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`
`In the
`United States Court of Appeals
`For the Eighth Circuit
`
`No. 19-2386
`
`UNITED STATES OF AMERICA,
`
`Plaintiff-Appellee,
`
`v.
`
`PAUL R. HANSMEIER,
`
`Defendant-Appellant.
`
`Appeal from the United States District Court
`for the District of Minnesota
`
`BRIEF OF APPELLANT
`
`Andrew H. Mohring
`Assistant Federal Public Defender
`
`Eric Riensche
`Assistant Federal Public Defender
`
`District of Minnesota
`U.S. Courthouse, Suite 107
`300 South Fourth Street
`Minneapolis, MN 55415
`(612) 664-5858
`
`Counsel for Defendant-Appellant
`
`
`Appellate Case: 19-2386 Page: 1 Date Filed: 10/15/2019 Entry ID: 4841473
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`
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`SUMMARY OF THE CASE
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`This case involves a theory of criminal liability under the federal mail-wire
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`fraud statutes, as troubling as it is novel. The defendant was a lawyer who
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`engaged in a number of litigation strategies to root out copyright infringement
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`that occurs on computer file-sharing networks. As relevant here, the defendant:
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`(1) uploaded copyright-protected movies to the file-sharing network; (2) made
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`omissions or
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`falsehoods
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`to access discovery mechanisms
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`to
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`identify
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`downloaders; and (3) directed settlement proposal letters to these downloaders.
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`The government does not deny that most if not all of the letter recipients
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`did in fact download the movies at issue. Hence, the downloaders committed
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`an actionable violation of federal copyright law, and paid a civil settlement based
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`upon the accurate content of settlement proposal letters. The defendant directed
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`falsehoods and omissions to courts, but this was done to access discovery
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`mechanisms to identify unlawful downloaders. This abused legal processes, but
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`it did not alter the fact of the downloaders’ unlawful actions, and did not affect
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`the essentials of the civil settlement bargain.
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`The prosecution theory at hand thus runs afoul of mail-wire fraud limiting
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`principles. It threatens to chill the process of civil litigation. This appeal raises
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`complex and important issues of law. Appellant requests oral argument, and 15
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`minutes per side.
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`i
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`Appellate Case: 19-2386 Page: 2 Date Filed: 10/15/2019 Entry ID: 4841473
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`
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`TABLE OF CONTENTS
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`Page
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`SUMMARY OF THE CASE ........................................................................ i
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`TABLE OF AUTHORITIES ..................................................................... vii
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`TABLE OF CITATIONS ......................................................................... xiii
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`JURISDICTIONAL STATEMENT ............................................................. 1
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`STATEMENT OF THE ISSUES ................................................................. 2
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`STATEMENT OF THE CASE .................................................................... 4
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`A. Computer file-sharing networks & copyright law .................................. 5
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`B. The professional legal services entities.................................................. 6
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`
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`1.
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`Steele Hansmeier PLLC ............................................................. 6
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`2.
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`Prenda Law ............................................................................... 7
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`3. Alpha Law ................................................................................ 8
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`C. Copyright-holder clients ...................................................................... 8
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`1. Movie production companies ..................................................... 8
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`2. Copyright enforcement entities ................................................... 8
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`ii
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`D. Copyright litigation strategies .............................................................. 9
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`
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`1.
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`Investigating cyber-infringement ............................................... 10
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`2. Uploading copyright-protected files .......................................... 11
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`3. Creating copyright-protected movies ......................................... 11
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`4. Concealing information from courts to access discovery ............ 12
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`5.
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`False “hacking” claims ............................................................. 13
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`E.
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`Settlement proposal communications ................................................. 14
`
`F.
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`Judicial scrutiny ................................................................................ 16
`
`G. Criminal proceedings below .............................................................. 17
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`
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`
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`1.
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`Plea agreements ....................................................................... 18
`
`2. Restitution ............................................................................... 18
`
`3.
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`Sentencing ............................................................................... 21
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`
`
`iii
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`Appellate Case: 19-2386 Page: 4 Date Filed: 10/15/2019 Entry ID: 4841473
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`
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`SUMMARY OF THE ARGUMENT ......................................................... 23
`
`ARGUMENT ........................................................................................... 24
`
`I.
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`
`.
