While most of our work at QuestionCopyright.org addresses artists and audiences, we’re also always on the lookout for good pieces intended for the legal and policy research communities. When lawyer Dirk Lasater asked if we’d be interested in publishing these excerpts from his article “Closing Pandora’s Box: Speculative Invoicing and Opportunism in File Sharing”, we jumped at the chance.
What Lasater describes below is moral hazard: the inevitable abuse of a system that is optimized for large-scale, monopolistic, predatory behavior. Of course, he is more circumspect in his language, as befits someone writing for a legal journal — but read the excerpts yourself and see if you can come to any other conclusion.
In his full journal article there is also a Proposed Remedies section, with some suggestions that ought to be uncontroversial: an amendment to the DMCA requiring a “statement that the complaining party has examined the purported infringement and believes in good faith that there is no potential fair use or exempt use, as defined by this Act, of the alleged infringer”, and, even more importantly, this amendment:
Unless otherwise provided, any person who threatens a lawsuit by mail, electronically, or in person; or any person who issues requests for pretrial settlement of infringement claims after obtaining a subpoena under this section and who knows, or should have known, that the alleged settlement was based on false statements or misrepresentations, including material omissions, shall be liable for any damages, including costs and attorneys’ fees incurred by the alleged infringer, and any damages including costs and attorneys’ fees of any service provider who is injured by such conduct as the result of the service provider relying upon such subpoena in removing or disabling access to the material or activity claimed to be infringing, or in disclosing the identity and private information of the alleged infringer. Treble damages shall be available in cases of willful or wanton disregard by the party obtaining the subpoena.
The idea that those who commit copyfraud should have to pay for the inconvenience they cause others is not new. What is new is the careful drafting Lasater brings to the proposed solution. He’s not just saying it would be a good idea to amend the law so there are penalties for copyfraud — many people say that. But Lasater actually drafts the amendment, and backs it up with the kind of legal analysis and history that one wishes went into all legislation.
Biography: Dirk Lasater is a practicing lawyer in Winston-Salem, NC with an interest in intellectual property issues. He is currently working in a temporary capacity as he looks for a permanent legal position in some area of commercial transactional or intellectual property law. Dirk received his bachelor’s degree in the Classics from the University of Florida and earned his Juris Doctor from the Wake Forest University School of Law in 2011. From 2010-2011, Dirk served as the Editor-in-Chief of the Wake Forest Journal of Business and Intellectual Property Law. He has published various blogs on copyright law and has also authored two academic articles, one of which focuses on the competing concurrent use of virtual trademarks on the internet, and the other on the practice of speculative invoicing, portions of which are reprinted on Questioncopyright.org. While in law school, Dirk interned at Novant Health, Inc., a regional health care system, and also volunteered for two years as the Assistant Director of the Wake Forest Innocence Project where he worked on actual innocence claims and reintegration of recently released prisoners.
These excerpts are part of a larger article, “Closing Pandora’s Box: Speculative Invoicing and Opportunism in File Sharing” from the Fall Issue, Volume 12-1, of the Wake Forest Journal of Business & Intellectual Property Law. The author and Question Copyright thank the Wake Forest Journal of Business and Intellectual Property Law for allowing these portions to be published here under a Creative Commons Attribution license.
