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.
The folks over at the App Developer's Alliance (a trade group for app developers) recently posted the following video of Peter Braxton discussing his run in with a patent troll:
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?
A. Yes.
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. Yes.
Q. Who?
A. Our CEO, Bob Boback.
Q. Why?
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?
A. Yes.
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?
A. Yes.
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.)
Among other wrongful conduct: Rightscorp has engaged in telephone harassment and abuse (15 U.S.C. § 1692d); made various false and misleading representations (15 U.S.C. § 1692e); engaged in unfair collections practices (15 U.S.C. § 1692f); failed to provide validation and required notices relating to the debts (15 U.S.C. § 1692g); and furnished emails and letters knowing they would create false beliefs on the parts of consumers that their Internet Service Providers (“ISPs”) were participating in the attempt to collect on the purported debts when in fact the ISPs were not participating (15 U.S.C. § 1692f).
Robocalls, baseless threats, seemingly endless harassment, constantly fluctuating "settlement offers"... it's all included in the FTC complaints. (And turned over with extreme expeditiousness by the FTC -- seven days from the point my FOIA request was received.) [Spreadsheet link. Scroll all the way to the right to see complaint details. Also note there are two tabs of complaints.]
Consumer had his internet turned off and he called his service provider and they told him that Digital Rights Corp sent them a warning telling him that they would shut off his internet if he didn’t contact them and he did and they told him that they had 34 counts against him of uploading a children’s song and they told him that it could be $150 thousand dollars per each count and they have admitted that he didn’t do it but he has to pay it because his service was used to do this and he has to pay teh consumer was told if he gave them $500 they would make everything go away. Advised Consumer to call the State Attorney General.
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Consumer is receiving repeated phone calls from a company claiming to be from Rights Corp and the company claims that the consumer has illegally downloaded music and the company is trying to collect money for the illegal downloads. Consumer states that the company states that the consumer must pay immediately and they tried to obtain a cc number. Consumer states that the company claims that if the consumer does not pay over the phone the amount of the money owed would be mulitplied by 100% and that they would terminate the consumer's internet services.
Every settlement offer looks "reasonable" when compared to maximum statutory infringement damages -- something Rightscorp has no intention of pursuing. As for the claim that the alleged infringer's internet connection could be cut off? It's mostly false. Rightscorp has managed to push around a few small ISPs using its untested theory that the DMCA requires service providers to boot repeat infringers. But at this point, any internet disconnection is a purely voluntary action on the part of the ISP. There's no legal basis for its claims and no court decision that backs its assertions up. And, most importantly, Rightscorp can't actually cut off anyone's internet connection -- at least not on its own. But that doesn't stop it from insinuating that it possesses this power.
How can you tell Rightscorp has far less power than it pretends to have? By how swiftly it resorts to bargaining.
The Digital Rights Corp. has charged us with 216 illegal down loads. They said that 153 sucessfully down loaded. They first wanted us to pay 3,000 dollars. Now everytime we speak to them the amount changes from 3,000, 560.00, 500.00, and the last amount was 390.00.
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Rightscorp, Inc sent us a letter about 6-24-2014 saying we owe $4,060 for copyright infringments. We called to inquire on this accusation. They stated pay $460 by ~6pm (that day ) or pay the full amount. They also pressed for a credit card number. To this day they have been calling about 3x's a week. (They threaten to cut off our internnet service.)
And how can you tell Rightscorp is nothing more than a troll? Because if you feed it, it comes back for more.
Forwarded by the State of Alabama Office of the Attorney General… Consumer responded to first email and paid $20 for the fee requested. She received 27 more emails each requesting $20… Consumer received another email threatening to shut down her internet service demanding settlement. Consumer states she is now getting phone calls from this company.
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Digital Rights started annoying robot calls after I made a $20 payment on behalf of a third party to settle an alleged copyright issue. They decided I "owed" them a lot more, $280. I demanded no further calls...They insisted they can call me as much as they want by any means even though I was not actually involved directly with the internet account.(gift,not at my home) They sent a threatening letter and emails, too...
