For several years now DirecTV (now owned by AT&T) has been the focus of a series of lawsuits focused on the NFL's Sunday Ticket exclusive arrangement. More specifically, the lawsuits have claimed that the exclusive arrangement violates antitrust law, resulting in a monopoly that charges often absurd prices to small businesses. Sports bars in particular have to shell out payments of up to $122,895 per year for NFL Sunday Ticket, while those same bars pay significantly less for Major League Baseball's comparable offering.
But a new lawsuit filed against DirecTV this week accuses the company of something notably different. Doneyda Perez, owner of Oneida's Beauty and Barber Salon in Garden Grove, has filed a RICO class action against DirecTV for intentionally selling businesses residential-class TV service, then hitting these customers with penalties of up to $15,000 several years later for failing to subscribe to business-class service. There's a lot to go through in this case, but before we start, it's at least worth pointing out that RICO class action cases are almost always ridiculous -- even if there does appear to be questionable behavior here.
Since at least 2013 customers have complained that DirecTV salesmen and installers visit what they clearly see are businesses, sell them residential TV service, and don't even mention that DirecTV offers anything else. Then, a few years later, "investigators" employed by DirecTV show up snooping around, without making it particularly clear who they are or what they're doing. This was documented in a different 2013 Dallas Morning News Story about the same practice:
"The man sitting at the counter at Zeke’s Kitchen restaurant in Garland is acting suspicious. He doesn’t want any food but takes a glass of water. He says he’s waiting on a friend, but no one shows up. He asks that the channel be changed on the restaurant TV. Then the man steps outside and begins taking pictures of the restaurant. When owner Brandon “Zeke” Roberson asks him what he’s doing, the man runs off. Roberson’s wife, Julie, thinks it’s suspicious enough that she makes a note of it on the restaurant office’s calendar: “Very strange acting man. Ran off when Brandon asked why he was taking pictures outside."
Only later do the businesses realize that the investigator works for DirecTV, which then demands huge payments for unpaid back bills from what are often small and struggling companies:
"The man is a fraud investigator for DirecTV, sent to find out if the Robersons are TV signal thieves. Did they sign up for a residential TV account but use it at their commercial establishment? In June, DirecTV cuts off the restaurant’s service. Then DirecTV’s collection lawyers notify the Robersons that they owe $15,000 in back bills. It’s the darkest day in the restaurant’s history. So much so that the couple have to close the place to catch their breath."
Their lawyers dig in only to find this is a pretty common occurrence nationwide, citing "hundreds" of similar occurrences -- something seemingly supported by this latest class action. While it's possible that poorly trained subcontracted installers are playing a role in not adequately informing businesses of their options (one installer admits as much), DirecTV consistently decides to pursue massive penalties anyway. And AT&T, which bought DirecTV for $69 billion last year, isn't exactly trying hard to make things right, informing the media this week that this is just an issue of "basic fairness":
"This is a matter of basic fairness for all of our customers,” AT&T said to FierceCable in a statement. “Businesses that are not paying commercial rates for programming are taking unfair advantage of neighboring businesses that do. We are confident these claims will be rejected."
So yes, it's just "basic fairness" to sell a business one class of service, then turn around and demand they need to shell out $15,000 because your salespeople and installers are at worst part of a plan to defraud paying consumers, and at best clueless about the product they're selling.
So, we were just discussing Getty Images' latest foray into ridiculous copyright trolling (something the company has a long history with), by demanding money for a meme image used on a blog. Today, we have another example of Getty Images copyright trolling that is even worse. It's so bad, that Getty Images doesn't even have a legitimate copyright claim here at all, let alone abusing a legitimate copyright to shakedown someone. The target? The famed hacker publication 2600, which a Getty subsidiary, Trunk Archive, claimed was infringing on one of its images. The cover is actually from 2600's Spring 2012 issue, which you can see below:
Already we have a slight problem in that the statute of limitations on copyright in the US is... three years. Spring of 2012? Yeah, once we hit, say, June of this year, that ship had sailed. So it seems doubly odd that Trunk Archive began its shakedown in August of 2015.
But, of course, you might be wondering what the hell is infringing in that image -- especially when you learn that this is the image that Trunk claims is infringing:
Yeah, those two images look nothing alike. Except, the eagle eyed among you may notice that the ink splotches in the lower right corner of the 2600 cover look like the ink splotches in the upper lefthand corner of this image. Yup, it's a match:
Okay. So, now, even if that lower image is covered by a copyright held by Getty Images (or where it's representing the copyright holder), this is already a ridiculously weak claim. Using the corner splotches of one image on a totally different image? I think there's a pretty strong fair use claim here. Like, insanely strong.
But, the story is even worse than that. Because Getty doesn't hold the copyright (or represent the copyright holder) for those splotches. That's because the artist who created 2600's cover kept track of how that image was created, and noted that he was actually using this splotch painting from a Finnish artist who goes by the username Loadus on Deviant Art -- and it appears that whoever took the photograph of that dude standing in front of a painting was using that same image. In other words, whatever copyright there is in those splotches belongs to that Finnish artist Loadus, and not the photographer who took the image of some dude standing in front of it. Here, 2600 has overlaid the situation on the full painting:
So even if Getty/Trunk is legitimately representing the photographer of that image, it is not representing the artist who made the painting in the background that also produced the splotches used by 2600 -- and even if it was, this is clearly fair use and beyond the statute of limitations. As 2600 notes:
So not only is Trunk Archive trying to scare people into paying them for images, but they're apparently doing this for images they have absolutely no connection to. This insanity needs to end. In the first place, our use of such an image easily qualifies as a transformative work under the fair use doctrine. The absurdly minimal amount of the image used also would qualify it for protection. And then there's the little fact that they have no right to be telling anyone what to do with this image in the first place since they don't even own it. By their own rules, they ought to be cutting a sizable check to Loadus for what are undoubtedly countless uses of his art.