The Pandora’s box of file sharing as it currently exists has found renewed presence in public consciousness over the course of the last five to ten years. While dormant through much of the late 2000s, the government and content owners have begun a full court press aimed at preventing the free sharing of movies and music on the internet. The most recent action against Rapidshare and the grass roots rejection of SOPA and PIPA have brought internet related issues back into vogue, and have directed attention to the speculative invoicing approach to copyright enforcement used quietly and persistently over the last five to ten years. Following Napster’s demise, internet technology has continued to advance, with file sharing use skyrocketing and enforcement regimes struggling to keep pace.i Historically, as content owners and the RIAA searched for ways to close Pandora’s box, they targeted file sharing websites such as Napster, Grokster, and Limewire, and, in tandem, sued individual end users.ii While the content industry has had some success on both of these fronts,iii resolution of the larger problem has not been realized, Pandora’s ‘evils’ are out of the box, and all efforts are beginning to look like a seemingly futile attempt to prevent online file sharing.iv
This struggle against consumers’ file sharing has culminated in the use of speculative invoicing, or ‘pay up or else’ schemes, which pit content owners against end users in pre-litigation disputes. Though these schemes create new opportunities for extra-judicial resolution of disputes, they also create significant opportunities for abuse. These processes and are currently being utilized on a grand scale by groups referred to as “copyright trolls” (“troll”).v Unlike the prototypical ‘content owners versus file sharer’ battle that has heretofore been pursued, this revived model brings a new third party to the bargaining table. As the audience here at Questioncopyright.org is generally versed in this practice, the larger explanation of this practice is omitted and can be found in the Part III of the larger article.vi
Specifically, the larger piece argues that the existing legal framework has created opportunities for abuse that—if many of new legal claims outlined in the article have merit—some trolls have been unable to resist, and that these abuses far exceed the schemes’ potential as a viable and just solution to the file sharing problem. Parts I-III of the larger article provide a history and explanation of peer-to-peer file sharing technology, a background of judicial treatment of these issues, and a granular explanation of the process of speculative invoicing. That background sets the stage for the proposed solutions in Part IV republished below, which consists of two different potential amendments to the Copyright Act that would reduce the abuse of speculative invoicing, while maintaining an avenue for the pursuit of valid, meritorious claims.
The first proposed Amendment creates a threshold level of due diligence regarding potential fair uses prior to sending a demand letter, and is extrapolated from other judicial decisions. The second proposed Amendment provides for substantial penalties in the event of knowing or negligent misrepresentation in a demand letter or the use of misleading coercion in the use of pre-trial settlement demands. The sum total of these Amendments would serve to maintain a private enforcement regime—necessary in light of governmental lethargy in this area—while simultaneously preventing the abuse that has allegedly occurred. However, recognizing that the proposed Amendment remedies are merely a short-term solution, Part V, also reprinted below, questions the compatibility of speculative invoicing with copyright law’s underlying goals and purposes, and makes some arguments in favor of systemic reform of copyright law more generally, an issue with which Questioncopyright.org is intimately familiar.
IV. Misalignment with Copyright Fundamentals
“Just at the time digital technology could unleash an extraordinary range of commercial and noncommercial creativity, the law burdens this creativity with insanely complex and vague rules and with threat of obscenely severe penalties.”1
Aside from the granular problems stated above, and recognizing that the proposed amendments would in fact add to the problem astutely noted in the quote above by Lawrence Lessig, there is a global, more systemic conflict at issue within the realm of copyright enforcement litigation deserving mention. The practice of copyright law has devolved to a model of pure profiteering, with vindication generally coming in the form of a quick and dirty pre-trial settlement. More fundamentally, the law itself necessitates the hiring of an expert to analyze and decipher its labyrinthine procedures and regulations. Panning out, and examining the forest, as opposed to the trees, it seems questionable how any of these specific styles of litigation serve copyright law’s fundamental goal of promoting the progress of science and the useful arts.2 This Part briefly analyzes the premises on which copyright law in America is based. It then questions whether the current copyright enforcement scheme and the use of speculative invoicing serve to incentivize authors to create, and whether or not the processes serve copyright law’s fundamental goals. It concludes with a preliminary recommendation for future amendment to the copyright regime and endorses in theory some manner of global reform.