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`
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`The facts that are alleged or undisputed fall beyond the scope
`of a scheme to obtain “money or property by means of false
`or fraudulent pretenses, representations, or promises” ........................ 24
`
`A. Standard of review ................................................................... 24
`
`B. Federal mail-wire fraud statutes ................................................ 26
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`1. Materiality ..................................................................... 27
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`2. Essentials of bargain ....................................................... 27
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`3. Recognized property right ............................................... 29
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`C. Particularized theory of mail-wire fraud .................................... 30
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`1. Uploading digital files of copyright-protected works ......... 30
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`
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`(a). Exclusive rights of copyright holder ........................ 31
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`(b). “Authorized” usage ............................................... 35
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`2.
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`Falsehoods for purpose of accessing civil discovery .......... 38
`
`
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`
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`(a). Downloader-identification techniques .................... 38
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`(b). Civil defendant identification actions ...................... 41
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`iv
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`(c). Civil litigation activities at issue ............................. 42
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`(i). Copyright holder self-uploading .................... 42
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`(ii). Creation of protected work ............................ 42
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`(iii). Omissions to discovery-authorizing courts ..... 43
`
`(iv). Baseless computer-hacking lawsuits and
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`other abuses of legal process .......................... 47
`
`3.
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`Sending settlement proposal letters to downloaders .......... 51
`
`
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`
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`(a). Content of settlement proposal letters ..................... 52
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`(b). Accuracy of settlement proposal letters ................... 53
`
`D. Ancillary considerations ........................................................... 55
`
`
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`
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`1.
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`Theory viewed as a whole ............................................... 56
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`2. Theory viewed as component parts .................................. 57
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`3. Criminalization of civil litigation ..................................... 57
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`II. The restitution award fails to reflect the “actual,
`
`provable loss caused by the offense” of conviction .............................. 59
`
`
`A. Standard of review ................................................................... 59
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`B. Actual and provable loss .......................................................... 60
`
`CONCLUSION......................................................................................... 63
`
`Certificate of Compliance
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`Certificate of Service
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`v
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`Appellate Case: 19-2386 Page: 6 Date Filed: 10/15/2019 Entry ID: 4841473
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`
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`ADDENDUM—
`
`A. Sentencing Judgment .............................................................. Def. Add. A
`
`B. Report and Recommendation ................................................... Def. Add. B
`
`C. Order Adopting Report and Recommendation ......................... Def. Add. C
`
`D. Plea Agreement ...................................................................... Def. Add. D
`
`E. Exemplar Settlement Proposal Letter ........................................ Def. Add. E
`
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`vi
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`Appellate Case: 19-2386 Page: 7 Date Filed: 10/15/2019 Entry ID: 4841473
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`
`
`TABLE OF AUTHORITIES
`
`
`Page
`
`Cases
`
`Capitol Records, Inc. v. Thomas-Rassett,
`692 F.3d 899 (8th Cir. 2012) ................................................... 31, 32, 40
`
`
`Cleveland v. United States,
`531 U.S. 12 (2000) ................................................................. 29, 45, 60
`
`
`Digital Sin, Inc. v. Does 1-176,
`279 F.R.D. 239 (S.D.N.Y. 2012) ....................................................... 41
`
`
`ELargo Holdings, LLC v. Doe-68.105.146.38,
`318 F.R.D. 58 (M.D. La. 2016) .................................................... 39, 41
`
`
`Feist Pubs., Inc. v. Rural Tel. Serv. Co.,
`499 U.S. 340 (1991) ..................................................................... 32, 36
`
`
`Guava LLC v. Merkel,
`
`No. A13-2064, 2014 WL 3800492 (Aug. 4, 2014) ............................... 49
`
`In re Hansmeier,