It's indeed impressive that Trunk Archive managed to match these little ink splotches. That's where the coolness factor ends. We cannot tolerate artists being threatened for creating derivative or transformative works. If this were to stand consistently, all forms of art would soon grind to a halt as none could be created without constantly paying off these people. Most others aren't like us - they aren't lucky enough to have lots of people defending them and spreading the word. What happens in their cases is that they are forced to either pay up, be hounded, or hire an attorney that will wind up costing more than the settlement being demanded. If we allow that to happen, creative expression will suffer across the board.
For now, calling attention to these abuses is what's needed. Joining with existing legal action or beginning new challenges to stop this sort of thing in the future is essential. We intend to continue with all of this. We thank Trunk Archive for opening our eyes to this abuse and helping to get us actively involved.
So that's twice this week that we're seeing Getty Images act not just like a typical copyright troll, but one that is so drunk with shakedown power that it's not even bothering to understand just what the fuck it's doing. But, of course, the company can get away with this kind of stuff because (1) there's no punishment for abusing the law in this manner and (2) many sites will probably just pay up rather than deal with the legal threats. It's legalized extortion, and Getty is profiting from it at the expense of actual creators. In yesterday's post, Getty gave some bullshit answer about protecting the rights of the artist. What's its excuse going to be this time?
If you're unaware, the Socially Awkward Penguin usually looks something like this:
Or, more specifically, it looks like that with words above and below it detailing a socially awkward situation. For example:
Okay, maybe not the greatest meme, but, you know, it's an internet meme.
The issue is that the penguin itself was sort of plucked from a photograph taken by George Mobley for National Geographic, seen here in thumbnail form:
Getty holds the rights on the image, and apparently has decided to go trolling on it. GetDigital actually agreed to pay up and remove the image... but was also told that it couldn't tell anyone about this, and apparently decided to give a giant middle finger to Getty by posting all about it -- leading to fairly widespread press attention about the fact that Getty is apparently so desperate in its copyright trolling that it's now going after memes.
In response, GetDigital has now released an alternative version of the Socially Awkward Penguin based on a penguin that Getty can't troll over:
Of course, this whole thing is particularly stupid and makes Getty look absolutely ridiculous (once again). Chances are there would be a strong fair use defense in the US, but the shakedown above is happening in Germany, which doesn't have a similarly codified fair use concept. But, even so, it just makes Getty look desperate. Even worse, when approached by the Daily Dot about this, rather than admit it had fucked up, Getty Images doubled down:
“We believe in protecting copyright and the livelihoods of photographers and other artists who rely on licensing to earn a living and fund the creation of new works,” a Getty spokesperson wrote. “Getty Images has an immense responsibility to the 200,000+ artists we work with to ensure that their work is properly licensed when used by commercial entities. Bear in mind that many artists themselves are small businesses, and are entitled to be paid for their work.”
Getty added that it “understand[s] that people love our imagery and want to share it in a personal capacity with their online audiences.” But to do so without triggering a copyright claim, Getty recommends that Internet users take advantage of the company’s image-embed tool, which the company launched last year.
Nearly the entire statement is bullshit. Getty has no "responsibility" (immense or otherwise) to shakedown blogs using a semi-popular meme. Doing so is not about protecting copyright or protecting the livelihood of photographers. It's just shaking down a blog. No one is using this meme because of the photograph itself, and as can be seen by the alternative version, there's nothing special about this penguin that makes it especially necessary for this meme. It's just a crazy meme that got popular on the internet, not because of Getty and not because of George Mobley.
As for the whole thing about Getty's image-embed tool, we wrote about that last year when it came out -- and we were happy that Getty appeared to be embracing the internet, rather than just copyright trolling, but this response is pure bullshit, because the socially awkward penguin image is not available via Getty, because that image is not the meme. So that response makes absolutely no sense at all.
Meanwhile, the Socially Awkward Penguin meme itself had more or less become obscure after going through its rise and fall in popularity. However, this shakedown by Getty appears to be leading to a resurgence of the meme. Perhaps that's really what Getty wanted all along.
As we've been discussing over the past few months, Voltage Pictures took its global copyright trolling efforts down under not too long ago, seeking to shakedown lots of Australians for allegedly downloading infringing copies of Dallas Buyers Club. Australian ISP iiNet (who has regularly fought back against over aggressive copyright claims) pushed back. Earlier this year, the court allowed the copyright trolling to move ahead, but with some caveats, including demanding that DBC share the letter and telephone script it would be using to try to shake down people. At the time, we hoped this would prevent the standard level of shakedown -- and that appears to have happened.
"The applicant was claiming four heads of damages and was proposing to negotiate with account holders in relation to those four amounts. I've concluded that two of those amounts could never be recovered, and in those circumstances, I've decided that what is presently proposed by Dallas Buyers Club in terms of its correspondence ought not to be permitted," Perram said on Friday morning.
"I therefore make these orders: I dismiss the prospective applicant's application to lift the stay of order one made by me on the 6th of May; and I order the prospective applicants to pay the respondent's costs of that application."
