A federal judge takes on ‘copyright trolls’

There are trolls who live under bridges in fantasy novels. Then there are “copyright trolls.”

The latter have always occupied one of the most squalid corners of the legal system. They’re people or firms that acquire copyrights to movies, music or other creative works chiefly to turn a profit by filing lawsuits alleging piracy. Often the threat of a lawsuit is used to scare Web users into paying nominal settlement fees to avoid legal costs and a big penalty. Collect a few checks of a few thousand bucks each from enough defendants, and presto! You’ve got a business.

The business model of Prenda Law Inc. seemed to put the capital “T” in “Troll.” The copyrights Prenda claimed to be defending covered pornographic movies, and that added a whole new layer of coercion to the process. Until U.S. District Judge Otis D. Wright II in Los Angeles sank his teeth into the matter, that is.

The Prenda saga already had everything a red-blooded legal observer might treasure: Pornography. Intimations of offshore money laundering. Alleged forgery and identity theft.

Then it got even stranger.

At a hearing last week, Wright asked several Prenda lawyers to explain their legal strategy in filing lawsuits accusing hundreds of Internet users of infringing porn movie copyrights by downloading the films from the Web.

Instead of answering, the lawyers pleaded the 5th Amendment.

“I’ve seen defendants invoke their right against self-incrimination,” says Morgan Pietz, a Manhattan Beach attorney who represents several defendants in the Prenda lawsuits. “In my experience, it’s unprecedented for a plaintiff’s lawyer to invoke the 5th when asked to explain the conduct of his litigation.”

Before we get into the question of why the Prenda folks dodged Wright’s questions, let’s stipulate that copyrights serve the important purpose of guaranteeing creative people and their heirs the exclusive right to profit from their work for a finite period, typically the life of the creator plus 70 years.

But critics of U.S. copyright law say the penalties are too steep (up to $150,000 per infringement) and the rules governing lawsuits too lax to accomplish their purpose fairly. It’s this combination of mass litigation and frightful financial consequences that has empowered the trolls, who prefer to squeeze defendants for quick out-of-court settlements rather than pursuing their claims in court.

The way to trolldom arguably was paved by the recording industry; around 2003 its trade group, the Recording Industry Assn. of America, started suing college students and other users of file-sharing programs to stop them from illicitly downloading music. But public objections to the lawsuits forced the RIAA to abandon the tactic a few years later.

“The RIAA stopped because suing their own customers was ruining their reputation,” observes Mitch Stoltz, a lawyer for the Electronic Frontier Foundation, which has helped fight trolling lawsuits, including Prenda’s, in court. “But the legal ground they established was picked up by people without reputations to protect.”

To the traditional trolling arsenal, Prenda added the threat that recalcitrant defendants — sued initially as “John Does,” but often identified by name by their cable company or other Internet service provider under threat of subpoena — would be exposed as slavering aficionados of pornography.

Prenda is not the only firm to exploit the porn angle, but its misfortune may be that its cases landed in Wright’s court. Wright had seen this strategy before, and plainly he’s got its number. In a ruling last year in a non-Prenda case he called it “essentially an extortion scheme.”

The plaintiffs, Wright said, gamble that “because of embarrassment, many Does will send back a nuisance-value check to the plaintiff. The cost to the plaintiff: a single filing fee, a bit of discovery, and stamps. The rewards: potentially hundreds of thousands of dollars.”

Indeed, as recently as last year, a Prenda attorney bragged about the value of this litigation strategy. John L. Steele, a onetime divorce attorney in Chicago, told Forbes that he had collected as much as $15 million settling such lawsuits. He claimed to be suing 20,000 defendants for downloading pornography, according to the Forbes report.

“People don’t like to get caught doing anything wrong,” he said, his smirk virtually leaping off the page and whacking you between the eyes. “They should be embarrassed about the stealing.”

Steele and other Prenda attorneys failed to return my calls seeking comment.