`884 N.W.2d 863 (Minn. 2016) ........................................................... 49
`
`
`In re Hansmeier,
`No. 15-4460 (Bankr. D. Minn.) .......................................................... 49
`
`
`I.S. Joseph Co. v. J. Lauritzen A/S,
`
`751 F.2d 265 (8th Cir. 1984) .............................................................. 57
`
`Killer Joe Nevada, LLC v. Does 1-20,
`807 F.3d 908 (8th Cir. 2015) ................................................ 5, 39, 40, 41
`
`
`Malibu Media, LLC v. John Doe,
`No. 13-3648, 2014 WL 2581168 (N.D. Ill. June 9, 2014) ............... 33, 36
`
`
`Malibu Media v. Thal,
`
`No. 15-11808, 2016 WL 7240764 (N.D. Ill. Dec. 15, 2016) ............ 33, 36
`
`vii
`
`
`Appellate Case: 19-2386 Page: 8 Date Filed: 10/15/2019 Entry ID: 4841473
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`
`
`
`McNally v. United States,
`
`483 U.S. 350 (1987) .......................................................................... 29
`
`Neder v. United States,
`527 U.S. 1 (1999) ................................................................ 2, 27, 28, 45
`
`
`Olan Mills, Inc. v. Linn Photo Co.,
`23 F.3d 1345 (8th Cir. 1994) .............................................................. 36
`
`
`Oliver v. Johanson,
`357 F.Supp.3d 758 (W.D. Ark. 2018)................................................... 3
`
`
`Pasquantino v. United States,
`544 U.S. 349 (2005) .......................................................................... 26
`
`
`Skilling v. United States,
`561 U.S. 358 (2010) .......................................................................... 29
`
`
`Stewart v. Abend,
`495 U.S. 207 (1990) .......................................................................... 31
`
`
`Strike 3 Holdings, LLC v. Doe,
`330 F.R.D. 552 (D. Minn. 2019) .......................................................... 5
`
`
`United States v. Contreras,
`853 (5th Cir. 2018) ............................................................................ 40
`
`
`United States v. Flute,
`929 F.3d 584 (8th Cir. 2019) .............................................................. 25
`
`
`United States v. Fonseca,
`
`790 F.3d 852 (8th Cir. 2015) ........................................................... 3, 60
`
`United States v. Frazier,
`
`651 F.3d 899 (8th Cir. 2011) ........................................................... 3, 60
`
`United States v. Goodner Bros.,
`966 F.2d 380 (8th Cir. 1992) .............................................................. 57
`
`
`viii
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`Appellate Case: 19-2386 Page: 9 Date Filed: 10/15/2019 Entry ID: 4841473
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`
`
`
`United States v. Heppner,
`519 F.3d 744 (8th Cir. 2008) ................................................... 27, 28, 45
`
`
`United States v. Marrowbone,
`102 F.Supp.3d 1101 (D.S.D. 2015) .................................................... 25
`
`
`United States v. Robinson,
`
`781 F.3d 453 (8th Cir. 2015) .............................................................. 60
`
`United States v. Shellef,
`507 F.3d 82 (2d Cir. 2007) ................................................... 2, 27, 28, 46
`
`
`United States v. Steffen,
`687 F.3d 1104 (8th Cir. 2012) .......................................... 2, 4, 25, 26, 29
`
`
`United States v. Takhalov,
`827 F.3d 1307 (11th Cir. 2016) ............................................... 27, 28, 46
`
`
`United States v. Willis,
`844 F.3d 155 (3d Cir. 2016) ............................................................... 25
`
`
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`ix
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`Appellate Case: 19-2386 Page: 10 Date Filed: 10/15/2019 Entry ID: 4841473
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`
`
`Statutes
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`17 U.S.C. § 106 .......................................................................................... 31
`
`17 U.S.C. § 501 .......................................................................................... 32
`
`18 U.S.C. § 1341 ..................................................................................... 4, 26
`
`18 U.S.C. § 1346 ........................................................................................ 29
`
`18 U.S.C. § 1349 ........................................................................................ 17
`
`18 U.S.C. § 3231 .......................................................................................... 1
`
`18 U.S.C. § 3663A ............................................................................ 3, 59, 60
`
`18 U.S.C. § 3742 .......................................................................................... 1
`
`28 U.S.C. § 1291 .......................................................................................... 1
`
`Copyright Act of 1976,
`
`Pub. L. 94-553 (1976) ........................................................................ 31
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`Mandatory Victims Restitution Act,
`
`Pub. L. 104-132 (1996) ................................................................... 3, 59
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`x
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`Appellate Case: 19-2386 Page: 11 Date Filed: 10/15/2019 Entry ID: 4841473
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`
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`Sentencing Guidelines
`
`USSG § 2B1.1 ....................................................................................... 21, 57
`
`
`Rules
`
`FRAP 4 ....................................................................................................... 1
`
`FRCivP 26 ............................................................................................ 41, 45
`
`FRCivP 30 ................................................................................................. 41
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`FRCivP 45 ................................................................................................. 41
`
`FRCrP 11 ......................................................................................... 1, 18, 24
`