Part of the problem was that DBC was asking for money for the accused users uploading activity and "additional damages for an infringer's other downloading history." The court noted that was way out of bounds, calling them "untenable claims." Further, the court noted what was really going on here, calling out that it was never the intention to allow for "speculative invoicing" (the nice way of saying "copyright trolling.")
The court will let DBC send letters if it puts up a $600,000 bond promising that it won't try to recover those bogus damages. Instead, if it puts up the bond, it will only be allowed to recover damages in the form of (1) the cost of legally purchasing the movie and (2) the cost it took for DBC to obtain the user's details. In other words, DBC would need to put up the bond and then would only be allowed to collect a rather small amount from each accused user -- which likely makes the whole scheme not particularly worth it.
"Because DBC has no presence in Australia the court is unable to punish it for contempt if it fails to honour that undertaking," he said.
"I will therefore require its undertaking to be secured by the lodging of a bond. Having had access to what it is that DBC proposes to demand ... and the potential revenue it might make if it breached its undertaking to the court not to demand such sums, it seems to me that I should set the bond at a level which will ensure that it will not be profitable for it to do so.
"I will set the bond at $600,000 which, if the undertaking is given, is to be lodged by bank guarantee with the registrar. "
In the issued order the Judge notes that he demanded from DBC to tell the court (secretly) what it was going to request from users, since that was not detailed in the proposed letter or phone script -- and notes that it does appear that the plan was very much about trolling (again "speculative invoicing."). Based on all of this, it appears that Australia will not be a particularly friendly place for copyright trolls.
In the previous instalment of the long-running saga involving alleged pirates of the Dallas Buyers Club film in Australia, the court agreed that Australian ISP iiNet should hand over information about its customers. But it added an important proviso: the letter and telephone script to be used to contact and negotiate with them had to be approved by the court first in an effort to prevent "speculative invoicing" of the kind all-too familiar elsewhere.
Last week, more details emerged in another court hearing before the same judge. He was was concerned that the proposed letter from Dallas Buyers Club LLC (DBC) and Voltage Pictures LLC, the film's foreign sales agent -- which DBC is currently suing (pdf), in another twist in the plot -- would not quote a specific figure that those supposedly infringing would be asked to pay, as the Australian Financial Review reported:
Judge Nye Perram said he was concerned DBC was effectively being given a blank cheque, by not stipulating a dollar figure, which could allow the company to ask for a "very high number".
"I need comfort that you aren't going to extort these people," Judge Perram said.
The judge also refused a request by DBC that the draft letter and telephone script should be withheld from the public -- DBC claimed that doing so "could weaken the company's bargaining position and reveal to alleged infringers how they could reduce the penalties sought." As a result, The Sydney Morning Herald obtained copies of both the letter and the script, and published some interesting details. For example, the letter expects parents to shop their own children:
"If the person whom you believe to have engaged in Piracy is under 18 years of age, then please provide us with the full name and address of that person, confirm that that person is under 18 years of age, confirm whether you are the parent or guardian of that person and whether you are authorised to engage with us on behalf of that person," the letter will demand.
The proposed telephone script for people who ring the number given in the initial letter is even more extraordinary:
Callers who admit to the downloads will be asked to provide detailed personal answers including their employment status, whether or not they have a terminal illness, what their annual income is and whether or not they're serving in the military.
It will also ask the callers to incriminate themselves further:
"How many titles do you have available now and in the past on the BitTorrent network?" call centre operators will ask, according to the script.
It's not yet clear whether the judge will allow these incredibly intrusive questions -- he's expected to hand down his ruling next month. But it's an indication of the approach that DBC wants to take, and yet another reason why those receiving these emails should consider seeking legal advice, as The Sydney Morning Herald notes in a useful article on the topic.
As Rightscorp continues to explore its legally-dubious efforts to shake down broadband users for cash, the company is finding itself with its hands full across multiple, costly legal fronts. Earlier this month, the company was beaten back in court by a tiny ISP by the name of Birch Communications, after the courts rejected the use of DMCA subpoenas for ISP subscriber data. Rightscorp's also doing battle with Cox Communications, trying to drum up user identities while claiming the DMCA gives it the authority to threaten users with account termination.
Despite all the noise Rightscorp makes in the media and in the courts, it's not very good at being a copyright troll. The company's latest earnings report suggested the company is losing more money than ever, spending $1.24 million on legal fees and other costs last quarter to collect just $308,000.
ISPs are under no obligation under the DMCA to forward copyright infringement notices, though most ISPs do so anyway. However, on principle many ISPs (like Comcast) refuse to pass on Rightscorp's early settlement notices, which demand users pay an upfront payment of $20 to avoid legal escalation (which usually never comes). On behalf of its client Rotten Records, Rightscorp is now suing two Comcast users for sharing an album each and ignoring hundreds of settlement notices:
"Distancing themselves from any accusations of wrongdoing, the lawsuits state that neither Rotten Records nor Rightscorp were the original ‘seeders’ of the album and at no point did Rightscorp upload the albums to any other BitTorrent users. However, the company did send warnings to the Comcast users with demands for them to stop sharing the album.
"Rightscorp sent Defendant 288 notices via their ISP Comcast Cable Communications, Inc. from December 14, 2014 to May 12, 2015 demanding that Defendant stop illegally distributing Plaintiff’s work. Defendant ignored each and every notice and continued to illegally distribute Plaintiff’s work," the complaint reads."
Rightscorp is seeking an injunction forbidding further online infringement in both cases, deletion of both works, statutory damages of up to $150,000 for each album, and attorneys' fees. It's a one-two punch; trying to reveal the names of the offenders while attempting to punish Comcast for refusing to pass on settlement demands. If it wins, Rightscorp hopes the ample press will scare other settlement notice recipients to pay up.