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I received notification from my internet provider that a report had been made of illegally download. I contacted Charter who offer no assistance they were "only relaying a message" I then contacted the RIGHTSCORP. I was hesitant to give them information but was coerced into giving them our name and phone number. Initially they said they wanted 20.00 or else they would sue us for 150,000.00 dollars. I told them I had checked with the entire family and they did not believe they had downloaded these songs. She , Cecilee, called back and stated the charges were now 180.00.
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I made a single payment on behalf of my son in law to clear a digital rights claim as I gave him a year internet as a gift. Now they won't stop calling me trying to get more money for more "claims."
Rightscorp apparently deploys two tactics with regularity, both unpleasant: threats and harassment.
Rightscorp sent me a letter for copyright infringement so I called the number on the paper they sent and they said that it carries a fine of $150,000 but if I gave them $20 they would settle it. Now they call me every Monday, Wednesday & Friday and are continuing to send me the same letter.
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Rights Corp is claiming that I owe them money because they served my internet service provider with a subpoena for my information. They call 3 or 4 times per day in addition to text messaging…
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This company has been calling my home 3-4 times a day for months, originally threatening me to pay them thousands of dollars or they would sue us. Since the initial call with them, which I refused to comply with, they have called continually, everyday and on weekends, always with a recorded message that I never pick up...
And the company's "collection agents" appear to be disguising the origin of the calls.
False claims of copyright infringement from well-known copyright "troll". Company is California based, but call came from Tennessee.
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...They are trying to intimidate me into giving them money for nothing by harassing me over the telephone. Most of the telephone calls are not live people, but an automated message that leaves me a voice mail from several different numbers with several different area codes..
I've reached out to Rightscorp to see if it has any comment on the FTC complaints. I'm not holding my breath for an answer, considering much of what's alleged in these complaints is the subject of two class action suits. But what's detailed here is nothing more than pure copyright trolling: baseless threats, harassment, and settlement offers. We've seen this deployed by a fair number of supposed rights enforcement entities and most of those are now languishing. Rightscorp isn't looking too healthy itself.
And the most amazing part is that -- despite two lawsuits centering on this abusive behavior -- it hasn't reined in its collection efforts. Many of the complaints filed with the FTC appeared after Morgan Pietz filed his lawsuit in November of 2014, with the latest listed being March 24, 2015. Apparently, it's just going to keep up its questionable tactics until it's forced to stop, even though there's little indication they've resulted in anything more than a few scattered, small settlements.
Late in 2013, Paul Hansmeier, formerly of Prenda Law'sLegal Buffoonery on Wheels Copyright Death Suicide Squad, realized that participating in a multi-jurisdictional legal train wreck had left him oddly unfulfilled. If the promise contained in his law degree was ever to be fulfilled, he would need to reassess his shakedown-focused lawyering.
After an indeterminable amount of thought, Hansmeier apparently arrived at the conclusion that -- unfulfilled promise or no -- he was really only good at one thing: shaking people down. And, sadly, he wasn't even all that great at that. But "sue what you know," as they say, and Hansmeier went about rebranding himself as a Champion of the Weak and Underprivileged.
No longer would he be throwing shaky demand letters and even shakier lawsuits at Household Members Voted Most Likely To Download Porn by the loose confederation of shakedown artists d/b/a An Actual Law Firm ("Come see our letterhead!"). That was the old Paul Hansmeier.
The new Paul Hansmeier would instead be throwing shaky lawsuits and demand letters at any company whose towel racks were located more than 32" above the ground or whose entry threshold was a ¼" above the legally-mandated height. The smaller the company the better, as they rarely even bothered to show up in court and would instead settle for a small fee.
The new Paul Hansmeier's operations were so efficient he could barely keep himself stocked in A4. Filings were submitted so fast not even the plaintiffs were aware they were listed as plaintiffs. And it was working, to a limited extent. Hansmeier was able to knock over a few mom-and-pop businesses for a few grand each. But now he's run into Kahler Hotels, which not only isn't interested in his ADA shakedown claims, but is countersuing him for $50,000+. (h/t to Dan Browning of the Minneapolis Star-Tribune)
1. Defendants are owners of real property located in Rochester, Minnesota.
2. Plaintiffs filed and served the instant action alleging violations of the Americans with Disabilities Act, violation of the Minnesota Human Rights Act and unfair discrimination.