`FRCrP 12 ......................................................................................... 4, 24, 25
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`FRCrP 51 ............................................................................................. 25, 60
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`MRPC 3.3 ................................................................................................. 44
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`
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`xi
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`Appellate Case: 19-2386 Page: 12 Date Filed: 10/15/2019 Entry ID: 4841473
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`
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`Other
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` 2
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` 3
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` 4
`
` Orfield’s Criminal Procedure Under Federal Rules § 12:115 (Westlaw 2019) ...... 25
`
` Nimmer on Copyright § 10.03 (Lexis ed. 2019) ............................................ 35
`
` Nimmer on Copyright § 13.01 (Lexis ed. 2019) ............................................ 37
`
`
`8A Wright & Miller,
`
`Federal Practice & Procedure § 2046.1 (Westlaw 3d ed. 2019) .................. 41
`
`Ben Depoorter,
`
`Copyright Enforcement in the Digital Age: When the Remedy is Wrong,
`
`66 UCLA L. Rev. 400 (2019) ............................................................... 9
`
`Black’s Law Dictionary (10th ed. 2014) ....................................................... 9, 14
`
`Raymond J. Dowd,
`
`Copyright Litigation Handbook § 7:26 (Westlaw 2d ed. 2018) ................. 39
`
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`xii
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`Appellate Case: 19-2386 Page: 13 Date Filed: 10/15/2019 Entry ID: 4841473
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`
`
`TABLE OF CITATIONS
`
`
`Description
`
`Abbreviation
`
`COPT ..................................... Change-of-Plea Hearing Transcript (DCD 107)
`
`DCD ............................ District Court Docket Entry (D. Minn. No. 16-cr-334)
`
`Def. Add. .....................................Addendum to Brief of Defendant-Appellant
`
`FRAP .................................................... Federal Rules of Appellate Procedure
`
`FRCivP ........................................................ Federal Rules of Civil Procedure
`
`FRCrP .................................................... Federal Rules of Criminal Procedure
`
`MRPC ................................................... Model Rules of Professional Conduct
`
`PMHT ..................................... Pretrial Motions Hearing Transcript (DCD 65)
`
`PSR ..............................................................Presentence Investigation Report
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`R&R ................................................ Report and Recommendation (DCD 66)
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`SHT .............................................. Sentencing Hearing Transcript (DCD 147)
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`
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`xiii
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`Appellate Case: 19-2386 Page: 14 Date Filed: 10/15/2019 Entry ID: 4841473
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`
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`JURISDICTIONAL STATEMENT
`
`Defendant-Appellant Paul Hansmeier was charged by indictment filed in
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`United States District Court for the District of Minnesota, No. 16-cr-334 (D.
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`Minn.). (DCD 1). Crimes against the United States were alleged, thereby
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`invoking the district court’s original jurisdiction. 18 U.S.C. § 3231.
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`The Honorable Kate M. Menendez, United States Magistrate Judge,
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`presided at the pretrial motions proceedings and issued a report and
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`recommendation (R&R) suggesting denial of Mr. Hansmeier’s pretrial motion
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`to dismiss. (DCD 65, 66). The Honorable Joan N. Ericksen, United States
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`District Judge, presided at all other proceedings relevant to this appeal, including
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`adopting the R&R, (DCD 76), change-of-plea hearing, (DCD 102), and
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`sentencing, (DCD 135).
`
`Mr. Hansmeier resolved the charges with a conditional plea under FRCrP
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`11(a)(2)—permitting him to challenge the issues presented here. (DCD 102 &
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`103).
`
`After sentencing proceedings, (DCD 126-35), the district court entered a
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`judgment on June 17, 2019, (DCD 136). Mr. Hansmeier filed his notice of
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`appeal on June 26, (DCD 149), which was timely under FRAP 4(b). This Court
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`has jurisdiction to decide the present appeal under 28 U.S.C. § 1291 and 18
`
`U.S.C. § 3742.
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`
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`Appellate Case: 19-2386 Page: 15 Date Filed: 10/15/2019 Entry ID: 4841473
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`1
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`
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`STATEMENT OF THE ISSUES
`
`I.
`
`Defendant-Appellant was a lawyer charged under the mail-wire fraud statutes
`for having instituted purported “fraudulent copyright infringement lawsuits,” a
`suggested legal conclusion that was based upon a tri-pronged legal theory:
`
`(1). He caused copyright-protected digital files to be uploaded to a
`computer file-sharing network.