Oddly, while the cable company everybody loves to hate is standing up for users, an ISP that's been a bit of a hero for bringing some much needed competition to the broadband market has been playing along with Rightscorp. Google Fiber has been taking some heat the last few weeks for the news that it's passing on Rightscorps' full settlement demands to users. When pressed for comment as to why companies like Comcast strip out the demands to protect its customers and Google doesn't, the company claimed it was just trying to be as transparent as possible:
"When Google Fiber receives a copyright complaint about an account, we pass along all of the information we receive to the account holder so that they’re aware of it and can determine the response that’s best for their situation," a Google spokesperson tells TF...."Although we think there are better solutions to fighting piracy than targeting individual downloaders, we want to be transparent with our customers,” Google’s spokesperson adds."
Of course, if Google truly wants to be "transparent" with users, it might consider adequately informing them they're being shaken down by a particularly hairy copyright troll.
With all the talk about Prenda and its copyright trolling practices, it's long been clear that the real king of copyright trolling in the US is Malibu Media -- better known as xArt -- and its legal team led by Keith Lipscomb (and we'll leave aside the fact that behind the scenes, it appears to be using the same German "international men of mystery" that other copyright trolls, like Voltage Pictures have been using). Either way, Lipscomb's shakedown campaign accounts for an astounding percentage of copyright lawsuits filed in the US these days. And, given some of the stories that have come out in these lawsuits, it's kind of astounding that the company has not received the "Prenda treatment" from any federal judges.
That may be about to change. Federal district court judge Timothy Black appears to have had enough of Malibu Media and its copyright trolling practices. In two separate cases this week, Judge Black issued "orders to show cause" (more or less judicial language for "I think you've done something really bad and here's your last chance to show me otherwise) that go beyond the usual level of "Hey, it appears you've been acting naughty" to a full blown recitation of all of Malibu Media's questionable practices.
Both orders (first one and here's the second) ostensibly focus on a common problem with Malibu Media's lawsuits: the failure to actually serve the defendants (when your main focus is just on getting identifying info to shake down people with threats that get them to settle, actually following official procedure required for an actual lawsuit falls by the wayside). And Malibu Media/Lipscomb/flunkies are notorious at screwing this up. In this case, Judge Black had already issued multiple orders to show cause over the issue. You can read about all the missed deadlines in the full filing, but Judge Black sees the problems here.
The much delayed filing of the summons return simultaneously forced the Court to unnecessarily expend judicial resources in the issuance of an Order to Show Cause and hindered the ability of the Court to manage its docket. With respect to the filing of an answer or other matters dependent on the date of service of process, the Court’s ability to actively manage its docket is entirely dependent on counsel filing a summons return within a reasonable amount of time.
But that's just the preamble. From there, Judge Black makes it clear he's well read up on all of Malibu Media's infamous shenanigans in gaming the judicial system for profit.
The Court does not view Malibu Media’s conduct in this action in isolation. Rather, the Court views it as part of an unmistakable pattern that has emerged in other actions before this Court and in context of observations made by multiple other federal judges in cases involving Malibu Media.
This Court has observed the conduct of Malibu Media and its counsel of record in over 60 cases filed in this District in the past twelve months. This is not the first case in which Malibu Media has filed a summons return well after the date of service. Counsel appears to have made a misrepresentation in seeking an extension of time to complete service in two cases. The Court also issued an order to show cause after counsel publicly filed a defendant’s name in direct violation of two orders unambiguously ordering counsel to file that information under seal.
We wrote about that public filing a few months ago. But that's not all that the judge has been watching. He's also well aware of the notorious "Exhibit C," where Malibu Media would file an "exhibit" of other movies that it believed the defendant may also have downloaded illegally -- even though it was not the copyright holder on those films. The titles were often very embarrassing, suggesting that the entire purpose of Exhibit C was to embarrass someone into settling so the list would not be associated with their name in court documents.
Judge Black also calls out the "swarm joinder" issue that was popular in early lawsuits -- whereby copyright trolls like Malibu (and others) tried to lump hundreds or thousands of individuals together in a single lawsuit, arguing it was proper to "join" them all since they participated in the same infringement. As Black notes, that misuse of the court system really only set the stage for a bunch of other questionable practices. It seems clear that Judge Black is well aware of the game being played, and even refers to it as copyright trolling:
Malibu Media asserts that it is necessary to invoke the Court’s subpoena power to “propound discovery in advance of a Rule 26(f) conference.” .... However, not a single one of these 60 cases has ever progressed to a Rule 26(f) conference. In fact, most cases are voluntarily dismissed by Malibu Media pursuant to Rule 41(a)(1)(A)(i) without obtaining a summons, but presumably after Malibu Media has used the third-party subpoena to obtain a settlement. The name of the IP subscriber is never provided to the Court in these voluntarily dismissed cases. This makes it impossible for this Court or any other court to determine, for example, if a later action should be dismissed with prejudice under Rule 41(a)(1)(B). In the few cases in which a defendant has appeared with counsel, counsel have raised numerous allegations of impropriety and abusive litigation tactics. The Court is not blind to the reality that these allegations likely substantially underrepresent the amount of misconduct that goes unreported by defendants who simply pay Malibu Media’s settlement demand rather than face the prospect of expensive and extensive litigation regarding their purported interest in pornography.
