Since late last week, people have been submitting the news that ACS:Law's email archives were revealed and spread widely across the internet late last week. Once again, I find this action somewhat troubling. Like the DDoS attacks that resulted in this leak, I do worry about the backlash that it creates, and I find it a bit shameful that people feel the need to stoop to dirty tricks to try to prove a point or make a statement. I've been debating whether it's worth reporting about the leak at all, or any of what's been found out, and I'll certainly skip over the mundane or merely salacious bits. However, some of the information that's being reported is important in understanding how these "pre-settlement or we'll sue" businesses work, and that's information worth sharing.

ACS:Law, of course, was one of the first, and certainly the most well-known, of the law firms practicing this form of "legal threats as a business model." Since then, however, many other law firms (in Europe and the US) have jumped into the game with much fanfare. ACS:Law's principle, Andrew Crossley, regularly bragged about how profitable his enterprise was, and that certainly was likely some of the thinking behind others trying to get in on the action. However, it appears that, from the data gleaned in the leaked emails, the effort really hasn't been all that profitable.

TorrentFreak has a detailed breakdown showing not only what percentage of people actually responded or paid up to the threat letters, but also what the revenue splits were, and how much everyone made -- covering a period of two years. The results are seen below:

Client	Money Recovered	Paid to Client	Paid to monitoring company	Paid to Firm
Digiprotect	£346,607.90	£151,625.86	£45,060.21	£131,048.38
Topware	£68,127.47	£10,880.48	£10,881.48	£23,551.18
Techland	£22,474.85	£795.93	£590.00	£2,228.43
Reality Pump	£34,866.90	£3519.16	£4,645.28	£7,628.20
Media C.A.T	£164,681.00	£35,350.57	£15,066.06	£55,957.20
Total	£636,758.22	£202,172.00	£76,243.03	£220,413.39

If this truly is an accurate accounting of the money collected and split up, it's really not that impressive. The total amount collected is just a smidgen over $1 million dollars, which means an average of about $500,000 per year. And while it's noteworthy that the law firm ends up with more than the actual copyright holder (funny how that works, huh?), the numbers indicate that Crossley's firm brought in about $350,000 in revenue to his firm over two years -- or about $175,000 per year. It's worth pointing out that Crossley did not appear to work alone, but had at least some staff, so you'd have to reduce that even further -- and you're basically talking about what your average young attorney can make on a job. It's not bad, by any stretch of the imagination, but it's not exactly rolling in the dough. A report from a few years ago about UK starting legal salaries for lawyers fresh out of school put the amount at £63,000 to £65,000 (basically, around $100,000 US), and noted that it was rising quickly. So depending on Crossley's costs for rent, staff and other expenses, it sounds like he might be making a bit over what a recent law school grad can make.

That said, it's also worth pointing out that the biggest copycat firm in the US, which goes by the name US Copyright Group, appears to be sending out a much higher number of letters early on and is asking for noticeably higher fees to "settle," though it's also filing an actual lawsuit (which entails additional costs). ACS:Law, of course, is famous for sending out letters and never actually suing, which helps keep its costs lower.

Well, it took a while, but US Copyright Group (really DC law firm Dunlap, Grubb & Weaver) have finally gotten around to getting subpoenas out to ISPs in the Hurt Locker lawsuit. While that lawsuit was filed months ago, the subpoenas just went out, in part, because of the fight in another of USCG's lawsuits over certain aspects of the threat letters. That ended with a requirement for USCG to work with groups like the EFF to come up with more informative threat letters. The results don't look all that more reasonable, but it does note that those accused have the right to try to fight the subpoena, and removes the misleading threat of a $150,000 penalty hanging over their heads. Of course, being just slightly more honest has its cost. The pre-settlement fee demanded has been increased from $2,500 to $2,900 this time around.

Separately, in Greg Sandoval's article, he talks to Cindy Cohn from the EFF who notes that they're hearing from a lot more people on the receiving end of USCG lawsuits who have no idea what it's all about and aren't BitTorrent users at all. That happened with the RIAA lawsuits as well, but apparently at a much lower rate. This certainly calls into serious question the techniques that USCG is using to identify file sharers and to make sure they're not suing innocent people. Of course, when you look at the economics of it all, to USCG it really doesn't matter. When it makes mistakes, the actual likelihood of getting in trouble for it times the likely cost of such a mistake is so low as to make the incentive such that there's little reason to care about false positives. Yet, on the flip side, the cost of defending yourself against a bogus threat from USCG is certainly going to be more than $2,900 in almost every case. As Cohn notes:

"When it comes to copyright," Cohn said "the law is set up so that truth, whether someone actually violated the law or not, takes a back seat to financial considerations."