Copyright law in America, as opposed to many other regimes, is premised on utilitarian notions.3 Whereas Europe, most notably France, considers copyright a moral right in the Lockean sense, inuring to the author upon creation and having inextricable ties to its creator,4 American copyright law is premised on the foundation that progress is achieved by allowing proprietary works to pass back into the public domain, thus allowing for greater access, resulting in greater eventual societal growth.5 This premise exists as a contract between the public and the creator, which confers a limited monopoly on the author, provided that the work passes to the public upon its termination.6 The public domain purpose is reflected not only in the copyright laws but also in the patent laws.7 It was no coincidence that these two provisions would be linked in the Constitution, as the intent underlying both principles, copyright and patent, is the same: America’s growth depends on creativity; creativity builds on earlier creativity, and there is nothing truly new under the sun.8 Thus, protection of intellectual property is a primary instrument for protecting creativity, but this is the by-product of a more fundamental goal; copyright law is predominantly a vessel for incentivizing creative and intellectual growth, with the eventual result being a rich and diverse public domain. Hence, the Constitution secures only for limited times to authors and inventors the right to exploit the value of their work.9 Eventually the public is to receive the fruits of this labor, to build and create upon ad infinitum. However, some have argued that the tide respecting this delicate balance has shifted imperceptibly to a culture of creators’ rights.10
Arguably, society has come to value the rights of authors and creators above all else, reflecting a moral or natural rights view,11 and resulting in complex laws and Sisyphean procedures for licensing and using others’ work.12 While copyright in its infancy only protected against republication of others’ works, it has evolved to encompass those who build upon or transform others’ works as well.13 Lawrence Lessig, in his seminal account of societal regression away from free culture in America argues: “[T]he law’s role is less and less to support creativity, and more and more to protect certain industries against competition.”14 Despite this innocuous yet pervasive shift away from copyright’s roots, the original tenants of copyright should still technically apply, and Congress should take the opportunity to force back the tide of “creatorism” washing on its shores.
The discussion above regarding pre-trial settlement provides a perfect example of this trend—the current wave of lawsuits outlined above seemingly do nothing to promote or protect the fundamental goals of copyright law. In the beginning, the RIAA could plausibly argue that its suits were pursued for two reasons: (1) to recoup its hemorrhagic losses seen in the 1990s, and (2) to deter future downloading, thus incentivizing creation.15 Since the RIAA was representing authors and creators, these goals were not entirely misaligned with those of copyright law generally. Thus, these suits were arguably defensible, although the damages the RIAA pursued were not compensatory, nor at their core incentivizing, but were actually punitive and opportunistic.16 The current regime however, is even more attenuated and less defensible under the American quid pro quo utilitarian model. Within the modern speculative invoicing scheme, copyright trolls in many instances own the copyrighted work, be it through purchase as in the newspaper article cases, or assignment, as in some movie and music scenarios. These trolls are not vindicating creators’ rights and the system is not rewarding or incentivizing creation by allowing these third parties to profit. This regime does not incentivize creation, nor does it promote the progress of science. If anything, these actions stifle creativity by deterring any author reasonably aware of copyright enforcement from creating something that could begin to encroach on an earlier work.17 This, in fact, prevents creation in the most sinister of ways: the instant an author rejects an idea or stops the creative process to concern herself with copyright laws and restrictions, the creative process has been forever changed, even if imperceptibly, and the end product will never be the same as it would have been without this abortive interference.
These lawsuits seek not to recoup costs so that authors and inventors—or even future authors and inventors—can continue to create and add to the cultural milieu; they instead relish a system that makes infringement enforcement profitable. Trolls cannot be blamed for the existing system; that dubious distinction lies with those in Congress who have shifted the focus of copyright law from utilitarian ideals to one of moral rights. From a purely economic standpoint, the end of infringement would be a negative result for the trolls discussed above. The net profit margin on these lawsuits is much higher than any standards that record or movies sales would net. One classic example was evidenced by the RIAA suits in 2003, where the RIAA sued four students for a combined total of $100 billion, which at the time, constituted six times the total profit of the film industry in 2001.18 Thus, this practice serves not to support and buttress copyright goals, but seeks to exploit gaps in the system which occur when underlying policy is distorted by conflicting positive rules drafted and lobbied by interested parties.