The Court is aware that Malibu Media, through separate local counsel, has filed thousands of similar cases in federal courts across the country. A copyright troll has been defined as “an owner of a valid copyright who brings an infringement action not to be made whole, but rather as a primary or supplemental revenue stream.” .... Under this definition, Malibu Media certainly qualifies. However, Malibu Media generally responds to this allegation by pointing to comments of the trial judge in the so-called bellwether trial as unassailable proof that its intentions and tactics differ from other entities that bring copyright infringement actions related to pornographic movies.
Oh right. The Bellwether trial. That case had all sorts of problems, including a lying defendant who tried to destroy evidence. Unfortunately, it did not do what it was initially intended to do: actually test some of Malibu Media's really questionable legal arguments. Judge Black quickly notes that the "bellwether" trial doesn't matter. Malibu Media is up to some really questionable judicial gaming. He walks through all of the abuses, from misjoinder to Exhibit C -- and even notes that despite being benchslapped over Exhibit C, Malibu Media just "evolved this practice":
Notwithstanding Malibu Media’s contention that it “instructed counsel nationwide to never file Exhibit C with a complaint again,” ... this Court has borne witness to the fact that Malibu Media has simply evolved this practice rather than eradicate it. In an Order issued in a separate case on October 6, 2014, this Court sua sponte noted a continued vestige of Exhibit C in several paragraphs of Malibu Media’s complaint.... Instead of attaching Exhibit C, Malibu Media adapted its practice and now made an explicit reference to a document with “additional evidence” that the defendant had distributed a large number of third-party files through BitTorrent.... Malibu Media disingenuously offered to produce this document to the Court with the seemingly off-handed remark that “many of the titles to the third party works may also be relevant to proving Defendant is the infringer because they correlate to the Defendant’s hobbies, profession, or other interests.” ... Citing the two Wisconsin district court cases that imposed sanctions for attaching Exhibit C, the Court struck the offending paragraphs from the complaint and ordered Malibu Media to file a conforming amended complaint forthwith.... Two months later, Malibu Media voluntarily dismissed the action without filing an amended complaint.
In discussing what to do about this, Black notes that, ordinarily, it's wrong to just dismiss a case to discipline "an errant attorney" since that would be unfair to the parties the lawyer represents. However, he notes that in this case, it's different. The sheer number of cases and the fact that Malibu/Lipscomb's games continue suggest that this is not just a bad lawyer not fairly representing the interests of a client. Oh, and it's clear Black knows that this is all being run through Lipscomb, rather than the random lawyers who actually turn up for local cases:
Here, and in the dozens of other actions before the Court, there is ample evidence that Malibu Media or its “outside general counsel,” rather than its local counsel of record selects the litigation strategy and tactics.
12 Accordingly, the general principle that “directly sanctioning the delinquent lawyer rather than an innocent client” may not apply here....
Still, Judge Black is incredibly patient. Despite the earlier orders to show cause, he once again gives Malibu a chance to explain itself. Though in the second of the two orders, Judge Black also lays out the possibility of "Rule 11 sanctions" against the lawyers for flat out lying to the court and failing to correct the record on it -- though again (perhaps surprisingly) suggests that the conduct to date is not enough to get there.
Here, the record indicates that on February 10, 2015, Malibu Media’s counsel represented that service had not yet occurred. (Doc. 10 at 2). However, it is clear that Defendant was served on January 26, 2015. (Doc. 12). Counsel made no attempt to correct this statement until after the Court issued an Order to Show Cause regarding the apparent failure to complete service of process.
It may be frustrating to those who are watching these cases that even this is not enough to bring down Rule 11 sanctions, but Judge Black has made it clear that he's watching -- and you can bet that other judges across the country may start to take notice as well. And assuming Malibu Media can't resist continuing to push things even further, the record of misconduct will be that much longer and more detailed.
Rightscorp (via two music publishers) has dragged Cox into court to test its novel (read: legally unsound) theory that complying with the DMCA means cutting off service to "repeat infringers." The theory itself is largely untested, but far from promising. But that isn't stopping BMG and Round Hill Music (with Rightscorp as a not-so-silent partner) from taking a flyer on a bad legal bet. Certainly, the theory would be advantageous to the shakedown efforts Rightscorp generously refers to as a "business model," but, so far, the only thing being offered as "evidence" of repeat infringement is Rightscorp's own declarations.
Those declarations are highly suspect. Cox has filed an opposition to Rightscorp's Motion to Compel that highlights the anti-piracy company's extortion-esque tactics.
“Rightscorp is in the business of threatening Internet users on behalf of copyright owners. Rightscorp specifically threatens subscribers of ISPs with loss of their Internet service — a punishment that is not within Rightscorp’s control — unless the subscribers pay a settlement demand,” Cox writes (pdf).
Cox has refused to participate in Rightscorp's quasi-legal activities. While the company is not opposed to passing on infringement allegations, it did ask Rightscorp to remove the threatening language (cutting off service, $150,000 per infringement claim) first. Rightscorp refused to do so. This impasse is obviously unacceptable to Rightscorp, which depends on the (very) occasional settlement payment to keep its business barely afloat.
As Cox points out, Rightscorp has decided the best course of action is to maintain its unsteady perch on the edge of legality. In the filing, Cox alleges that Rightscorp tried to make the ISP a "business partner" in its shakedown attempts.
“Rightscorp had a history of interactions with Cox in which Rightscorp offered Cox a share of the settlement revenue stream in return for Cox’s cooperation in transmitting extortionate letters to Cox’s customers. Cox rebuffed Rightscorp’s approach,” Cox informs the court.
But that's not the only legally-dubious tactic the "cutting edge" anti-piracy firm has deployed. It's also attempting to use this lawsuit's discovery process to sidestep subpoena limitations.