And, really, that's what's so nefarious about this whole process. The incentives are totally screwed up. USCG has no incentive to weed out the false positives, and the innocent folks threatened have powerful economic incentives to just pay up. It's still not "extortion," in that USCG can claim to have a legitimate legal basis for the demands, but it certainly comes damn close in practice.

Despite the fact that there are still some serious legal questions about the methods of US Copyright Group (really, DC-based law firm Dunlap, Grubb and Weaver), the firm is apparently about to file its next round of lawsuits, suing thousands more, with the hope that they'll just shut up and pay up, rather than actually wanting to go to court.. Update: As pointed out in the comments, this is actually an announcement of the second round of the initial lawsuits, actually filing suit against the named participants who failed to settle when sent the "pay up or we'll sue" notice. This makes it a bit more interesting, seeing as actually filing specific lawsuits would make this program a lot more expensive, which is why other, similar, organizations haven't done so....

The same article also notes (without much surprise) that despite orders from the judge for USCG to work with the EFF to craft a more informative letter to be sent to people who are targeted in the lawsuits, the two sides are having quite a bit of trouble agreeing on the language. Apparently, they're already going back to the judge to say that this isn't exactly working. Shocking.

We've seen enough reports of just how lucrative it has been for various law firms to get into the mass automated threat letter business by demanding payment from accused file sharers based on very slight evidence. The only thing that's been surprising, really, is that we haven't seen more law firms jump into the game. In the UK, there was Davenport Lyons, who more or less handed over that business to ACS:Law. Then there was -- briefly -- the UK law firm Tilly Bailey & Irvine, who were called out by a UK Lord as a "new entrant to the hall of infamy." That resulted in TBI backing out of the business. In the US, of course, there was the recent high profile entrance of US Copyright Group (which is really the DC-based law firm Dunlap, Weaver and Grubb) as well as some indications that others are getting into the game as well.

TorrentFreak highlights another UK law firm, Gallant Macmillan, that has decided to join in on the "pay us or we'll sue you" fun. It appears that Gallant Macmillan has gone out of its way to try to indicate it's not "as bad" as those who came before it, but it's still in the same basic business. Of course, the more law firms that start down this road, the more attention the practice will get among politicians -- and the more likely that these sorts of quasi-extortion-like efforts gets shut down both in the UK and the US.

Lots of folks have noted the similarities between the UK's ACS:Law and the US Copyright Group (or, perhaps, more accurately Dunlap, Weaver and Grubb, the law firm that appears to be behind USCG). We've pointed out multiple times that ACS:Law and its predecessor Davenport Lyons have been referred for disciplinary action and even UK politicians have called the whole thing a scam. Apparently, Andrew Crossley, who runs ACS:Law has also been sanctioned twice by the Solicitors Regulation Authority in the UK.

But now Robin alerts us to the news that ACS:Law and Crossley are claiming that they're teaming up with US Copyright Group. Or, well, at least we think so. In the grammatically challenged blog post, ACS:Law's anonymous blogger calls it United Copyright Group, so we're assuming that it's a typo:

We are also working in cooperation with a newly-formed organisation, the United Copyright Group, that provides an holistic solution to illegal file sharing and provides a comprehensive set of tools designed to deter and prevent illegal file sharing. More will be written about this new phase of tackling illegal file sharing in due course.

Of course, nothing either firm does has anything whatsoever to do with preventing unauthorized file sharing. It's all about sending threatening letters and getting people to pay up. Either way, this "cooperation" may involve ACS:Law targeting folks in the US via US Copyright Group:

A new joint working relationship with US-based attorneys has opened up the North American region to our clients for identification and pursuit of illegal file sharing of their products.

With this and other operations looking to set up shop in the US, it looks like the courts may soon be flooded with questionable copyright lawsuits of this nature, almost none of which will actually go to court -- but which could freak lots of people into paying large sums of money when they probably don't need to do so. It would be nice if politicians did more than just calling this a scam and sanctioning the lawyers involved in such extortion-like practices. This sort of abuse of the court system for revenue generation should be stopped cold.

Back at the end of last year, we wrote about how some had noticed that DigiProtect, one of a group of companies that purposely puts files online to see who downloads them, and then threatens them with "pay up or we'll sue" letters, was potentially in trouble in Germany for not following the law. German law says that you can't base "legal costs" on a contingency like winning. Yet, DigiProtect's agreement is that it only gets paid if it can collect on the pre-settlement letters. That goes against the law. And, now, a court has agreed, and found that DigiProtect can't ask for legal fees in Germany unless it can actually prove what those real fees are. The court did offer DigiProtect an out: open your books and show what the real costs are, and how they are paid. DigiProtect refused to do so. This basically cuts out pretty much all of the massive profits DigiProtect and others brag about.

