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Home , Copyright, Copyright infringement, Copyright troll, Patent troll, Prenda Law

Focus on litigation/NPEs

On the origin of trolls The case of firm has been garnering attention in the US. Edwards Wildman’s Martin Kuppers and Glenn Pudelka discuss what it means for aggressive copyright litigation

t is likely that you have heard about At first blush when reading the United instances are much lower than what may trolls – the pejorative term for States’ 1976 , it appears a troll’s have been awarded, however, owing to the patent holders that do not market goods independent to sue does not exist, large number of such cases brought, the troll or services, but live off disputes relating since it is only the “owner” of rights granted will achieve economies of scale, especially to the they have hoarded. It was by copyright that is permitted to bring an since the costs and logistics of maintaining askedI several years ago, whether these entities action for infringement. The definition of several hundred infringement actions are are fact or – the answer as we now owner of copyright, however, recognises considerable. This is especially the case when know is, they are a fact, as recognised by the exclusive licensees as copyright owners. This attorneys’ fees and cost are considered and renewed attempt to pass the SHIELD Act in the change in the legal basis, since the Copyright that the party prevailing may be awarded such .1 Act, for being able to bring an action, costs under Section 505. It is however somewhat less likely that prima facie, makes perfect sense. So how does a troll use the above in you have heard about the ’s slightly Another additional feature introduced practice? In general, it follows a four step more shy relative, the . Such by the Copyright Act was the divisibility of process: entities thrive off obtaining limited copyright’s enumerated rights (including 1. Find a creator; interests in works in copyright and enforcing temporal, geographic or subject matter 2. Locate a copier/distributor; such against as many infringers as possible. subdivisions). The wording in section 201(d) 3. File an action; and As a rule, they do not engage in the creation, (2) states that, “[A]ny of the exclusive rights 4. Settle the claims. distribution or use of creative expression. comprised in a copyright, including any Quite fittingly perhaps, given the Statute subdivision of any of the rights” may be It is clear that the troll first has to woo a of Anne, it has been asserted that the first “transferred” and “owned separately”. copyright holder. This will usually be done sighting of a copyright troll was in .2 The restriction on this, however, is that such by identifying a rights holder that wishes to The troll in question, Harry Wall, had been divisibility can only extend to the rights enforce its rights, but lacks the time, facilities spotted feeding off the tastier provisions of the specifically enumerated in the Copyright and/or means of doing so. The absence of Dramatic Literary Act 1833 (3&4 Will. Act’s grant, meaning that a mere right to sue/ the usual outside law firm is presented as an IV, c. 15). His model was remarkably enforce is not sufficient.4 attractive proposition – a ‘mere’ transfer of similar to that of his descendants; he acquired The availability of statutory , ownership of certain rights allows the troll to powers of attorney from with a under section 504(c)(1), completes the proceed, at its own expense, with steps two view to enforcing their rights, and preyed conditions required for a troll to exist. Statutory to four above. on infringers by extracting licence fees and damages do away with the need to prove, for Next, once a representative catalogue of settlements, by means of threatening them example, lost profits, as part of an assessment works has been obtained, the troll will search with . of actual damages. for corresponding infringements. For the The two core elements of his business Not being a primary market actor in most part after the identification of such, the were thus: a) the right and ability to sue; and relation to expressions, whether by creation or specific rights (or parts thereof) are acquired b) the threat of statutory damages. In 1878, distribution, it is very unlikely that a troll will from the willing owner. This is made possible, the Royal Commission on Copyright heard have suffered any actual harm or lost profits as explained above. that there was concern that Wall from infringement. Just as importantly, the Since the modern troll’s business model is did not care for the works, but only pecuniary fixed amounts awarded per work infringed, as based on high-frequency digital infringement, recompense.3 the “considers just”, allow for potentially having been made an exclusive licensee, it In modern times, AF Holdings and related very large aggregation. has standing to commence action in Federal entities have recently brought the legitimacy of There are two bands of statutory court. Because it is not in the Troll’s interest to the evolved business concept of a non-creative damages. The first is between $750 – curb infringement, the usual pre-action steps, exploitative copyright holder to the attention $30,000 per infringement and the second including letters are typically of several US . Before examining this up to $150,000 where wilful infringement is not taken. The alleged infringer will be served closer, and making practical recommendations successfully established by a plaintiff. Many without prior notice. This compounds the for rights holders, it is worth examining what commentators have observed that the test effect the has, and leads on to the exactly sustains trolls. applied by the courts in respect of wilfulness is next step. The current business models of most trolls not a particularly strict one. Most of the infringers that face make use of (and indeed require) three things: The award per work rule allows for brought by trolls in federal court will shy away • Independent standing to sue; almost punitive damages, further proving from choosing to defend themselves, when • Divisibility of copyright (disaggregation); beneficial, in that settlements are thus greatly presented with an option to settle. The amount and facilitated, reducing time and cost.5 Naturally, of statutory damages awardable together with • Statutory damages provisions. the amounts received by in most the attorneys’ fees and costs, typically make a www.intellectualpropertymagazine.com June 2013 magazine 31 Focus on litigation/NPEs