The motion lays bare one of Plaintiffs’ primary reasons for bringing this lawsuit. Plaintiffs seek to circumvent the Cable Privacy Act process and instead use discovery in this case to force Cox to reveal, en masse, PII for possibly tens of thousands of Internet subscribers who Plaintiffs speculate might be violating their copyrights. The Cable Privacy Act expressly prohibits Cox from disclosing its subscribers’ PII, for good reason: Internet subscribers have a compelling privacy interest in the confidentiality of their personal information, which can of course be vulnerable to exploitation for myriad improper purposes. If a copyright holder earnestly believes that an unnamed Internet subscriber is infringing upon its copyrights, the proper course is to bring a “John Doe” lawsuit against the subscriber and then to use third-party subpoena power to obtain identifying information from the user’s Internet Service Provider. That legitimate procedure allows notice to the subscriber and an opportunity for the subscriber to act to protect his or her rights. It also relieves the ISP of the unfair responsibility of adjudicating which of the two competing interests (the subscriber’s or the accuser’s) should trump the other.
Plaintiffs nominally (Rightscorp in reality) claim to have identified “approximately 150,000” infringers, including several hundred “egregious infringers,” among Cox’s subscribers. But Plaintiffs apparently have only IP addresses to go on. (Doc. 72, Corrected Br. at 3.) Plaintiffs have not filed any “John Doe” lawsuits against Cox customers and have not sought information from Cox by subpoena. More importantly, Plaintiffs do not seek, and have not sought, leave to add “John Doe” defendants in this case.
The practical dynamics of this motion are suspect: If there are 150,000 infringers among Cox subscribers, as Plaintiffs claim, why would they limit themselves (at least for now) to just 500 “egregious infringers”? Will Plaintiffs seek to depose or serve Rule 45 subpoenas on those 500? Will Plaintiffs now seek to add those 500 as co-defendants? Why do Plaintiffs want a blank-check “open order” to continually demand that Cox reveal more identities at later stages in this action? When tested in practical terms, Plaintiffs’ motion makes no sense, and their arguments plainly are an obvious pretext for some other motive.
"Pretext for some other motive" basically describes the entirety of Rightscorp's business model. It subpoenas ISPs for subscriber info, under the unspoken pretext that further legal action is in the offing. But instead of suing file sharers, the company instead uses the information to harass subscribers into paying "settlements" for alleged infringement.
Despite the damning claims made by Cox, the court has partially granted the questionable Motion to Compel. The ISP has been ordered to turn over the "Top 250 IP Addresses recorded to have infringed in the six months prior to filing the Complaint." This distinction is important, because as Cox points out in its opposing motion, the plaintiffs' constantly-widening net had managed to drag in alleged infringers whose infringement didn't occur until after the lawsuit was filed.
Plaintiffs’ stated justifications for their extraordinary request do not help Plaintiffs’ cause. Plaintiffs acknowledge that they “must establish direct infringement of the copyrighted works asserted in this case,” and imply that their motion serves that end. (Doc. 72, Corrected Br. at 4.) But that implication is illogical because Plaintiffs seek PII for 500 subscribers of the 150,000 supposedly implicated here. Surely Plaintiffs are not prepared to concede that their claims fail for the works that the other 149,500 subscribers allegedly infringed. Notably, of the 500 allegedly “egregious infringers” the Plaintiffs hand-picked, 250 allegedly infringed after this lawsuit was filed. (Doc. 72, Corrected Br. at 4.) Those subscribers’ alleged infringements, therefore, cannot have formed a basis for Plaintiffs’ claims in this suit. And nowhere do Plaintiffs even assert that Rightscorp sent purported DMCA notices to Cox with respect to those particular subscribers.
Cox has come out swinging in the early going, and its assertions confirm much of what has been written about Rightscorp and its tactics. This aggressive stance should help uncover plenty of damning details, none of which should have a positive effect on Rightscorp's shriveling stock price.
In short: Braxton started a company called Jump Rope Inc., which made an app that would let you pay a fee to skip a line (first use case: pay your way to get into a popular bar ahead of the line). No matter what you might think of that kind of app, Braxton was quickly threatened and then sued by a patent trolling operation called Smart Options which has a patent (US Patent 7,313,539) on a "method and system for reserving future purchases of goods or services." In short, it's a patent on electronic options buying -- which should never be patentable in the first place. It's "take something that happens in the offline world (options buying) and put it on a computer" which isn't supposed to be patentable. Either way, the idea that line jumping violates a patent for options buying seems doubly ridiculous.
And, Braxton actually went to court to fight it, spending his own money to do so after returning his investors' money. As he noted, his investors had bought into a startup, not a lawsuit. Eventually, he not only won the case, but Smart Options was ordered to pay attorneys' fees under Rule 11 for filing a frivolous lawsuit (including never actually using the Jump Rope app and falsely describing its functionality in the lawsuit):
Despite Jump Rope’s warnings that its application did not meet the limitations of claim 1,
however, Smart Options did not purchase a Jump or ensure that the basis for its claims was not
“factually inaccurate” before continuing to pursue its infringement claims.... Smart Options’ failure to avail itself of the easy, inexpensive opportunity to actually
test and analyze Jump Rope’s product, particularly after it received Jump Rope’s initial Rule 11
motion, is unreasonable....
Moreover, even if Baker had purchased a Jump or had sufficient information about Jump
Rope’s application to compare its functionality to the ‘539 patent, Smart Options failed to
reasonably construe the claim terms in order to allow for such a comparison....
