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A clash between the commercial rights of a scientist and the free speech rights of a critic is heading to the 2nd U.S. Circuit Court of Appeals. At issue is whether the critic can post copyrighted materials he obtained only after someone else breached a confidentiality agreement and provided him with proprietary information to which he had no right. Northern District Judge Thomas J. McAvoy recently came down squarely in favor of the critic, and the plaintiffs are now seeking a bee-line to Foley Square, where they hope to focus on the commercial implications rather than the free speech aspects of the case. NXIVM Corp. v. The Ross Institute, 03-CV-1051, arises from an unusual and contentious battle between an innovator who runs an upscale executive training program, and a professional cult tracker. The case distills to whether the cult monitor’s use of proprietary materials constitutes fair use for protected criticism or impermissible exploitation of intellectual property. NXIVM operates what it describes as a human potential academy, previously known as Executive Success Programs Inc., where executives, lawyers and others obtain training in advanced cognitive processes. It is run by Keith Raniere, a prodigy who obtained degrees in mathematics, physics and biology from Rensselaer Polytechnic Institute and was once included in the Guinness Book of World Records under the “highest IQ” category. His company is based near Albany, N.Y. Raniere’s “executive success” program costs up to $10,000 for a five-day course and attracts business professionals and government leaders from around the world. However, his sometimes unorthodox practices — students bow to him, wear special garments denoting their respective rank in the school and address Raniere as “Vanguard” — attracted the attention of Richard Ross. Ross operates an entity called the “Ross Institute,” which is dedicated to exposing cults and cultist movements. The Ross Institute has been critical of NXIVM, and its Web site has repeatedly characterized NXIVM as a mind-bending and potentially dangerous cult. What might have been a generic defamation action — Raniere strenuously objects to the characterization of his organization as a “cult” — took another turn when a former student, Stephanie Franco of Deal, N.J., violated a confidentiality agreement she signed and provided proprietary course materials to Ross. Ross disseminated those materials to two mental health experts who wrote critical articles on Raniere’s program. Those articles, posted on Ross’ Web site (www.rickross.com), quote extensively from and rely on the materials provided by Franco. Lawyers for Raniere sued and moved before McAvoy for a preliminary injunction. Kevin A. Luibrand of Tobin and Dempf in Albany, appearing for Raniere, asked the court to enforce the confidentiality agreement signed by Franco, and to extend those restrictions to Ross and his allies. Luibrand also cited the Lanham Act, which allows actions for commercial disparagement, and argued that the First Amendment does not serve as both a shield and a sword, and does not trump the legitimate business concerns of his client, especially where the materials at issue were improperly obtained. “Defendants attempt to now clothe their unlawful acquisition, distortion and publication of plaintiffs’ material as sacred First Amendment right is a mockery to that freedom,” Luibrand said in court papers. Arlen L. Olsen of Schmeiser, Olsen & Watts in Latham, N.Y., also represents the plaintiffs. In an interview, Luibrand said the case has important commercial implications because his client did everything within his legal power to protect the privacy and value of its intellectual property, and McAvoy said that is not enough. The company “trademarked portions of the material. It copyrighted every page of the material. It has a patent pending on the ideas that go into the materials. And anyone who had access to the materials in a legitimate way had to sign a confidentiality agreement. … Yet the court’s decision leaves no remedy available to the company to prevent further release of its materials,” Luibrand said. On the other side, Thomas F. Gleason of Gleason Dunn Walsh & O’Shea in Albany, who is defending the Ross Institute, argued that Raniere has no basis for a restraining order. He suggested that Raniere’s true aim is to stifle critical commentary, which is central to the First Amendment, by concealing a defamation action under the cloak of copyright infringement and the Lanham Act. MOTION DENIED McAvoy ordered Franco to stop sharing NXIVM materials with anyone other than her attorney, Anthony J. Sylvester of Riker Danzig Scherer Hyland & Perretti in Morristown, N.J., and his surrogates. However, he otherwise denied Raniere’s motion. The court said that Ross is not in competition with Raniere. McAvoy said the quotes lifted from Raniere’s protected materials were necessary to convey the point of the criticism. “From the allegations and arguments, it’s clear that the essence of plaintiffs’ complaint is that they’re being harmed by the conclusion that they are a cult,” McAvoy said, according to a transcript of a hearing earlier this month. “This opinion is not enjoinable absent extraordinary circumstances, which is not present here. An injunction which may impose a prior restraint on speech is strongly disfavored.” Raniere is seeking prompt review by the 2nd Circuit, arguing that continuing publication of his copyrighted property unfairly infringes his commercial rights. “[O]ur material is not only copied, but also distorted,” Raniere said in an affidavit. “This false story with our copyrighted material released to the public through international media can never be completely reversed. If this is not in the least stopped it is possible it will destroy us.” Gleason, counsel for Ross, said the plaintiffs’ argument would carry more weight if his client were running a rival institute. Even then, Gleason maintains, free speech protections would apply if Ross was using the materials to criticize a competitor rather than appropriate a competitor’s product or intellectual property. “I don’t know that it would be totally different from a constitutional point of view because I don’t think your free speech status would be related to your status as your competitor,” Gleason said. “But it would cast a cloud on the nature of the fair use claim because if he could make a credible claim of appropriation or piracy it would strengthen it. But when it is used for purposes of criticism … I still think you have free speech coverage.” Luibrand disagrees, arguing that it makes no difference if the improperly obtained materials are praised, criticized or released without comment. He said the intellectual property invariably devalues once it is placed in the public domain and Raniere loses control of its use — control to which he is entitled through the trademarks, copyrights and pending patent. The seminal case on the issue, or a similar issue, involved former President Gerald R. Ford. In 1985, the U.S. Supreme Court found The Nation guilty of copyright infringement after it quoted extensively from a manuscript of Ford’s then unpublished memoirs. In Harper & Row v. Nation Enterprises, 471 U.S. 539, the Court rejected The Nation‘s argument that it was merely reporting the news. Although The Nation, like Ross, only ran a relatively small portion of Ford’s work, it distributed “the heart” of the book in violation of the publisher’s copyright.

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