defence unpalatable. Therefore, in most cases, in an improper execution and hence lack of , and Intellectual Property, “Patent Trolls: the troll will collect a non-negligible settlement standing to sue. This conduct was also to be Fact or Fiction?” (2006), 109th Congress, 2nd often in the low thousands soon after issuing considered vexatious. Sess. proceedings. This procedure is relatively The attorney for the plaintiffs was ordered 2. I. Alexander, “Neither Bolt nor Chain, Iron Safe lucrative when several hundred to show cause for his conduct and informed nor Private Watchman, Can Prevent the settle. that his conduct was punishable by , of Words”: The Birth of the Performing Right Having reviewed what has sustained a incarceration or other sanctions sufficient in Britain, in Privilege and Property: Essays on typical troll’s business and how such has typically to deter future misconduct. His failure to the , 321, 339 (Eds. Ronan operated (there are countless variations), it is appear would result in automatic imposition Deazley et al., 2010). now worth examining aspects relating to a of sanctions together with a warrant for 3. Royal Commission on Copyright: Minutes of contemporary specimen, as mentioned above. contempt. Evidence, London (1878), Friday, 21st July 1876, Several allegedly linked entities, AF Holdings Interestingly, the court initially declined to at [2092], available at http://copy.law.cam. and Ingenuity 13 (the plaintiffs), ‘clients’ of sanction plaintiffs, since the attorney appeared ac.uk/cam/tools/request/showRepresentation. Prenda Law were engaged in conduct similar to be closely related to, or have a fiduciary php?id=representation_uk_1878a&pagenumbe to that described above, occasioning at least interest in plaintiffs, and these were likely r=1_201&imagesize=middle (03 May 2013) 200 actions to be brought in federal courts. devoid of assets. 4. Note Silvers v Sony Pictures Entertainment, Inc., Federal courts have become increasingly It has been widely reported that in 402 F.3d 881 (9th Cir. 2005). aware of the practices of trolls, in particular appearing at the hearing the attorney for the 5. See M.A.Kuppers, ‘USA: Fading the ‘Green Pastel by the above named entities. Earlier this year, plaintiffs and others connected with Prenda Redness’ of Due Process in relation to Statutory District Judge Otis Wright II, the judge before Law invoked their right to non-incrimination.7 Copyright Damages’ [2012] 6 Computer Law whom some of the plaintiffs’ actions were This may in part have been responsible for Review International (CRi); M.A. Kuppers, brought, required the attorney (Of counsel the court’s greater reliance on its inherent ‘US by File “”: to Prenda Law) for AF Holdings and Ingenuity authority in issuing sanctions on 6 May Statutory Damage(s)’ [2010] 2 Computer Law 13 to appear to justify his alleged violations of 2013 of attorneys’ fees and costs, referral of Review International (CRi). Federal Rule of Civil Procedure 11(b)(3) (Rule attorneys to their respective bars, as well as 6. AF Holdings LLC v John Doe, Case No.2:12-cv- 11) (evidentiary support) and Local Rule 83-3 referrals to the local US Attorney and IRS. The 6636-ODW(JCx)(CD California 2013). (misconduct).6 court emphasised the greater appropriateness 7. EFF, James Tyre and Parker Higgnis, Copyright The judge held in connection with Rule of such sanctions, given insufficient findings Trolls Offer No Defense to Frustrated Federal 11 that the attorney had occasioned a lack to support, and likely avoidance of, monetary Judge, 02 April 2013, available at https://www. of reasonable investigation into: a) copyright sanctions. eff.org/deeplinks/2013/04/copyright-trolls-offer- infringement activity; and b) actual infringers’ Whereas the above is one example8 of the no-defense-frustrated-federal-judge (04 May identity. According to the court the proof of courts attempting to curb litigation brought 2013). infringement submitted, being a snapshot by trolls, it is worth highlighting the difference 8. See also LLC v Democratic observation of a BitTorrent , was between a troll, and other legitimate forms Underground LLC (D.Nev.,14 June 2011). insufficient to meet the test of copying – of enforcement business, which use ethical since if a download was not completed (or a and reputable means to enforce otherwise useable portion acquired), plaintiffs’ practically unenforceable rights. One such may be deemed frivolous for lacking factual example would be organisations that aid foundation. Moreover, naming the small or individuals (such as based on an IP address, name of BitTorrent photographers), which would have almost no client used, time of download and lack of other means of adequately proceeding against response by the subscriber was insufficient. The the unauthorised commercial exploitation of plaintiffs’ general deductive process that an their works. internet subscriber remaining silent to requests The above raises several action points for for information equates to a likelihood of a rights holders (or those advising such). member of the household being the actual When dealing with an enforcer: infringer, was not approved of by the court. • Carefully examine their credentials and The court instead recommended additional let them explain their business model (for steps to verify the identity of the infringer. example, do they use reputable attorneys); Martin Kuppers practices intellectual Importantly, the court expressed concern • Weigh up the cost and effort of directly in the London office of that, especially in cases where the subject using a reputable copyright attorney, Edwards Wildman. His practice focuses on of the works being infringed was x-rated in perhaps on an alternative fee basis; and copyright law, in which nature, it was highly likely that the accused • Only make exclusive assignments of rights, he has a number of years of experience. would immediately pay a settlement demand, and if unsure, seek specialist advice; and Glenn Pudelka is counsel in Edwards to avoid costs and prevent being named • Beware of negative publicity associated Wildman’s intellectual property publicly. with mass enforcement and seek advice in department in Boston. His practice Concerning the allegations of misconduct, handling this matter. focuses on various intellectual property the court among other things highlighted that issues (concentrating in the area of copyright), licensing and collaborations, Prenda Law may have tried to defraud the Footnotes and copyright litigation. Much of his 1. Saving High-Tech Innovators from Egregious court, given that an individual’s name/identity work is with media, and may have been misappropriated to facilitate Legal Disputes Act of 2013. See also Hearing technology companies. the underlying assignments of rights resulting before the Subcommittee on Courts, the

32 Intellectual Property magazine June 2013 www.intellectualpropertymagazine.com