Now in Legal Rebels:
Posted May 07, 2013 01:21 pm CDT
Updated: Lawyers who pursued illegal porn downloaders, offering to settle copyright infringement claims for $4,000, are experiencing the wrath of a federal judge.
In an opinion peppered with Star Trek references, U.S. District Judge Otis Wright sanctioned four lawyers $81,000, double the cost of attorney fees for two defense lawyers, and referred the matter to the U.S. Attorney’s Office and the Internal Revenue Service for investigation. Ars Technica and Wired have stories.
The lawyers are three principals who operated Prenda Law—John Steele, Paul Hansmeier and Paul Duffy—and a California lawyer who worked for them, Brett Gibbs.
Wright begins his opinion (PDF) with a Spock quote from the Wrath of Khan, “The needs of the many outweigh the needs of the few.” He then describes the lawyers’ copyright infringement suits.
“Steele, Hansmeier, and Duffy (‘Principals’) are attorneys with shattered law practices,” Wright wrote. “Seeking easy money, they conspired to operate this enterprise and formed the AF Holdings and Ingenuity 13 entities (among other fungible entities) for the sole purpose of litigating copyright-infringement lawsuits. They created these entities to shield the principals from potential liability and to give an appearance of legitimacy.”
The lawyers and the entities they created “have outmaneuvered the legal system,” Wright wrote. “They’ve discovered the nexus of antiquated copyright laws, paralyzing social stigma, and unaffordable defense costs. And they exploit this anomaly by accusing individuals of illegally downloading a single pornographic video. Then they offer to settle—for a sum calculated to be just below the cost of a bare-bones defense. For these individuals, resistance is futile; most reluctantly pay rather than have their names associated with illegally downloading porn. So now, copyright laws originally designed to compensate starving artists allow starving attorneys in this electronic-media era to plunder the citizenry.
“Plaintiffs do have a right to assert their intellectual-property rights, so long as they do it right. But plaintiffs’ filing of cases using the same boilerplate complaint against dozens of defendants raised the court’s alert. It was when the court realized plaintiffs engaged their cloak of shell companies and fraud that the court went to battlestations.”
Wright said the three principals, operating as Prenda Law, signed copyright assignment documents in the name of Steele’s groundskeeper, holding him out as an officer of AF Holdings, and amassed millions of dollars in settlement proceeds on which no taxes have been paid.
“If the principals assigned the copyright to themselves, brought suit in their own names, and disclosed that they had the sole financial interest in the suit, a court would scrutinize their conduct from the outset,” Wright said. “But by being less than forthcoming, they defrauded the court. They anticipated that the court would blindly approve their early-discovery requests, thereby opening the door to more settlement proceeds. The principals also obfuscate other facts, especially those concerning their operations, relationships, and financial interests.”
The Ars Technica story says that the judge uses the word “fraud” though it appears he is referring to a kind of “lie of omission” through operation of the Prenda enterprise.
Steele talked to Ars Technica in a Q-and-A story published on Friday. “Here’s a general rule of thumb,” Steele said. “Any time there’s more references to Star Trek than to case law, I think that’s a bad sign.”
“I’ll be the first to admit: we have definitely lost the PR battle,” Steele told Ars Technica. “But very few people can argue that these [sanctions] are allowed, legally. The overwhelming majority of courts have found in our favor in hearings. … I think there were some errors made, and that’s why we have appellate courts.”
Steele also told Ars Technica he wasn’t running the shell companies bringing the lawsuits. “Where are the documents showing that I own any of these entities? I’ve never even heard of a couple of them,” he said.
He also denied any forgery of his groundskeeper’s signature. “For the love of God, where is the evidence [of forgery]?” Steele asked. “If someone had found something, it would be on the front page of Ars Technica and half a dozen other sites within minutes.”
Hat tip to How Appealing.
Updated at 10:25 a.m. to correct subsequent reference to Wright. Updated on May 10 to include information from Steele’s interview with Ars Technica.