3. Plaintiffs have an ulterior purpose in pursuing the claims set forth in their Complaint.
4. Plaintiffs’ Complaint misuses and perverts the purpose of a civil action.
5. As a direct and proximate result of Plaintiffs’ abuse of process, Defendants have sustained damages in excess of $50,000.
COUNT II - CIVIL CONSPIRACY
6. Defendants incorporate in this paragraph the allegations set forth in Paragraphs 1 through 5 as though they were fully set forth herein.
7. The Plaintiffs are engaged in a civil conspiracy to accomplish some concerted action, which injures Defendants.
8. The Plaintiffs did commit, and executed certain acts in pursuance of certain torts as previously delineated against the Defendants.
9. That as a result of the Plaintiffs’ tortious conduct alleged herein, Plaintiffs did conspire and agree to commit such acts.
10. As a direct and proximate result thereof, Defendants have sustained damages in excess of $50,000.
WHEREFORE, Defendants pray for entry of judgment as follows:
1. Plaintiffs take nothing by their Complaint as alleged;
2. Defendants are awarded damages in excess of $50,000 together with interest, costs, disbursements and attorney’s fees; and
3. The court order such further relief as it deems just and equitable.
Whether or not the counterclaims (which are really, really vague) hold up remains to be seen, but this motion should give Hansmeier second thoughts about trolling this particular venue for easy ADA cash.
For a few years now, Digital Rights Corp (aka Rightscorp) has been trying to turn copyright infringement notices into a revenue stream, sending accused pirates letters telling them they can avoid court battles if they just pay a $20 fee (per infringement). The idea was to engage in a "friendlier" form of copyright trolling where the demands were so "reasonable," most users would quickly settle up. But like so many copyright trolls before it, Rightscorp's behavior has been sloppy at best, with the company often trying to navigate dubious DMCA legal loopholes in the pursuit of cash.
Apparently, the company's methods aren't just legally dubious, they're unsurprisingly unprofitable. We'd already noted a few times how the company's shady tactics -- and the lawsuits (pdf) in response to those tactics, which include violating federal robocalling laws -- were putting the company on unsound financial footing. Now, new SEC filings confirm as much.
According to 10-K documents filed with the SEC earlier this month, the total loss from Rightscorp operations for 2014 was $3,398,873, with revenues of just $930,729 for the year. "As of December 31, 2014, our accumulated deficit was approximately $7,093,377," states the filing, adding that the company lacks the revenue to allow it to "continue as a going concern." Rightscorp stock price, meanwhile, similarly isn't much to write home about. Not so viable for a company that on a recent earnings call declared itself "one of the only viable solutions to the multi-billion dollar problem of peer-to-peer piracy."
There's not much going on there if you're an investor looking for growth. The IP section of the filing notes that Rightscorp has 7 US patent applications on file. Next to most of the patent applications, Rightscorp itself says "this application currently stands rejected by the USPTO," "the rejection is a Final Rejection," or "this provisional application is now expired." Similarly, Ars Technica notes that while Rightscorp continues to expand its ISP relationships from 50 to 233 cooperating ISPs, most of those ISPs are tiny and its overall broadband user coverage is small:
"However, that's not a very meaningful increase. While Rightscorp may have gone from 50 to 233 ISPs, most of those are very small providers, with at least some of them being individual universities who forward notices to students. The amount of the US population who have Internet service providers that cooperate with Rightscorp remains stable at about 15 percent."
And while many small ISPs play along, a number of mid-sized ISPs like Grande Communications and Windstream have increasingly been standing up to the company, lamenting it "abuses the subpoena power of the federal courts" in California and elsewhere. Meanwhile, most of Rightscorp's already limited finances are coming from two companies: Warner Bros. and BMG, which accounted for 76% and 13% of the company's sales last year, respectively. In the end, maybe harassing broadband users isn't quite the cash cow Rightscorp expected and the company may want to explore some additional revenue generation options. Perhaps used car sales or home theater installations?
