Mar 28 | 2017

The Rise of Copyright Trolls

Unlike the well-known patent trolls, “copyright trolls” have received comparatively less attention in Congress and in the media. A copyright troll is a business with the principal purpose of enforcing copyrights for which it has only a limited ownership interest. The troll’s key motivation is not to make actual use of the work; rather, it is to threaten litigation to extort settlement money. These trolls operate across a wide range of industries – from pornographic films to stock images to publications – impacting thousands of consumers and businesses alike.

How did copyright trolls proliferate?

Modern U.S. copyright law creates two notable loopholes that trolls use to their advantage. The first is the move away from an indivisible set of exclusive copyright rights, which includes the right to publicly display or perform the work, and the right to make reproductions of the work, among other rights. Before the 1976 revision to the U.S. Copyright Act (“the Act”), a copyright holder was only permitted to transfer either all or none of its rights to other parties. A copyright holder could not, for example, transfer only its enforcement right. The Act, however, now allows for a copyright holder to transfer any of its rights to another party. The Act also considers the transferee of a right the “owner” of that right, which permits the transferee to file a lawsuit for copyright infringement. As a result, a copyright troll can sue third parties by obtaining the sole right to enforce a work from a copyright holder, and a number of businesses partner with these trolls so the trolls can do the dirty work.

The second loophole is the copyright troll’s ability to recover “statutory damages.” Statutory damages allow for an owner of a copyright to recover a fixed amount per work infringed, rather than prove actual damages. Under the Act, statutory damages range between $750 and $30,000 per work. If the plaintiff can prove that the infringement was “willful,” or intentional, then courts can raise this amount to $150,000 per work. Statutory damages make it easier to threaten or bully defendants into settling, since the monetary risk for fighting a lawsuit is far outweighed by the lesser risk of settling the case for a lower monetary amount.

Examples of copyright trolls: from Harry Wall to Prenda Law

Harry Wall is often credited as the world’s first known copyright troll. In early 19th century England, Wall obtained enforcement rights from musicians and extorted settlements from people who performed the musicians’ compositions by threatening lawsuits. The motivations of modern copyright trolls are not much different from Harry Wall’s, although the works exploited are far more technologically advanced.

Perhaps the most egregious example of the modern copyright troll is Prenda Law, referred to by one judge as the “porno-trolling collective.” Between 2011 and 2014, Prenda attorneys John Steele and Paul Hansmeier collected more than $6 million in fraudulent settlements from internet users by threatening to sue for copyright infringement.

Here is how Prenda Law operated: Steele and Hansmeier created sham production companies to purchase the enforcement rights to several pornographic films, some of which they filmed themselves. Rather than commercially distributing the films, Steele and Hansmeier instead uploaded them onto file-sharing websites to entice users to illegally download them. To uncover the users’ identities, the duo filed thousands of unsubstantiated lawsuits and obtained court permission to subpoena internet service providers for the users’ personal information. Armed with the users’ identities, Steele and Hansmeier sent letters and made phone calls to users threatening them with steep financial penalties and public shame unless they settled – usually for around $3,000. All along, Steele and Hansmeier concealed from courts that they allowed and authorized the copyright infringement.

Steele and Hansmeier’s scheme came to a crashing halt in December 2016, when the two were arrested and hit with an 18-count indictment that included charges of mail and wire fraud, perjury, and money laundering. On March 6, 2017, Steele pled guilty for his role in the extortion scheme. The indictment follows a 2013 sanctions ruling against the firm that alleged fraud and ethical violations.

Prenda Law is not the only troll-player out there. Malibu Media, the U.S. Copyright Group (“USCG”), and Righthaven are a handful of other active trolls. However, like Prenda Law, Righthaven has also fallen, although less dramatically than the Prenda lawyers. Nevertheless, despite the fall of Righthaven and Prenda Law, until Congress focuses its efforts on combating the trolls and potentially removing the loophole incentives that exist under U.S. copyright law, copyright trolls will continue to exploit the system. In the meantime, avoiding illegal downloading will keep one out of the troll’s path.

Leave a Reply

Your email address will not be published. Required fields are marked *