We've already discussed how operations like DigiProtect and ACS:Law are operating a rather questionable business of purposely putting content online, tracking the IP addresses of anyone who downloads that content, and then sending letters demanding payment to avoid a lawsuit. While it's not clear if any of these lawsuits are ever filed, many people are frightened into just paying up, even if they've done nothing wrong. And, in fact, it appears that many innocent users are receiving these letters, in such a blanket campaign. While some may call it "collateral damage" if a small percentage of innocent people receive these letters, it's still quite problematic, and a highly questionable business practice.

There have been plenty of legal questions over the activities of a small group of companies in Europe, including law firm Davenport Lyons, ACS:Law, Logistep and Digiprotect among others -- who all seem to work together to purposely put files online that they have licensed, and then send threat letters to the owner of any IP address that connects to them. This leads to a fair number of totally bogus demands for people to pay up to avoid getting sued. Apparently, the business is quite profitable, even as no actual lawsuits have been filed.

Yet, now reader Dan alerts us to the news that, at least in Germany, the pre-settlement letters and relationships between these companies may be entirely illegal. This was discovered due to a recently leaked document -- the one that showed how profitable all this was -- which also noted that the relationships between the various companies were not based on any direct monetary exchange:

The document states that "the whole project is kind of a joint venture where no party charges the other party with any costs." The problem with such a set-up is that the pre-settlement offers are usually based on costs incurred by retaining a law office to pursue the claim. File sharers are asked to pay 450 bucks for a porn movie because it costs money to investigate their IP address and send them the cease and desist letter.

However, German law specifically states that these costs can't be based on the success of the claim. In other words: In order to invoice file sharers for lawyer fees, these fees have to occur and be paid by someone no matter whether a file sharer pays up or not. Invoicing someone for costs that haven't actually occurred could be seen as fraud.

Oops. After a German lawyer, Thomas Stadler, reviewed all this and posted his analysis saying that the efforts in Germany were clearly illegal under German law (Google translation from the original) , the German lawyer who had sent the original document (the leaked one, detailing how these operations worked), Udo Kornmeier sent him a cease-and-desist letter (again, Google translation from the original), demanding he take down his blog post that showed the whole operation was illegal. Apparently, lawyers who may be breaking the law in Germany don't like other lawyers exposing them...

With plenty of bad publicity showing up for law firm Davenport Lyons and its ongoing campaign to shake people down with "pre-settlement" letters threatening them with copyright infringement lawsuits if they don't pay up, it appears that things aren't going quite as planned. First, the press has found more people who were apparently falsely accused by the firm -- and this time, it's an elderly couple who are quite horrified that they're being accused of downloading gay porn (this would be the same gay porn where recent reports noted that the publishers were encouraging another company to upload it to many sites, so there would be more people to accuse of pirating it).

On top of that, it appears that Atari, which had hired Davenport Lyons (and whose games were part of the original story of falsely accused people) has now stopped the anti-piracy campaign, canceled requests for identification on various IP addresses and apparently dropped Davenport Lyons in the process. It seems Atari realized that the campaign was generating an awful lot of negative publicity. Shaking down innocent people can do that, apparently.

Last time we checked in with UK law firm Davenport Lyons, they were trying to set up a shakedown process where they threatened to sue as many people as possible for allegedly sharing a video game. Despite some lofty talk by Davenport Lyons, it was quite clear from the beginning that this never had anything to do with copyright. It was just a straight up shakedown. The firm would send threatening letters claiming that it had evidence (even if it did not) and then demand a settlement fee be paid to avoid an actual lawsuit. It's difficult to see how or why that should be legal.

The firm was aided in its quest by drastically exaggerating a legal "win" in one of these cases. The win was because it was a default judgment. The woman that was accused of file sharing did not show up in court, and the court had no choice but to rule against her. Yet, to hear Davenport Lyons tell it, you might be lead to believe that a full blown court case occurred, with a full defense of the actions, and the woman lost.

A lawyer in the UK who was disgusted by this practice, Michael Coyle, has offered to defend as many innocent recipients of the shakedown letter as possible, and now the press is reporting he's already pursuing seventy cases of innocent people being falsely accused (and has heard from hundreds more). The article profiles one such case, where a couple (aged 54 and 66) were accused of sharing a car racing game. The only problem? They have no video games on their computer, nor any file sharing software (and they didn't even know what it was until they got the threatening letter).

Even more ridiculous? They wrote to Davenport Lyons three times without any response. It was only once a magazine picked up their story that Davenport Lyons and Atari dropped the threat. It's about time that the press shines a light on these practices, which clearly have little to do with protecting the rights of copyright holders, and plenty to do with a new, highly questionable, revenue stream that some might call "extortion."