Giganews Sues Perfect 10 For $20 Million For Trying To Play 'Hide The Assets' After Jury Award

from the perfect-20 dept

If you're not familiar with Perfect 10 by now, it is a company that billed itself as a smutty porn magazine that was actually mostly in the far more immoral business of copyright trolling. Rather than peddling skin, Perfect 10 mostly peddled laughably frivolous copyright lawsuits against roughly everyone, managing in this process to suffer legal losses to Google, CCBill, Amazon, and Visa among others. One of those others was Usenet provider Giganews, which won big in its court battle with Perfect 10 to the tune of the latter being ordered to pay over $5 million in attorney's fees to the former. Perfect 10 immediately cried poor at that point, stating it didn't have the money to cover the award, leading the court to put its assets in receivership. At the time, Mike wrote:

In the most recent Perfect 10 case, we noted that Perfect 10 lost big time earlier this year. It had sued Usenet provider Giganews, but the court found that Perfect 10's legal arguments made no sense at all, and sided completely with Giganews. Most importantly, the court upheld the multimillion fee award that the court had dumped on Perfect 10 for filing such a bogus lawsuit. It turns out that Perfect 10 doesn't seem to have that kind of money, so all of its assets are now controlled by a court-appointed receiver.

Those assets were supposed to be sold off in order to pay the court ordered award to Giganews. According to a new lawsuit filed by Giganews against Perfect 10 not a single cent has been paid, with the porn company instead choosing to play a silly game of hide-the-assets in order to avoid having them sold off.

The claims center around an alleged conspiracy in which Perfect 10 transferred its funds and assets to Zada.

“As of now (over two years since the judgment), Perfect 10 has not voluntarily paid any amount of the judgment,” the complaint begins. “Instead, Perfect 10, through the unlawful acts of Zada and in conspiracy with him, has intentionally avoided satisfaction of the judgment through a series of fraudulent transfers of Perfect 10’s corporate assets to Zada’s personal possession.”

Norman Zada would be the owner of Perfect 10. The suit seeks $20 million for fraud and punitive damages, detailing how Zada made a habit since 2014, when the lawsuits including that against Giganews began to clearly go south for Perfect 10, of selling Perfect 10 physical assets for below-market sums of money and transferring company cash into his personal bank accounts. We're talking about millions of dollars in cash and assets moving around, as a court order to pay Giganews loomed over it all. This, to be as clear as possible, is not the sort of thing that the court looks favorably upon.

Giganews says that Perfect 10 transferred at least $1.75m in cash to Zada. Then, within weeks of the court ordering Perfect 10 to pay $5.6m in attorneys fees and costs, Giganews says that Zada “fraudulently transferred substantially all of Perfect 10’s physical assets” to himself for an amount that did not represent their true value. Those assets included a car, furniture, and computer servers.

Zada, for his part, has the following defense for himself on the record.

When Zada was questioned why the transfers took place, he admitted that “it would have been totally disruptive to have those [assets] seized” in satisfaction of the judgment. Indeed, the complaint alleges that the assets never moved physical location.

That's a fairly clear admission for defrauding the court with regard to its order to pay Giganews. Giganews is asking for the $1.75 million in cash that had been transferred and interest beginning from March of 2015. The fangs are clearly out, but one can hardly blame Giganews, which had to defend itself against what was clearly a frivolous lawsuit filed on behalf of a company that can't seem to figure out how to look anything other than shady in the extreme. To that end, Giganews is asking for another $20 million in punitive and exemplary damages. Here's hoping they get it.

Filed Under: assets, copyright, copyright trolling, norman zada
Companies: giganews, perfect 10

Copyright Troll Perfect 10 Ordered To Pay $5.6 Million Over Bogus Lawsuit

from the justice-served dept

Earlier this year, we noted that famed copyright trolling operation Perfect 10 had lost big time in its lawsuit against Giganews. Perfect 10 is a copyright trolling operation that pretends to be a pornographic magazine publisher, but whose main line of business has long been threatening online platforms to pay up linking to or hosting some of its content that users uploaded. While some online websites have paid up to avoid lawsuits, in basically every case that went to trial, Perfect 10 has lost big time, often setting very useful and very important precedents on copyright and fair use. If you haven't gone through Perfect 10's Hall of Fame in setting up great precedents for fair use and intermediary liability protections, check out some of the classics:

• Perfect 10 v. Google
• Perfect 10 v. CCBill
• Perfect 10 v. Amazon
• Perfect 10 v. Visa

And now we can add Perfect 10 v. Giganews to the list with a great final act: the judge in the case has ordered Perfect 10 to pay up $5.6 million in attorneys' fees for filing such a ridiculous lawsuit. We knew that the judge was unhappy with Perfect 10 based on the original ruling, but the ruling on attorneys' fees [pdf] is worth reading as well. The court notes that it has wide latitude in determining if attorneys' fees are reasonable, especially in copyright cases, even though such awards are pretty rare. The court admits that it's a "close call," but doesn't find Perfect 10's claims to be "frivolous." However, that doesn't mean that the court doesn't recognize the games that Perfect 10 has been playing: copyright trolling as a tax write-off.