Smart Options also could not have
sufficiently compared its patent with Jump Rope’s product, not only because it did not have
familiarity with its functionality, but because it did not construe the claim terms. Smart Options,
therefore, did not conduct a reasonable pre-filing investigation and had no reasonable factual
basis to file its complaint, or to refuse to withdraw the complaint during the safe harbor period
after Jump Rope served its original Rule 11 motion and letter.....
For the foregoing reasons, the Court grants Jump Rope’s motion for sanctions.
Specifically, the Court awards Jump Rope all of the reasonable attorney’s fees directly resulting
from Smart Options’ frivolous complaint, including attorney’s fees incurred during the filing of
the present Rule 11 motion.
Braxton discusses some of this in the video, but adds in another tidbit that is absolutely crazy. After that ruling above, Smart Options appealed and both sides went to mediation to try to resolve it (Braxton noted he had no money to continue the lawsuit). Here's how Braxton describes how that went in the video:
This is the first time that I met the plaintiff, after a year and a half of litigation. He waived confidentiality and he said: "Look, I'm going to make this real easy for you. This isn't a mediation. This isn't arbitration. This is what you're going to do. You're going to settle the lawsuit. We're not going to pay you any Rule 11 capital. We may or may not win this case," they said, "but what we are going to do when this case is over. We're going to sue you with another patent in our portfolio of patents and you're going to start this process all over again.
This kind of story is not that unusual. For years, we've pointed to the similar story of how IBM tried to shake down Sun Microsystems in its early years, threatening over seven patents. Sun's engineers and lawyers went through all seven showing how they didn't infringe and were then told:
"OK, maybe you don't infringe these seven patents. But we have 10,000 U.S. patents. Do you really want us to go back to Armonk [IBM headquarters in New York] and find seven patents you do infringe? Or do you want to make this easy and just pay us $20 million?"
Originally, after seeing that video, I was going to just focus on that threat to sue again with this post, but as I continued investigating the story, it turns out that it gets even weirder and more ridiculous. For what it's worth, Smart Options' lawyers claims he never made such a threat... but also in the next breath does claim that the company has other patents that Jump Rope violates.
But, the crazier part is in a NY Times article that tried to follow up on this story. The reporter, Daivd Segal, heard Braxton's story, and called up Erich Spangenberg, one of the world's most notorious patent trolls, who definitely has experience with situations like the one above. In fact, Spangenberg once got hit with a ruling saying he had to pay $4 million for suing the same company with the same patent twice, despite an earlier settlement promising not to do so.
Spangenberg's response to the questions about Braxton's situation? He smelled blood in the water and agreed to invest in Braxton's company -- basically buying low, with a promise that he could then strong arm Smart Options into going away. Really:
A free consultation quickly became the beginnings of a negotiation. Mr. Spangenberg offered to take an equity position worth $500,000, in exchange for solving all of Jump Rope’s legal problems.
“I’m going to invest as well,” Mr. Spangenberg said. “Peter, what do you need to get this back up while we raise money from people with lots of money?”
“About half a million bucks,” he said.
“That’s what I figured,” Mr. Spangenberg replied. “So we’d fund that.”
And Spangenberg knows that he's buying distressed assets here:
“Look, I’ll get $500,000 in equity for taking the legal piece off his plate,” he said. “It’ll cost me $100,000 to make the lawsuit go away.” He promised to locate “pressure points” on either Smart Options or Hugh McNally, its C.E.O.
“I get to make a great investment on great terms,” he said. “Then I let Citadel” — a large hedge fund that had expressed interest in funding Jump Rope — “put a big chunk of money into it and I go off and do something else.”
The article notes that Spangenberg has now invested in about 25 similarly "distressed" companies -- distressed by other patent trolls playing the same game that Spangenberg perfected. And, even the terms mentioned above weren't good enough. In the end, the article reports, Spangenberg's IP Nav bought 40% of Braxton's company for merely $200,000.
The story tries to play this out like a "patent troll done good," but it's horrifying. It's one patent troll beating up on a startup, and then allowing a second one to come in and vulture up the leftovers. It's certainly not good for innovation in any way.
People fighting against the patent reform bill that's currently making its way through Congress keep insisting that the bill is designed by big tech companies to harm startups. But that's ridiculous. The bill would have significantly helped Braxton, allowing him to get out of the lawsuit faster and for less money, and likely awarding attorneys' fees in a simpler and faster process. In fact, it's more likely that Smart Options never would have sued in the first place if the PATENT Act were law at the time.
In a federal court this week, Richard Wallace, a former investigator at cybersecurity company Tiversa, said the company routinely engaged in fraud -- and mafia-style shakedowns.
To scare potential clients, Tiversa would typically make up fake data breaches, Wallace said. Then it pressured firms to pay up.
"Hire us or face the music," Wallace said on Tuesday at a federal courtroom in Washington, D.C.. CNNMoney obtained1 a transcript of the hearing.
Tiversa would allegedly turn over "information" about these fake breaches to the FTC and push the agency to come down hard on the companies who refused to hire it. Once the FTC started asking questions, Tiversa would again approach these companies and ask them if they'd reconsidered the use of their services.
Wallace's testimony suggests Tiversa engaged in several unethical practices at the behest of CEO Bob Boback. One of the companies it targeted with its fake breaches was LabMD. After LabMD expressed reluctance to hire Tiversa, Bob Boback delivered a simple message to Wallace.