`
`(2). He made misrepresentations or material omissions to judicial
`officers for the purpose of gaining access to court-authorized
`discovery mechanisms, to identify downloaders of the above digital
`files.
`
`(3). He sent settlement proposal letters to apparent downloaders,
`who would oftentimes respond by paying the proposed settlement
`amount rather than risk civil litigation.
`
`Do these factual allegations constitute a legally viable theory of “obtaining
`money or property by means of false or fraudulent pretenses, representations, or
`promises” within the meaning of the mail-wire fraud statutes?
`
`Most apposite authorities speaking to the issue—
`
`Neder v. United States, 527 U.S. 1 (1999)
`United States v. Steffen, 687 F.3d 1104 (8th Cir. 2012)
`United States v. Shellef, 507 F.3d 82 (2d Cir. 2007)
`
`
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`2
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`II.
`
`The district court made a restitution award to users of a file-sharing network in
`excess of $1.5 million, for payments made by downloaders in response to
`settlement proposal letters referenced earlier. The government conceded that it
`was unable to determine which settlement payments stemmed from “legitimate”
`lawsuits, and which stemmed from “illegitimate” lawsuits. Is this a sufficient
`showing of “actual, provable loss caused by the offense” as required under the
`Mandatory Victims Restitution Act?
`
`Most apposite authorities speaking to the issue—
`
`18 U.S.C. § 3663A
`United States v. Frazier, 651 F.3d 899 (8th Cir. 2011)
`United States v. Fonseca, 790 F.3d 852 (8th Cir. 2015)
`
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`3
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`Appellate Case: 19-2386 Page: 17 Date Filed: 10/15/2019 Entry ID: 4841473
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`STATEMENT OF THE CASE1
`
`
`
`This criminal appeal addresses a novel legal theory advanced by the
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`government under the federal mail fraud and wire fraud statutes, 18 U.S.C. §
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`1341 & § 1343 (mail-wire fraud theory). If the propounded legal theory is
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`deemed nonviable as a matter of law, then the charging document has failed to
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`state an offense, and all counts reliant upon that defective theory must be
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`dismissed. See FRCrP 12(b)(3)(B)(v) & United States v. Steffen, 687 F.3d 1104,
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`1113-17 (8th Cir. 2012). Under the applicable legal standard, see infra Argument
`
`§ I.A, the pertinent background information is to be gleaned from the charging
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`document (DCD 1), as well as relevant undisputed facts recited in the plea
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`agreement (DCD 103) and other sources.
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`Taken together, the relevant papers tell the following story from the
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`government’s point of view—
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`1 Abbreviations contained with parenthetical citations to the record and select
`abbreviations denoting legal authorities are described in the Table of Citations.
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`Appellate Case: 19-2386 Page: 18 Date Filed: 10/15/2019 Entry ID: 4841473
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`4
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`
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`A. Computer file-sharing networks & copyright law
`
`
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`In our present age of cyberspace, there exists a loosely affiliated group of
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`computer users who swap digital files via an interconnected computer network
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`or “protocol” called BitTorrent.2 (DCD 1 at 3-4). As the charging document
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`says, the purpose of this network is to “allow users to share movies or other
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`copyrighted files with one another without paying any fees to the copyright
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`holder.” (DCD 1 at 3, ¶ 6).
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`The indictment contains technical details about how this activity is
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`accomplished, but the gist is that an individual computer user who connects to
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`the BitTorrent network “uploads” a digital file containing a copyright-protected
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`work. (DCD 1 at 3-4, ¶ 7). Other network users will then have the option to
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`“download” the copyright-protected file onto their own machines. (DCD 1 at
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`3-4, ¶ 7). In this way, BitTorrent users are able to procure and distribute an
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`unlimited quantum of copyright-protected works, easily and anonymously. (See
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`DCD 1 at 3-4).
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`And though the indictment makes no mention of the fact, the above-
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`described activity is plainly unlawful under federal copyright law. See infra
`
`
`2 This Court—and many others in this circuit—have previously adjudicated
`cases involving unlawful file-sharing activity via the BitTorrent network. See,
`e.g., Killer Joe Nevada, LLC v. Does 1-20, 807 F.3d 908, 910-11 & n.2 (8th Cir. 2015)
`& Strike 3 Holdings, LLC v. Doe, 330 F.R.D. 552, 553-54 (D. Minn. 2019).