As the Court observed in both its order granting Giganews’ summary judgment motion on indirect copyright infringement and in its order denying Perfect 10’s motion, Perfect 10’s undisputed conduct in this action has been inconsistent with a party interested in protecting its copyrights.... All of the evidence before the Court demonstrates that Perfect 10 is in the business of litigation, not protecting its copyrights or “stimulat[ing] artistic creativity for the general public good.” ...

Perfect 10 has never been a self-sustaining business, and to date, has lost more than $50 million dollars, if not more.... However, this loss appears to be largely intended by Perfect 10’s President and CEO Norman Zada, who described Perfect 10 to non-party Rebekah Chaney as a “tax writeoff.”... Because Perfect 10 is a closely held corporation, Zada testified he is able to deduct Perfect 10’s significant losses on his personal income taxes.... In fact, Zada told Ms. Chaney that he “needed [Perfect 10] to offset money he made in the market” and “needed the loss to represent how small businesses couldn’t make money because of piracy on the Internet.”...

Rather than bringing suit for the purpose of protecting its copyrights and stimulating artistic creativity, the evidence reveals that Zada’s interest in the copyrights held by his “tax write-off” is solely in litigation. In deposition, for example, Perfect 10’s President and CEO Norman Zada testified that, to date, it has filed between 20 and 30 copyright infringement lawsuits.... In the life of the company, more than half of Perfect 10’s revenues have been generated by litigation.... However, all of those revenues were generated by settlements and defaults –Perfect 10 has never obtained a judgment in a contested proceeding in any of its roughly two dozen copyright lawsuits.... Similarly, litigation expenses make up the largest share of Perfect 10’s expenses, which are on par with, if not greater than, Perfect 10’s personnel expenses.... In his capacity as President and CEO, Zada spends “eight hours a day,” 365 days a year on litigation..., “working on various court cases that [Perfect 10] ha[s] going on.” ... Indeed, Zada admitted that, in the past, Perfect 10 has expressly purchased copyrights from other copyright holders “because [Perfect 10] thought they would be helpful in [its] litigation efforts ... .”

The evidence before the Court also demonstrates Perfect 10 continued that pattern in this litigation, which, as the Court previously noted, has been inconsistent with that of a plaintiff interested in actually protecting its copyrights from unauthorized use.

As has been noted before, part of the game that Perfect 10 plays is to send ridiculous and impossible "takedown" demands, sometimes just including printouts of thumbnails, with no clear explanation over where those images reside or what URLs they're found on. The court noted this as well:

Perfect 10 has a long, documented history of sending service providers inadequate takedown notices under the DMCA that fail to identify specific infringing material, and then bringing suit for the service providers’ failure to respond to deficient DMCA takedown notices.... Despite numerous admonitions that its inadequate notices “unduly burden[] service providers” and reminders that “the burden of policing copyright infringement” falls “squarely on” Perfect 10 ..., Perfect 10 never attempted to submit a takedown notice in this action that Giganews could actually use.

Indeed, even after Perfect 10 admittedly learned of a method to produce a takedown notice in “15 minutes” that would result in almost immediate removal of “90 percent of the Perfect 10 content on Giganews’s servers,” Perfect 10 refused to do so.

Given all that, the court had no problem ordering that Perfect 10 pay Giganews' legal fees. It laughs off the idea that such a finding would scare off "starving artists" from suing over infringement, since that situation is totally different:

In light of Perfect 10’s well-documented improper motive in bringing suit..., the Court has little concern that an award of attorneys’ fees in this action will discourage “starving artists” from protecting their copyrights. If anything, it will discourage serial litigants from bringing unmeritorious suits and then unnecessarily driving up litigation costs in order to drive a settlement. Such a result is entirely consistent with the purpose of the Copyright Act, and this factor weighs in favor of an award of attorneys’ fees.

Later, the court mocks Perfect 10's argument that it shouldn't have to pay legal fees because it is basically insolvent and heavily in debt. In fact, the court notes that Perfect 10 has been making this same exact claim for years in just about every case, making it somewhat unbelievable:

Perfect 10 admits that it has likely “never been solvent” in more than 15 years of operation.... Indeed, Perfect 10 has repeatedly reported that it was on the verge of bankruptcy. See, e.g., Perfect 10, Inc. v. Google, ... (noting Perfect 10’s argument the same year this action was filed that Perfect 10 was “very close to bankruptcy”). That is, despite the fact that Perfect 10’s primary business is copyright litigation, Perfect 10 effectively argues that it could never be subject to any attorneys’ fee award under the Copyright Act because it is perpetually in debt and on the verge of bankruptcy. The Court is not persuaded, particularly where, as here, the evidence suggests Perfect 10’s impecunity is intentional.

