not had a major impact on stock price. After the court's decision was released Sept. 24, shares of The New York Times slid to $38.43 from $39.43, but the price had bounced back to $43.18 by March 29. Time Warner followed a similar pattern, falling to $59.12 on Sept. 24 from $60.37 on Sept. 23. It since has surged and closed at $98.06 on March 29, but that likely is due to the upcoming merger with America Online.
Alan G. Hevesi, the New York City comptroller who oversees more than $100 billion in assets for the city's five pension funds, wrote to 36 media companies, seeking the extent of their exposure and the steps the companies are taking to lessen the impact.
"The National Writers Union. . . has informed my office that the ruling exposes all publishers . . . to potential liability for having preserved the contents of their publications on microfilm, CD-ROM and in electronic libraries," Mr. Hevesi wrote.
He also asked each company to tell him its position on the union's idea to set up contracts through the Publications Rights Clearinghouse. The clearinghouse allows free-lancers to license electronic rights to publishers in return for appropriate compensation both for new articles and for material previously put online, said Jonathan Tasini, president of the union and lead plaintiff in the lawsuit.
So far, Mr. Hevesi has received responses from Cox Communications Inc.; United Television Inc.; CBS Corp.; Sinclair Broadcast Group; USA Networks Inc.; Viacom Inc.; and Time Warner Inc.
"None of them felt they were liable on the copyright issue. . . . Others said they have given copyright credit where due," said Nicole Lise, spokeswoman for the comptroller.
Officials at Time Warner said the suit is scheduled for a re-hearing, at which they expect the defendants to prevail.
As of Jan. 28, the New York City pension funds owned 66.9 million shares of Time Warner; 2.2 million shares of Viacom; and 3.4 million shares of CBS, according to Ms. Lise.
Nancy Nielsen, spokeswoman for the New York Times argued that the union's charges are "wrong and misleading. The court ruling applies only to situations where there are no contracts, and all of our free-lance writers have had contracts since 1995." The contracts give The Times the right to reprint articles in all media, without additional payments, she said.
The Times and other defendants in the case are appealing the decision.
"We are petitioning for an `en banc' review, which means all 10 judges on the court would hear the case," Ms. Nielsen said. But even if The Times loses the appeal, the company's liability as a result of the decision is tiny, she said.
Glenn Ezard, director of equities at the $3.75 billion LongView Collective Investment Fund, New York, also has written to some of the fund's media holdings, trying to determine what action they were taking in view of the decision. As of Dec. 31, LongView owned 428,000 shares of Time Warner; 148,000 of American Express, which owns American Express Publishing; and 56,000 of The New York Times, according to First Call ShareWatch, Boston.
"We felt it was an issue that should be addressed," Mr. Ezard said, adding he hasn't yet heard from anyone.
"It's going to be more and more of an issue as more publications go electronic. It's only going to get worse, and it's in everyone's interest to see it taken care of now," he said.
Mario Gabelli, chief investment officer at Gabelli Asset Management, Rye, N.Y., took a different view. "It's just a false alarm," he said. "The same thing happened in the '60s when you were making movies and didn't think about an afterlife for them on HBO, and in the '80s if you didn't get agreements for videotapes. What happens is you go back and rewrite your deals. For Wall Street, this is only a short-term problem. Right now technology is moving faster than the lawyers can write the contracts, but it will all be rebalanced."
As of Dec. 31, Gabelli owned 2.89 million shares of Time Warner, 1.21 million shares of CBS and 105,000 shares of Fox Entertainment Group, according to First Call ShareWatch.
Meanwhile, the writers group in late March asked the Securities and Exchange Commission to investigate The Times' Jan. 29 filing with the SEC to take its Times Co. Digital public.
The union said the newspaper's attorneys told the appeals court the ruling exposed it and other publishers to "enormous potential liability." But, noted Mr. Tasini, The Times stated in its prospectus to take the digital company public that there are no legal proceedings to which it is a party pertaining to its business and operations other than ordinary routine litigation.
"We think the federal appeals court judges and the SEC have a right to know which of The New York Times' statements were true," said Mr. Tasini.
Ms. Nielsen, the Times' spokeswoman, said the Times has not heard from the SEC and is not aware that it is under investigation by the agency. "We are in the process of contacting the SEC to give them our own response to Mr. Tasini's letter," Ms. Nielsen said.