`
`
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`Appellate Case: 19-2386 Page: 19 Date Filed: 10/15/2019 Entry ID: 4841473
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`5
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`
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`Argument § I.C. Participants are subject to liability—civil and criminal—under
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`federal law. See infra Argument § I.C.
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`B. The professional legal services entities
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`
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`Defendant-Appellant Mr. Hansmeier and his co-defendant John Steele
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`were licensed attorneys. (DCD 1 at 2, ¶¶ 2 & 3). Beginning in approximately
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`2010, the pair formed or controlled professional services entities—law firms—
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`“to bring copyright infringement lawsuits” and “collect settlements” against
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`certain BitTorrent users engaged in the above-referenced unlawful file-sharing
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`activities. (DCD 1 at 4-5, ¶¶ 8-10). The law firms at issue were as follows:
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`1.
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`Steele Hansmeier PLLC
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`The defendants were the principals of Steele Hansmeier PLLC. (PSR at
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`2, ¶ 7). Beginning in approximately September 2010, the pair operated Steele
`
`Hansmeier with an aim to “represent[] individuals and entities that owned
`
`copyrights to pornographic movies.” (DCD 103 at 2, ¶ 3). The principal
`
`litigation strategy pursued may be succinctly described as follows—
`
`Defendants and their agents monitored file-sharing websites and
`obtained IP Addresses of individuals who downloaded or attempted
`to download their clients’ movies. Defendants then filed copyright
`infringement
`lawsuits against
`these anonymous
`individuals,
`sometimes referred to as “John Does,” and sought authority from
`the court—often referred to as “early discovery”—to subpoena
`internet service providers for subscriber information associated with
`the IP Addresses.
`
`
`
`
`
`Appellate Case: 19-2386 Page: 20 Date Filed: 10/15/2019 Entry ID: 4841473
`
`6
`
`
`
`After receiving the subscriber information, defendants made phone
`calls and sent letters to the subscribers associated with targeted IP
`Addresses in which they offered to resolve the lawsuit, and refrain
`from publicly naming the subscriber in the lawsuit, in exchange for
`a settlement payment of approximately $3,000. Many of the
`individuals who received the defendants’ letters and phone calls
`agreed to pay the settlement.
`
`(DCD 103 at 2-3, ¶ 3).
`
`As will be shown later on, the above-described civil litigation stratagem is
`
`lawful, and has become commonplace in the current legal environment. See infra
`
`Argument § I.C. The defendants engaged in other litigation tactics as well, but
`
`before exploring those topics further the remaining business entities should be
`
`introduced.
`
`2. Prenda Law
`
`In approximately November 2011, a lawyer named Paul Duffy formed an
`
`Illinois law firm called Prenda Law, Inc. (PSR at 5, ¶ 19). Though Mr. Duffy
`
`was the named principal of the firm, Mr. Hansmeier and Mr. Steele “exerted de
`
`facto control over Prenda Law.” (DCD 103 at 3-4). Prenda Law brought
`
`copyright infringement actions in the same manner as described above. (PSR at
`
`5, ¶ 19).
`
`
`
`
`
`
`
`
`
`Appellate Case: 19-2386 Page: 21 Date Filed: 10/15/2019 Entry ID: 4841473
`
`7
`
`
`
`3. Alpha Law
`
`Mr. Hansmeier formed another law firm called Alpha Law LLC to
`
`operate in Minnesota. (See PSR at 7). Once again, the main practice area was
`
`civil copyright law. (See PSR at 7).
`
`These law firms supplied professional services to copyright-holder clients,
`
`detailed next.
`
`C. Copyright-holder clients
`
`
`
`The aforementioned law firms brought civil actions and undertook other
`
`litigation strategies on behalf of clients, including:
`
`
`
`
`
`1. Movie production companies
`
`In the initial stages of copyright infringement litigation at issue here, Mr.
`
`Hansmeier and Mr. Steele represented movie production companies. (DCD 1
`
`at 9, ¶ 18). These companies created “pornographic” movies, and successfully
`
`obtained federal copyright protection over those same works. (DCD 1 at 9, ¶
`
`18).
`
`
`
`
`
`2. Copyright enforcement entities
`
`Later, the defendants formed business entities under their own control, for
`
`the purpose of policing copyright infringement occurring via computer file-
`
`sharing networks like BitTorrent. (DCD 1 at 13-14, ¶ 26). These copyright
`
`
`
`Appellate Case: 19-2386 Page: 22 Date Filed: 10/15/2019 Entry ID: 4841473
`
`8
`
`
`
`enforcement entities included: (a) AF Holdings LLC; and (b) Ingenuity 13 LLC.