Much of the rest of the ruling goes into the details of calculating the attorneys' fees (and again pointing out some bizarre claims by Perfect 10 in trying to lower the fees). In the end, the court does award slightly less than Giganews requested, but it's still pretty close. Who knows if the "insolvent" Perfect 10 will actually ever pay up, but the real question is if it will ever stop filing such questionable lawsuits.

Filed Under: andrew bridge, attorneys fees, copyright, copyright troll, norman zada, precedents
Companies: giganews, perfect 10

Copyright Troll Perfect 10 Loses Once Again, Setting More Good Precedents For Copyright Law

from the keep-it-up dept

We've written about Perfect 10 a number of times. The company, which claims to be a publisher of pornographic magazines has really been a copyright troll for much of its life, as was outlined in one response to one of its many, many lawsuits -- all of which it seems to lose in the end. Perfect 10 has actually become something of a wonder, filing case after case after case -- and losing pretty much all of them, but often setting really useful precedents along the way concerning the contours and outlines of copyright and the DMCA along the way. It appears to have done so again.

In 2011, we wrote about Perfect 10's decision to sue Usenet provider Giganews, and once again, Perfect 10 has received quite the judicial smackdown from a judge who is clearly not at all impressed by Perfect 10 and its owner, Norman Zada. There are some procedural issues here, as the ruling is on Perfect 10's motion for summary judgment (which fails in every way), but the judge notes various ridiculous procedural mistakes by Perfect 10, including trying to block declarations that were filed properly -- while also noting that Zada's own declaration is almost certainly not admissible as "some of Zada's statements are tantamount to expert testimony that Zada is not qualified to give." Sloppy lawyering does not make a judge happy. But getting to the meat of the case, and Perfect 10 loses on, well, everything.

Perfect 10 argued that Giganews didn't have a valid repeat infringer policy as required by the DMCA to obtain safe harbor protections. But the judge points out that's just wrong. First, Giganews clearly does have a repeat infringer policy. Perfect 10, however, appeared to argue that it wasn't a "reasonable" policy because it doesn't delete all messages from a user, just the ones claimed to be infringing. The judge notes that's not the law.

Giganews acknowledges that it removes only the specifically-identified infringing messages posted by a repeat infringer, and not all of the messages ever posted by a repeat infringer. The Court is not persuaded that § 512(i)(1)(A) requires a service provider to disable or delete all messages a repeat infringer has ever posted. By its terms, the section requires “termination . . . of subscribers and account holders,” not the deletion of messages. In addition, by Plaintiff’s reading, § 512(i)(1)(A) would require a service provider to take down all of a user’s messages, not just the infringing ones. Because deleting noninfringing messages does not serve any infringement-preventing purpose, there is no justification for reading such a requirement into the statute. In short, the Court will not read into the statute a requirement that its plain language does not support and that goes far beyond stopping and deterring copyright infringement.

Then, Perfect 10 argued that because only 46 "repeat infringers" had their accounts terminated, despite removing 531 million messages that were claimed to be infringing, it shows the policy is not adequate. The judge isn't buying it, noting that this "conclusion is not compelled by the evidence," which is further explained later, once you realize that many of the messages removed are just via other usenet providers, so not even direct users of Giganews (meaning there's no way for them to remove those users anyway). Perfect 10 also tries to argue that since Giganews can't identify all of the users (because many are not actually from Giganews), that shows the policy is inadequate. Thankfully, the judge appears to realize that this is a function of usenet itself, and isn't Giganews' specific issue:

However, that a Usenet service provider cannot identify all users whose messages reside on its servers appears to be a function of how the entire Usenet works. According to Giganews, all Usenet service providers encrypt the data that identifies the user who posted a message; this encrypted data is reflected in a part of the message header called the X-trace field. Only the Usenet service provider with whom an account is registered can decrypt the X-trace field it has attached to a message posted by that user. Many of the messages hosted on Giganews servers are posted through accounts registered with other Usenet providers. Because Giganews cannot decrypt the X-trace field on such messages, it cannot link such messages to any specific users, and thus cannot apply its repeat infringer termination policy to such users.

It's nice to see judges understand at least a little basic technology.

