Sanctions Imposed for Copyright Infringement Lawsuits Against Movie and Music Downloaders

MusicMusicians who write and record music and studios that make movies have legitimate interests in protecting the income their works might generate. Illegal downloading of movies and songs arguably deprives their creators of income, assuming that the downloaders would otherwise have paid for the product.

In some cases, copyright holders have adopted abusive tactics in an effort to send a message to illegal downloaders. Those efforts have backfired by focusing attention not on the creators who might lose income but on large corporations that devote massive resources to attacks on low-income defendants.

The drive to punish illegal downloading has also opened the door to other kinds of abuse. Three lawyers were recently sanctioned for “copyright trolling” after they made millions of dollars suing downloaders for minor copyright infringements. Two of those lawyers are now facing federal indictments for defrauding courts.

Sanctions Imposed for “Legal Shakedown”

Paul Duffy, Paul Hansmeier, and John Steele worked together in a law firm. They set up shell corporations that purchased the rights to a number of pornographic movies. They also made, and copyrighted, their own movies. They then uploaded the movies to BitTorrent sites that were used as repositories of illegally uploaded movies. When one of their movies was downloaded, the shell company “hired” the law firm to file a copyright infringement lawsuit.

To identify a defendant, the firm sued “John Doe” and used subpoenas to compel disclosure of the computer associated with the IP address to which the movie was downloaded. The firm then contacted the computer’s owner and threatened to pursue the lawsuit unless the owner made a prompt out-of-court settlement.

Most of the people they contacted settled, even if some other family member was responsible, rather than being named in a publicly filed lawsuit concerning their acquisition of pornography. The lawyers typically demanded $4,000 to settle the case, a staggering sum compared to the video’s purchase or rental price, but less than the cost of defending the lawsuit and much less than the $150,000 in statutory damages that are available for copyright infringement.

The lawyers made millions of dollars and never had to bring a case to trial. In the hundreds of lawsuits they filed, the lawyers failed to disclose that they owned the companies that owned the copyrights. They also failed to disclose that they uploaded the movies, effectively making them available to the downloading public.

A federal district court in California characterized the scheme as a “legal shakedown.” The court eventually awarded more than $80,000 to the defendants in one of the lawsuits to sanction the bad faith conduct of the lawyers. On appeal, the Court of Appeals for the Ninth Circuit decided that the sanctions were appropriate for a “national trolling scheme.” The court noted that the lawyers had “engaged in abusive litigation, fraud on courts across the country, and willful violation of court orders.”

Given the millions of dollars they made, an $80,000 sanction might be written off as the cost of doing shady business. Two of the lawyers, however, are facing more serious penalties. Hansmeier and Steele were recently charged in an 18-count indictment. The charges include conspiracy to commit fraud, conspiracy to commit and suborn perjury, and other federal crimes.

Copyright Trolling

The Electronic Frontier Foundation estimates that copyright trolling accounts for one-third of the copyright infringement lawsuits filed around the country. Copyright trolls typically file hundreds of lawsuits claiming copyright infringement, even though they do not create, produce or distribute any content. The suits are filed for the sole purpose of making money, not to protect copyrights.

For example, Righthaven brought hundreds of lawsuits against bloggers who posted content from Las Vegas Review-Journal stories. Righthaven threatened to seek statutory damages of up to $150,000 for each copyright infringement and used that threat to force quick settlements. Righthaven claimed to have acquired the copyright to the Review-Journal stories, an allegation that no court accepted. Righthaven was sanctioned after its dubious claims were exposed.

Congress has arguably enabled copyright trolling by making a large award of statutory damages available regardless of whether the copyright holder suffered any actual loss. Coupled with a provision that allows successful plaintiffs to recover their attorney’s fees, defendants who are sued for copyright infringement might face formidable (and often excessive) punishments for behavior that causes minimal harm.

Copyright Extortion

The Recording Industry Association of America (RIAA), representing copyright owners in the music industry, decided to combat peer-to-peer downloading of songs by bringing thousands of lawsuits against individuals for copyright violations. While RIAA was not a copyright troll, it earned a reputation for extorting settlements by suing people who could not afford to mount a defense.

Represented by a powerhouse law firm, the RIAA sued downloaders randomly, catching children, grandmothers, and thousands of college students in its net. The RIAA even sued a dead person, suggesting that it did scant investigation before starting its lawsuits. While the RIAA’s stated purpose was to enforce copyright law, its actual strategy was to discourage downloading by encouraging members of the public to fear that they would be sued for downloading a song that they did not purchase.

Many judges viewed the RIAA’s strategy as an abuse of the court system, while the public came to see it as corporate bullying, if not extortion. When a college student illegally downloaded a hundred songs with a value of 99 cents each, the loss to the music industry was no more than $99. Yet the student was forced to pay thousands of dollars to settle the lawsuit rather than incurring the cost of fighting it.

The RIAA could identify computer owners but rarely knew who actually downloaded the songs, resulting in lawsuits against innocent defendants. Lawsuits were also filed against people who had only partially downloaded a file and never acquired a playable song. It isn’t surprising that judges became fed up with lawsuits that clogged their calendars, many of which were frivolous.

When the RIAA started losing the suits, and when defendants began to file — and win — counterclaims based on the RIAA’s extortionate tactics, the RIAA abandoned its lawsuit strategy. The lawsuits did little to discourage file sharing, a practice that increased while the suits were being filed. Recording artists did not benefit because settlement proceeds were dwarfed by legal fees. In 2007, for example, the RIAA paid $21 million in legal fees, only to collect settlements of $515,929.

Lessons Learned

Illegally downloading a movie or song violates the law. Internet users should be aware that copyright infringements may have consequences.

At the same time, courts have made clear that using the limited resources of the judicial system to engage in copyright trolling or extortion will also have consequences. A campaign of public awareness is a more reasonable strategy for curtailing illegal downloading than using the legal system as a bludgeon against low-income defendants.

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