Therefore, Congress should reevaluate the current copyright regime as it stands, and recognize that Pandora has opened the box with regard to infringement on the Internet. The box is wide open, and the technological advancements that have emerged, including P2P technology and circumvention software, will continue to outpace enforcement regimes. As seen by file sharing websites like Napster, Grokster, Limewire, and The Pirate Bay, technology will continue to find new ways to provide free software, music, and movies on the Internet to an ever-increasing number of downloaders. Acknowledgment of this fact will catalyze evolving recognition that the current regime is incapable of accommodating this level of consumer access. The solution may be criminal enforcement against individual downloaders, and the current administration has indicated interest in pursuing IPR as a policy agenda.19 Further, the solution may lie in continuing to sue file sharing websites as they present, in a game of veritable “Whac-a-Mole.”20 An alternative solution may be to scratch the Copyright Act and start over, this time allowing consumer rights’ groups to have a seat at the negotiating table with the content owners who have traditionally drafted this legislation.21 No matter, the system should be adjusted to recognize the difference between an author and an assignee, and delimit the protection granted to each. This is not unprecedented, as seen with VARA.22 Congress should create a distinction between these two types of IP enforcers, and should definitively create law making the current regime of speculative invoicing, which is ethically questionable, conclusively prohibited.
In the short run, while suits against individuals and websites will likely continue, the rest of these proposed solutions are unlikely to occur anytime soon. As explained above, the political currents seem to be moving toward a more content/current creator focused direction, and are less concerned with the public domain, future creators, or end users. Thus, the proposed amendments to the Copyright Act listed above should be adopted to provide an intermediary, stop-gap remedy that could serve to protect consumers from false or improper claims in the interim. Further, Congress should recategorize the types of actors allowed to enforce copyright and define and delimit the parameters of this allowance to both support creators’ rights, and curtail assignee rights. In any case, Pandora’s Box will not be closing anytime soon, nor will the contents of the box ever be reclaimed; consumers have embraced the evils that have come forth, and have vowed to defend them and prevent their reclamation.
The current proliferation of speculative invoicing has illuminated a chasm between the legal theory and the actual practice of copyright enforcement. Not only do some of the copyright enforcers described above allegedly abuse the procedures outlined in the Copyright Act, this type of enforcement fundamentally distorts the purpose of copyright law and undermines the utilitarian goals on which the American system is premised. There are two solutions to these problems, stated above, one of which focuses on the short term and the other on the long term. In the short term, Congress could amend the Copyright Act again, requiring further diligence on the part of plaintiffs’ attorneys prior to the onset of litigation. Further, an amendment providing for severe penalties for improper techniques in pretrial settlement could make the current copyright enforcement scheme fair to both parties engaged in its system. The long-term solution is one debated heavily in all aspects of copyright scholarship; that of systemic reform. Copyright law’s purposes and goals as a utilitarian model are undermined and eroded by the current enforcement regime. Moral rights have innocuously invaded the legal and corporate consciousness, and legislation has begun to reflect this paradigm as persuaded by these lobbies.vii Congress must eventually confront the labyrinthine structure of the Copyright Act and its internal inconsistencies, otherwise conflicts like these outlined above will continue to manifest as the Act falls hopelessly behind the rapid technology curve. The Legislature should rethink the current regime and should create a new model, re-focusing on creativity, sharing, and the public domain.
Dirk Lasater’s full article can be read at “Closing Pandora’s Box: Speculative Invoicing and Opportunism in File Sharing” from the Fall Issue, Volume 12-1, of the Wake Forest Journal of Business & Intellectual Property Law. The author and Question Copyright thank the Wake Forest Journal of Business and Intellectual Property Law for allowing the above excerpts to be published here under a Creative Commons Attribution license.
[i] This proposition is evidenced in the Napster and Grokster line of decisions. See Dirk Lasater, Closing Pandora’s Box: Speculative Invoicing and Opportunism in File Sharing, WAKE FOREST J. B. & INTELL. PROP L., Part II.
[ii] See Justin Hughes, On the Logic of Suing One’s Customers and the Dilemma of Infringement-Based Business Models, 22 Cardozo Arts & Ent. L.J. 725, 727 – 728 (2005) (“Peer-to-peer technology blindsided the recording industry in 1999, and . . . . [t]he battle has been fought mainly in the courts, not in legislative and administrative agencies . . . . [T]he choices facing the music industry have still been the same: (a) surrender, (b) seek to enforce copyright norms against the technology and its business models, and/or (c) seek to enforce copyright norms against individual consumers—the individual P2P users offering and downloading music files.”).
[iii] See Lasater, supra Note 1 at Part II.