We've written a few times about Rightscorp, the company that has tried to set itself up as a sort of "friendlier" copyright troll, acquiring a bunch of copyrights, sniffing out IP addresses connected to sharing of content associated with that copyright, and then trying to demand payments. The main "difference" with Rightscorp is that it usually demands lower, potentially more palatable sums than traditional copyright trolls, and it's trying to "partner" with ISPs to send notices on its behalf, rather than suing people. Most ISPs, so far, have refused to do this. And so far, Rightscorp has been something of a joke -- thinking it had discovered a subpoena loophole that had been slammed shut by the courts years ago (every few years a new copyright troll thinks it's found this same loophole) and talking about hijacking browsers. The reality is that it's a company with a sketchy past that seems to have reverse-mergered itself into being a public company that has seen its stock drop precipitously and still hasn't shown much ability to actually make any money from shaking down file sharers.
And now, it's facing a class action lawsuit from Morgan Pietz, the lawyer who was one of the main lawyers who helped unravel and bring down Prenda.
The complaint seeks class damages against Rightscorp for violations of the Telephone Consumer Protection Act, the Fair Debt Collection Practices Act, California’s Rosenthal Act, and Abuse of Process. The complaint alleges unlawful robo-calls, as well as other unfair debt collection practices, and that Rightscorp has abused the legal process by issuing DMCA Section 512(h) subpoenas that it knew were objectively baseless.
Rightscorp is regularly engaged in the business of collecting on alleged
obligations of consumers to pay money (i.e., debt collection) for purported copyright
infringement claims, such that it is subject to the Fair Debt Collection Practice Act
(15 U.S.C. § 1692 et seq.) (“FDCPA”) and the Rosenthal Fair Debt Collection
Practices Act (Cal. Civ. Code §§ 1788 et seq.) (“Rosenthal Act”). However,
Rightscorp has repeatedly and systematically failed to comply with the provisions of
the FDCPA and the Rosenthal Act. Among other wrongful conduct: Rightscorp has
engaged in telephone harassment and abuse (15 U.S.C. § 1692d); made various false
and misleading representations (15 U.S.C. § 1692e); engaged in unfair collections
practices (15 U.S.C. § 1692f); failed to provide validation and required notices
relating to the debts (15 U.S.C. § 1692g); and furnished emails and letters knowing
they would create false beliefs on the parts of consumers that their Internet Service
Providers (“ISPs”) were participating in the attempt to collect on the purported debts
when in fact the ISPs were not participating (15 U.S.C. § 1692f).
Further, to identify potential consumers to target, Rightscorp has
willfully misused this Court’s subpoena power by issuing at least 142 special
DMCA subpoenas, per 17 U.S.C. § 512(h), to various Internet Service Providers
(“ISPs”). These subpoenas, which were issued on this Court’s authority, but
procured outside of an adversarial proceeding and without any judicial review, are
so clearly legally invalid as to be a sham and abuse of the legal process. After an
ISP moved to quash one of these 142 subpoenas in the Western District of Texas, on
September 10, 2014, Rightscorp withdrew that subpoena rather than risk judicial
review of its plainly unlawful use of this Court’s subpoena power. See In re
Subpoena Issued to Grande Com’n. Net’s., LLC, W.D. Tx. No. 1:14-mc-00848, ECF
No. 3, 9/10/14; see also id. at ECF No. 1, 9/5/14 (ISP’s motion to quash).
Nevertheless, since then, throughout the later part of September and through until
the filing of this action, Rightscorp has continued to issue dozens of new, legally
invalid DMCA subpoenas on this Court’s authority (see, e.g., In re Subpoena Issued
to US Internet Corp., C.D. Cal. No. 2:14-mc-864-UA, 10/14/14).
Should be an... interesting lawsuit to pay attention to.