Q. Are you aware of whether or not LabMD agreed or refused to do business with Tiversa?
A. I think initially I don't think that there was a -- I don't think that they did not want to do business with Tiversa initially, and I think that as the communication advanced back and forth from Bob and different people with LabMD, I think that that's when they decided that they did not want to do business with Tiversa.
Q. Did Mr. Boback have a reaction to LabMD's decision not to do business with Tiversa?
Q. And what was that reaction?
A. Do I say it?
MS. BUCHANAN: Answer the question.
THE WITNESS: He basically said f--- him, make sure he's at the top of the list.
The "list" was a compilation of prospective Tiversa customers, compiled with the assistance of investigators who had managed to secure personally identifiable information from companies' servers. This was the information that was threatened to be turned over to the FTC (or in some cases, was turned over before contacting the companies) if these companies refused to purchase Tiversa's services.
Q. Why does their name appear on the list?
A. So that the FTC would contact them and notify them of a data breach and hopefully we would be able to sell our services to them.
Q. Did someone tell you to put their name on the list?
A. Our CEO, Bob Boback.
A. To use -- to be able to use any means necessary to let them know that an enforcement action is coming down the line and they need to hire us or face the music, so to speak.
Q. Did you, at the time this was created, have information on companies who fit the threshold but whose names do not appear on that list?
Q. Why does their name not appear on the list?
A. The list was scrubbed of all clients in the past and future clients that we felt that there might be, you know, the prospect of doing business with them. Their information was removed.
Q. Clients of Tiversa?
Q. Who made the decision to remove their names from the list?
A. Bob Boback.
In order to make the breaches look legit, Tiversa's investigators would download sensitive files, move them to the company's servers and alter information to make it appear as though the files had been accessed or stored by a variety of IP addresses, including those of known/suspected identity thieves.
THE WITNESS: Usually it would be after the fact, Bob would make contact with the company, without coming to me or coming to anyone else first, and say, you know, your file has spread to three additional IP addresses, it's in Europe and Nigeria and Poland and who knows. So then it would be up to me to make it appear that way in the data store so, if there was ever an audit or, you know, somebody was catching on, the data would be there if you -- Coveo is basically a front end for the data store. It's like a Google site, so you could type in there "insurance aging" and it's going to come up with a list of IP addresses along with the file, date and time.
More on that tactic:
JUDGE CHAPPELL: If I understood you correctly, it was not true that the file was at this IP address.
THE WITNESS: That is correct.
JUDGE CHAPPELL: And if I were Company B in my earlier scenario, do I have any way to go to Apache Junction and see if they've downloaded my data?
THE WITNESS: We would see that in our -- in our real data store, we would show -- like, for example, with this one, this individual had over -- I was very familiar with this guy. He had over 3,000 tax returns, and he was zipping them up and selling them. Therefore, we knew that he was a bad actor, and it made it easy to put this file there, so to speak, even though he never had it physically on that computer, but we made it look -- appear like he did.
JUDGE CHAPPELL: All right. So if I follow you correctly, you never -- the file was never actually at Apache Junction.
THE WITNESS: No.
JUDGE CHAPPELL: But I, Company B, had no way of ever verifying that or knowing that.
THE WITNESS: Right.
Wallace's testimony may be useful in placing Tiversa in the FTC's sights, something Darrell Issa brought to its attention last year. But it won't do much for LabMD, which appears to have been prosecuted out of existence based on Tiversa's phony claims.
Tiversa claims Wallace's testimony is nothing more than a fired employee being vindictive and cites its multiple awards from law enforcement agencies as evidence of its forthrightness and honesty. All well and good, but if law enforcement agencies have been subjected to the same tactics -- bogus problems and bogus fixes -- they might be handing out awards based on perceived effectiveness rather than Tiversa's actual cybersecurity skills.
The House Oversight Committee looked into Tiversa's allegations against LabMD last year and was none too impressed by the supposedly upstanding company's inability/unwillingness to turn over the information it requested.
The Committee has obtained documents and information indicating Tiversa failed to provide full and complete information about work it performed regarding the inadvertent leak of data on peer-to-peer computer networks. In fact, it appears that, in responding to an FTC subpoena issued on September 30, 2013, Tiversa withheld responsive information that contradicted other information it did provide about the source and spread of the data, a billing spreadsheet file.
Despite a broad subpoena request, Tiversa provided only summary information to the FTC about its knowledge of the source and spread of the file.
The letter details Tiversa's evasiveness in response to the HOC's requests, noting that while it did turn over nearly 8,700 pages in response to the subpoena, 8,500 of those were five identical copies of the 1,718-page LabMD insurance aging file at the center of the FTC's investigation, leaving only 79 pages of other materials, none of which substantiated Tiversa's claims.
If the allegations are true, Tiversa is likely looking at altering its business model. Being just another name in the cybersecurity business means even less when that name is increasingly tied to fraudulent behavior.
1 Let's address CNN's claim about "obtaining" a transcript of the hearing. Like far too many press outlets, CNN seems to believe publicly-filed documents are trade secrets and refuses to provide download links or pointers as to where these might be obtained. In this case, it apparently obtained the transcript from former LabMD CEO Michael Daugherty's website. Or it may have had it sent to it by Daugherty himself. But either way, it did not "obtain" something no one else could have obtained, no matter how much its wording suggests some sort of exclusivity. And it could have done what Daugherty did: posted the transcript so readers could read it for themselves. But it didn't. TL;DR: CNN "obtained" this transcript in the non-exclusive way that you and I "obtain" air or any other non-rival good. (Yes, air becomes rivalrous in air-free environments, but non-pedantically, the comparison holds.)