[iv] See RIAA v. The People: Five Years Later, ELEC. FRONTIER FOUND. 10 (Sept. 2008), https://www.eff.org/files/eff-riaa-whitepaper.pdf (“While it is hard to precisely measure the use of P2P and the amount of illegal file sharing in the U.S., one thing is clear: after more than 30,000 RIAA lawsuits, tens of millions of U.S. music fans continue to use P2P networks and other new technologies to share music.”).
[v] Similar to the patent regime, the term ‘troll’ has both a positive and negative connotation. Trolls are generally not content creators, but are merely hired guns or third-party assignees, and they seek to benefit by acquisition or exploitation of the rights creators hold. However, trolls serve in a positive light to provide enforcement in an area seemingly rife with derision. The term troll is used for ease of reference and commonality with the existing literature. See Joe Mullin, Is This the Birth of the Copyright Troll?, CORPORATE COUNSEL (ONLINE) (Aug. 13, 2010), available at http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202466627090. The two paradigmatic examples of these entities are Righthaven, which focuses on newspaper articles and blogs, and the U.S. Copyright Group (“USCG”), which targets movie downloading. See also Ryan Kearney, D.C.’s U.S. Copyright Group Takes Aim at 6,500 More BitTorrent Users, TBD ARTS (Feb. 9, 2011, 12:18 PM), http://www.tbd.com/blogs/tbd-arts/2011/02/d-c-s-u-s-copyright-group-takes-aim-at-6-500-more-bittorrent-users-8324.html; see generally WELCOME TO RIGHTHAVEN LAWSUITS, http://www.righthavenlawsuits.com (last visited May 20, 2011) (giving a pro-consumer account of the business).
[vi] Lasater, supra Note 1.
 Lawrence Lessig, Free Culture 19 (2004).
 U.S. Const. art. I § 8, cl. 8 (“The Congress shall have Power . . . [t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries . . . .”).
 See Jane C. Ginsburg, A Tale of Two Copyrights: Literary Property in Revolutionary France and America, 64 Tul. L. Rev. 991, 992 (1990) (“By contrast, [to the moral rights system in France] the U.S. Constitution’s copyright clause, echoing the English Statute of Anne, makes the public’s interest equal, if not superior, to the author’s. This clause authorizes the establishment of exclusive rights of authors as a means to maximize production of and access to intellectual creations.”); see also Twentieth Century Music Corp. v. Aiken, 422 U.S. 151, 154–55 (1975) (stating that the Copyright Act’s grant to the author is limited and delimited by exclusive rights. The author does not have an unlimited monopoly under her control merely by virtue of her being the author); see also Jessica Litman, The Public Domain, 39 Emory L.J. 965, 970 (1990) (explaining the public goods problem and the need for incentives to create). For an extended analysis of the Statute of Anne and the development of Copyright law in America, see Laura N. Gasaway, Copyright Basics: From Earliest Times to the Digital Age, 10 Wake Forest Intell. Prop. L.J. 241, 244 (2009) (“The grant of a limited monopoly to authors is predicated on the premise that the public benefits from the creative activities of the authors. The exclusive rights granted to the copyright owner are a necessary condition to the full realization of such creative activities.”).
 See, e.g., Ginsburg, supra note 215, at 991 (“French copyright law is said to enshrine the author: exclusive rights flow from one’s (preferred) status as a creator.”). For a theoretical underpinning of the moral right theory, see John Locke, Two Treatises of Government 305–06 (Peter Laslett ed., Cambridge Univ. Press 2d ed. 1967) (1690) ([E]very man has a property in his own person. . . . The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property.”). For a critique of this theory, compare Wendy J. Gordon, A Property Right in Self-Expression: Equality and Individualism in the Natural Law of Intellectual Property, 102 Yale L.J. 1533 (1993), with Justin Hughes, The Philosophy of Intellectual Property, 77 Geo. L.J. 287, 298–314 (1988).
 See L. Ray Patterson & Craig Joyce, Monopolizing the Law: The Scope of Copyright Protection for Law Reports and Statutory Compilations, 36 UCLA L. Rev. 719, 790 (“The limitation on Congress’s power to grant copyrights only ‘for limited Times’—in tandem with the denial of copyright to matter which, by its nature, is not the original expression of an ‘Author’—protects and continually enlarges the public domain, which is as significant to the cause of learning as the creation and distribution of new works.”); see also Gordon, supra note 216 at. n.236.