According to evidence presented in court, Prenda’s method was to collect Internet identification numbers — in technical jargon, “IP addresses” — of computers that might have been used to download pornographic movies for free. It then contacted owners of the Internet accounts serving those computers, accusing them of piracy and mentioning the $150,000 statutory penalty. The letters offered to make the case go away for a nominal fee — $4,000 was the price of silence offered to some Pietz clients.

Fail to pay, the letters stated, and the recipient’s name would go on a public document as the accused downloader of, say, “Anything for Daddy” (one of the few movie titles at issue that can be uttered in polite conversation).

A letter mailed to a Pietz client by Brett L. Gibbs, a Prenda lawyer in Northern California, demanded a response within two weeks. “I hope for both our sakes to hear from you,” Gibbs wrote, oh so sympathetically.

Prenda’s strategy began to unravel in Wright’s court shortly after Thanksgiving. That’s when Pietz submitted evidence that two production companies the firm supposedly represented as clients, Ingenuity 13 and AF Holdings, were shell companies Prenda lawyers set up on the West Indies island of Nevis, a notorious money-laundering haven.

Pietz suggested that the Prenda attorneys therefore concealed their direct interest in lawsuits they ostensibly brought on clients’ behalf, which violates court rules. Wright himself apparently believes that the movie firms are just fronts for the lawyers: “From what I know about this case, there is no difference at all” between the companies and Steele, he said in court April 2. (Wright, by the way, threw out a nuisance lawsuit filed against The Times last year.)

Pietz also raised questions about “Alan Cooper,” purportedly an officer of Ingenuity 13 and AF Holdings. He couldn’t find an executive named Alan Cooper. He did, however, find an Alan Cooper who was the unpaid caretaker of Steele’s cabin in rural Minnesota. That Cooper testified before Wright that Steele advised him one day to call him if anyone contacted him about Steele’s business. Cooper has also sued Steele, alleging that his name was used on the corporate documents without his knowledge.

As these suspicions multiplied, Prenda opted to shut down the questions by voluntarily dropping the lawsuits in Wright’s court. At that point the judge said, in effect, “Not so fast.”

Wright ordered Prenda’s Gibbs to explain the firm’s business model. Among other things, he was unhappy with Prenda’s method of selecting defendants for the lawsuits. The method boiled down to collecting Internet account numbers and “blindly picking” a “pubescent male in the house” of an Internet subscriber to sue as the purported pirate. That kind of “hunch” isn’t sufficient to form the basis of a lawsuit, he said, although he acknowledged that the expense of performing a genuine piracy investigation “would destroy Plaintiff’s business model.”

Furthermore, he observed, if Cooper’s identity really was misappropriated, then Gibbs and Prenda may have committed a “fraud on the court.”

Gibbs’ hearing took place March 11. By then there was more evidence about the shadiness of Ingenuity and AF, including a deposition given by Paul Hansmeier, whom Gibbs identified as a Prenda manager.

At the deposition, Wright fumed, “there was so much obstruction ... that it is obvious that someone has an awful lot to hide.”

When Gibbs’ own lawyer, Andrew Waxler, tried to claim that Ingenuity and AF were distinct from Prenda, Wright shot him down.

“Seriously?” he snapped. “You can hardly keep a straight face, can you?”

“No, your honor,” Waxler replied.

Wright hasn’t said what he’ll do about Prenda, but his options include asking federal prosecutors to investigate the firm, referring the lawyers to the state bars of California and other states for discipline, even disbarment, and imposing monetary sanctions.

More important, he’s drawn a line against the sort of mass lawsuits that have been the stock in trade of Prenda and other law firms. His actions may embolden his fellow jurists to take a closer look at these fishing expeditions and even goad Congress into fixing copyright law by aligning the penalties for infringement more closely with real-world losses. There’s a difference between commercial piracy and home downloading, but the law doesn’t fully recognize it.

Wright certainly has signaled his intention to shut down the abuses he’s seen in his own courtroom.

“This court’s focus has now shifted dramatically from the area of protecting intellectual property rights to attorney misconduct,” he said at last week’s hearing. Then he delivered an ominous warning to a lawyer for Steele: “If you say answering these kinds of questions would incriminate him, I’m inclined to take you at your word.”

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at [email protected], read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.