The judge also takes issue with the way that Perfect 10 sends its DMCA "notices." We've seen this multiples times before. In other cases, companies have highlighted that Perfect 10 seems to delight in sending notices that make it nearly impossible to actually find and takedown the content, meaning that they're not valid DMCA notices. For example, in the case against Google, Perfect 10 sent Google image files, without actually sending links to where those images were, or one what searches they were appearing. Basically: here are the images, block them. But that's not how the DMCA takedown process works. It's almost as if Perfect 10 tries to make it hard for sites to take down content it claims is infringing so that it can sue (hmm....). The judge here is not impressed, as it appears that Perfect 10 also tried to make things complex for Giganews:

At this point, a description of Plaintiff’s Notices is in order. Plaintiff’s Notices instruct Giganews to use certain newsreaders to conduct searches of specific names within certain newsgroups, and then tell Giganews that all of the messages yielded by those searches on a certain date contained infringing material. Along with (verbose) written instructions for performing these searches, Plaintiff’s Notices include pages of thumbnail images of the infringing materials and/or screen shots of the newsreader interface reflecting the search results. Plaintiff contends that this satisfies § 512(c)(3)(A)(iii) because the search results and thumbnails both “identify” the infringing messages and also provide sufficient information to permit Giganews to “locate” those messages.

Giganews, in turn, points out that this isn't nearly enough information to find and disable those messages. It points out, quite reasonably, that it needs message-IDs for each message. The court agrees, pointing out that the caselaw is pretty clear here -- even citing a previous Perfect 10 case. The judge goes through a lengthy description of just how difficult it would be for Giganews to actually comply with Perfect 10's requests, given that they're presented in a nearly impossible to follow manner. Perfect 10 tried to argue that because Giganews did still remove some messages this way that it shows it can do it, but the court isn't buying it -- in fact, suggesting that Giganews actually went above and beyond what is required by the law.

Giganews has presented substantial evidence of the untenable burden it would face if every DMCA notice it received required it to undertake the Message- ID extraction process Plaintiff expects of it. That Giganews evidently chose to undertake this process for two of Plaintiff’s Notices does not necessarily mean that those Notices satisfy § 512(c)(3)(A); it may mean that Giganews went beyond its duty.

Basically, it's yet another complete loss for Perfect 10, who still seems to keep filing these lawsuits because some companies (you know who you are) actually decide to settle and pay up, rather than push back against this bit of trolling.

Filed Under: copyright, copyright troll, dmca, norman zada, usenet
Companies: giganews, perfect 10

Join The Club: Tumblr Is The Latest Company Sued By Perfect 10

from the good-luck-getting-some-of-that-zero-revenue dept

And here we go again. Perfect 10 likes to describe itself as a porn publisher, but it's become clear that it's real business seems to be about suing internet companies by claiming copyright infringement. It's sued all sorts of companies, using all kinds of bizarre legal arguments, many of which have resulted in losses (and useful precedents), but sometimes sites seem to settle and Perfect 10 just keeps suing. It's latest target is Tumblr, which it has sued for copyright infringement using many of the same old theories it's used before. You would think that Perfect 10's Norman Zada would have at least waited until Tumblr was actually making some revenue before suing, but apparently he couldn't wait.

So how is Perfect 10 trying to get around the DMCA claims? First, by claiming that Tumblr ignored its DMCA notices. If this is true, that certainly would damage Tumblr's DMCA safe harbor claims. Though, it would surprise me if it was true. In many of its other cases, it's later come out that what Perfect 10 claims are legitimate DMCA takedown notices are anything but. In fact, it often appears like Perfect 10 tries to make its DMCA notices almost impossible to comply with -- which, if true, would be one way to make it easier for the company to then sue over failed compliance...

Second, it claims that Tumblr's own employees uploaded Perfect 10 images to "jumpstart" Tumblr's success. Again, if true, those actions would not be covered by the DMCA's safe harbors, but the filing provides little to no support for the claim that this happened. Perhaps it's true, but given Perfect 10's past, it would nice to see some actual evidence there in order to believe the claim, and not think that this might just be a fishing expedition.

Finally, Perfect 10 claims that the fact that Tumblr has a search engine lets people find the infringing pictures. They seem to be arguing that this is part of the contributory infringement claim. I'd imagine that this is based on the fact that part of the reason Rapidshare beat Perfect 10 was the lack of a search engine (and, yes, here is where we note the irony that the US gov't is using the lack of a search engine as proof that Megaupload was clearly illegal -- when that same fact actually helped get Rapidshare deemed legal). Still, Perfect 10 hasn't had much luck getting any actual search engine found liable, so it's unclear why it will suddenly start with Tumblr.

We'll see what other evidence comes out, but, assuming Tumblr's employees did not directly infringe Perfect 10's work and that there is an explanation for the "DMCA notices," one would hope that Tumblr will join many other top internet companies in fighting back against Perfect 10 and (hopefully) create a few more good precedents along the way.

Filed Under: copyright troll, dmca, norman zada, porn, safe harbors
Companies: perfect 10, tumblr