 See, e.g., Sony Co. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984) (“The monopoly privileges that Congress may authorize are neither unlimited nor primarily designed to provide a special private benefit. Rather, the limited grant is a means by which an important public purpose may be achieved. It is intended to motivate the creative activity of authors and inventors by the provision of a special reward, and to allow the public access to the products of their genius after the limited period of exclusive control has expired.”). But see Litman, supra note 215, at 1013–14 (arguing that the ‘quid pro quo’ justification of copyright law cannot explain the denial of protection for scenes a faire, neologisms, or the protection granted to facts in directories and catalogs).
 That both patents and copyrights exist for limited terms embodies the notion that protection is merely an incentivizing force and not one to reward authors exclusively. Contrast trademarks and trade secrets, which may exist in perpetuity so long as the statutory or common law factors and pre-requisites are met.
 See Litman, supra note 215, at 966 (“The process of authorship, however, is more equivocal than that romantic model admits. To say that every new work is in some sense based on the works that preceded it is such a truism that it has long been a cliché, invoked but not examined. But the very act of authorship in any medium is more akin to translation and recombination than it is to creating Aphrodite from the foam of the sea.”). For an interesting visual depiction of this theory, see Nina Paley, All Creative Work is Derivative (Minute Meme #2), QuestionCopyright.org (Feb. 9, 2011), http://questioncopyright.org/minute_memes/all_creative_work_is_derivative.
 U.S. Const. art. I, § 8, cl. 8.
 Lessig, supra note 213, at 18–19.
 See generally T. Robert Rehm, Jr., Navigating the Open Source Minefield: What’s a Business to Do?, 10 Wake Forest Intell. Prop. L.J. 289 (2010) (explaining the necessity for diligence in, and how a business is to draft, review, and prepare licensing agreements in the digital age).
 Lessig, supra note 213, at 19.
 See Swartout, supra note 29, at 502–05.
 See Elektra, supra note 182.
 Lessig, supra note 213, at 51.
 Prioritizing Resources and Organization for Intellectual Property Act of 2008 (“PRO-IP Act”), Pub. L. No. 110-403, 122 Stat. 4256–4280 Sect. 301 (2008) (created an IP Czar dedicated to intellectual property enforcement); Combating Online Infringement and Counterfeits Act S. 3804, 111th Cong. (2009–2010); PROTECT IP Act, S. 968, 112th Cong. (2011) (pending) available at http://leahy.senate.gov/imo/media/doc/BillText-PROTECTIPAct.pdf (last visited Sept. 19, 2011); see Anti-Counterfeiting Trade Agreement (Informal Predecisional / Deliberative Draft Oct. 2, 2010), available at http://www.international.gc.ca/trade-agreements-accords-commerciaux/assets/pdfs/Text_ACTA_02Oct2010-eng.pdf (last visited Aug. 20, 2011); see also ACTA Fact Sheet and Guide to Public Draft Text, Office of the United States Trade Representative, http://www.ustr.gov/about-us/press-office/fact-sheets/2010/acta-fact-sheet-and-guide-public-draft-text (last visited Aug. 20, 2011); see also Admin’s White Paper on Intell. Prop. Enforcement Legislative Recommendations (March 2011), available at http://www.whitehouse.gov/sites/default/files/ip_white_paper.pdf (last visited Aug. 20, 2011).
 Visual Artists Rights Act of 1990 (“VARA”), Pub. L. No. 101-650, tit. VI, 104 Stat. 5089, 5128–33 (1990) (codified at 17 U.S.C. § 106A (2006)) (providing rights of attribution and integrity specifically, and exclusively to authors of certain visual works only; this distinction borders on the recognition of moral rights in an author, which runs counter to the utilitarian notions of American copyright law, but makes a valid distinction with regard to who should be able to enforce a copyright).
[vii] See generally 17 U.S.C. § 512 (2006); see generally 17 U.S.C. § 1201 (2006).