`
`(DCD 1 at 13-14, ¶ 26).3
`
`These same entities obtained the rights to copyright-protected movies.
`
`(See, e.g., DCD 1 at 13-14). For example, in some cases a movie production
`
`company would transfer copyright-protection rights to the enforcement entity.
`
`(DCD 1 at 13, ¶ 26; PSR at 5, ¶ 17). In other cases, the defendants and their
`
`associates produced original movies, obtained copyright protections over those
`
`movies, and granted the rights to one of these enforcement entities. (DCD 1 at
`
`15, ¶ 27; PSR at 5, ¶ 21).
`
`D. Copyright litigation strategies
`
`
`
`Mr. Hansmeier and Mr. Steele—acting through the above law firms and
`
`representing one of the above copyright-holder clients—engaged in a number of
`
`civil litigation strategies, including:
`
`
`3 In conclusory fashion, the charging document and other papers label these and
`other business entities formed by the defendants as “sham entities.” (DCD 1 at
`13, ¶ 26). The term “sham” is typically defined as a “false pretense” or
`“something that is not what it seems.” Black’s Law Dictionary at 1585 (10th ed.
`2014). By the government’s own telling, the above entities obtained valid rights
`to copyright-protected works and enforced those rights via civil litigation. (DCD
`1 at 13-14). This is a legitimate—albeit perhaps unpopular—business model.
`See, e.g., Ben Depoorter, Copyright Enforcement in the Digital Age: When the Remedy
`is Wrong, 66 UCLA L. Rev. 400, 402 (2019). Hence, the above-referenced
`entities cannot be accurately characterized as “sham entities” at least insofar as
`the entities held valid copyrights covering particular works, and brought civil
`enforcement actions on that ground. See id.
`
`
`
`Appellate Case: 19-2386 Page: 23 Date Filed: 10/15/2019 Entry ID: 4841473
`
`9
`
`
`
`
`
`
`
`1.
`
`Investigating cyber-infringement
`
`As described earlier, the defendants engaged in what is a commonplace
`
`and conventional civil litigation strategy employed to identify individuals
`
`engaged in unlawful copyright infringement via the BitTorrent file-sharing
`
`system. (See, e.g., DCD 103 at 2-3). Even the government has conceded that at
`
`least some of these were “legitimate” lawsuits. (SHT at 30-31).
`
`The defendants monitored the anonymized file-sharing network to
`
`discover the “IP address” (or “IPA”) used to download a given client-copyright-
`
`protected file, in the following manner:
`
`(a). Arrange for private investigators to “monitor[] file sharing websites
`
`and obtain[] IP Addresses of individuals who downloaded or attempted to
`
`download” files which constituted the protected works of their copyright-holder
`
`client(s). (DCD 1 at 9, ¶ 18).
`
`(b). File a “John Doe”—i.e., unidentified defendant—civil copyright
`
`infringement lawsuit with a tribunal seeking “early discovery,” i.e., requesting
`
`court authorization to “subpoena internet service providers for subscriber
`
`information associated with the IP Addresses.” (DCD 1 at 9, ¶ 18).
`
`(c). After having secured the requisite court authorization and having
`
`served the subpoena, procure subscriber information from internet service
`
`provider companies, e.g., the name and address of the subscriber associated with
`
`
`
`Appellate Case: 19-2386 Page: 24 Date Filed: 10/15/2019 Entry ID: 4841473
`
`10
`
`
`
`an IPA which had been used to download a copyright-protected file via the
`
`BitTorrent network. (See DCD 1 at 9, ¶ 18 & DCD 103 at 2-3).
`
`(d). Using all the above information, send correspondence to the
`
`individual subscriber associated with
`
`the offending IPA, noting
`
`the
`
`circumstantial evidence of copyright infringement and proposing a pre-litigation
`
`settlement amount in lieu of future civil proceedings. (DCD 103 at 3).
`
`Exemplars of these settlement-proposal letters were filed in the district court
`
`record. (See DCD 127-1 & 161). One such letter appears in the Addendum to
`
`this brief, for the Court’s ease of reference. (Def. Add. E).
`
`2. Uploading copyright-protected files
`
`Beginning in 2011, Mr. Hansmeier and Mr. Steele “caused [an associate]
`
`to upload their clients’ pornogra
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