German Mass Copyright Letter Sender Using Debt Collectors To Pressure People To Pay Up

from the looking-more-and-more-like-extortion dept

We've seen the various mass copyright infringement factories popping up all over the world, often using similar strategies: suing or threatening to sue thousands of individuals based solely on an IP address. The whole "business model" is based not on traditional copyright infringement statutory awards, but on convincing people to pay up beforehand to avoid being sued. The model feels quite similar to what's normally considered extortion ("pay up or we harm you"). Someone recently sent us a copy of what's alleged to be a contract being used by a German law firm, Schutt, Waetke Rechtsanwalte, which has been involved in such mass threats for many years. You can find references online going back to at least 2005 of this law firm sending out such pre-settlement letters to thousands of Germans. I contacted the firm to see if they would confirm or deny the legitimacy of the contract, and they would not respond. So, perhaps take the details with a grain of salt, even though the firm has been connected to these sorts of pre-settlement jobs for a while.

What's interesting about this particular contract is that, not only does it display the specific terms of the deal, but it's quite upfront about the fact that they hand this project off to debt collectors to put the pressure on people who don't pay up -- even though there's no official "debt." This is incredibly underhanded. The details of the deal is that the "client" (copyright holder) gives power of attorney to Schutt, Waetke, which then works with a company called Excubitor, to find the works online. Once Excubitor finds works, they send the data to Schutt, Watke, which then works to identify them via ISPs. Once identified they're sent a letter in which a "settlement" is demanded "as payment of compensation and reimbursement of disbursements and attorneys' fees." Here, the contract is explicit:

The Attorneys will use the assistance of DEBT COLLECTION AGENCIES for processing, administration and handling of procedures.

I don't know enough about German law, but I do wonder how this can possibly be legal. How can you simply declare unilaterally someone has to pay you something and then immediately have a debt collection agency take up your cause? I don't see how there's any debt until either the individual has agreed to pay up or a court has ordered it. Involving debt collectors so early on seems highly questionable. Later on, the contract explains in more detail that anyone who doesn't pay in full, will automatically be handed over to a debt collector:

Under normal circumstances and in so far as not otherwise agreed on a case by case basis, all cases which do not entail a settlement of payments in full by th eparty who received the warning will be handed over to DEBT COLLECTION AGENCIES immediately after the expiry of the allotted payment period for further extra-judicial recovery (debt collection) and then to LO in the name and on behalf of the Client for the asertion of claims for payment in enforcement and recovery proceedings.

Again, I'm trying to understand how this can possibly be legal, but if some German legal experts can chime in and let us know if it's really legal to unilaterally declare someone owes you money, based on no agreement or contract, and then hand it off to a debt collector, that would be great.

As for the economics of this all, the settlement demands are for €700. However, it doesn't seem like a very good deal for the copyright holder. First of all, Schutt, Waetke demands an upfront fee of €161 (plus taxes) per individual case, which the law firm will apparently just take out of any settlement money received, rather than invoicing the client directly. I'm assuming this is to get around the issue, discussed about a year ago, about how some of the German law firms were breaking the law by doing some of these deals on a purely commission-based setup. On top of that, 27% (plus taxes) of any money recovered goes to Excubitor, the firm that's hunting down the infringing files online. On top of that, it says that the debt collection agencies get 20% (plus taxes). Then another 10% of payments are put into a "kitty" for the attorneys to use at their discretion for various costs, and an additional €1 goes to Excubitor for each name they identify. Apparently at the end of the contract, if there are no outstanding expenses, this money can go back to the client. The contract also notes that if the fees are insufficient to handle identification of users or of going to court, the client can be on the hook for that as well.

So, even if we ignore the "plus taxes," out of the €700 potentially received, €161 goes to the lawyers, €189 goes to Excubitor and €140 goes to the debt collectors. If my understanding of the contract is correct, that's €490 of the €700 already gone (and if you add in the "plus taxes," it's even more than that). If you then include the additional "kitty" costs, that's another €71. That appears to leave just €139 (minus taxes, so drop that number even lower) for the copyright holder. And that's only if they get a settlement. If they don't they're still out at least €161 based on what the contract seems to suggest.

So if this is accurate, then the copyright holders stand to make very little and could end up losing a significant amount if most recipients don't settle. Seems like an odd deal to make.

Filed Under: copyright, debt collection, germany
Companies: schutt waetke