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Judge Sanctions Porn Troll
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In a victory for corporate defendants that often face baseless suits intended to extort a quick settlement, a judge this week imposed sanctions on so-called "porn troll" Prenda.

Prenda had filed multiple suits against Comcast, AT&T and other internet service providers, claiming copyright infringement arising from the downloading of copywritten pornographic materials. The defendants claimed that the claims were baseless and that Prenda had brought the claims in hopes of extorting a quick settlement from corporations looking to avoid an association with pornography.

U.S. District Judge Patrick Murphy did not mince words:

"These men have shown a relentless willingness to lie to the court on paper and in person, despite being on notice that they were facing sanctions in this court, being sanctioned by other courts and being referred to state and federal bars, the United States Attorney in at least two districts, one state attorney general and the Internal Revenue Service."

Judge Murphy ordered Prenda to pay more than $260,000 in attorneys' fees and litigation costs to the defendants. Earlier this year a federal judge in California also ordered Prenda to pay defendants' attorneys' fees based on similar reasoning.

Because of the high cost of defending litigation, plaintiffs willing to aggressively plead cases can often extort settlements from defendants who are willing to settle at a price they think will be less than their cost of litigation. I covered this phenomenon and described the high economic costs resulting from the practice in my 2005 book, Out of Balance.

Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

Floyd Norris, author of the High & Low Finance column for the New York Times, writes about two cases the Supreme Court has decided to hear dealing with fee-shifting in patent infringement cases. The outcomes could potentially deter future, frivolous infringement suits.

§ 1920 and e-discovery costs

We had noted a trend of courts being willing to use 28 U.S.C. §1920, which permits cost-shifting of the expenses of "making copies," to the much greater costs of e-discovery by broadly construing the meaning of "making copies." In the first appellate decision on the topic, Race Tires America v. Hoosier Racing Tire Corp., the Third Circuit has rejected that broad interpretation, and held that only $30,000 of a $365,000 e-discovery expense fell within the parameters of §1920. The opinion has interesting language on the expense of e-discovery in the first footnote. More at WSJ Law Blog.

Relatedly: Professor William Hubbard testifies about the costs of discovery, with particular attention paid to the long tail.

Also relatedly: Steve Susman argues for "mutual disarmament" in the discovery game. Of course, that sort of voluntary agreement is only possible in the scenario where anticipated discovery costs are not asymmetric.

In an article in The Economist, adjunct fellow with the Manhattan Institute's Center for Legal Policy, Marie Gryphon, is cited for her work exploring the likely effects of adopting a loser-pays rule for attorneys' fees. In a loser-pays system, the losing party is responsible for reimbursing the winning party's legal expenses, including attorneys' fees.

The Economist piece examined loser-pays rules as implemented in their respective customized forms in Texas, Alaska and Florida (1980-1985) and also discussed medical-malpractice caps on noneconomic damages, the central theme of Ted Frank's most recent debate with Cato's Shirley Svorny.

The article cites Marie's advocacy for the development of a litigation insurance system:

Marie Gryphon of the Manhattan Institute, a centre-right think-tank, who is author of a loser-pays proposal, says that Texas got "much less than half a loaf", and that Florida was spooked too quickly. She argues that loser-pays countries need legal insurance, which can be bought (for example) in England for just £100-200 ($150-300) after an alleged loss, but before a suit is filed. Lawyers can advance the premiums and add them to their bills. In other countries, such as Germany, many households carry standing legal insurance with a small monthly premium. Ms Gryphon argues that in such a mature loser-pays market more small-value but high-merit cases would be brought, while both small "nuisance" suits and big "lottery" suits would be less attractive to lawyers.

It is theorized: special-interest groups friendly to the administration sue the government. There is a kabuki dance of litigation, and then a wink-wink settlement where the government agrees that the special-interest group is a "prevailing party," and thus entitled to fees under the Equal Access to Justice Act. Taxpayers pay the bill, and the executive branch is able to funnel money to its friends without Congressional oversight.

How big a problem is this? No one knows, because Congress stopped requiring the tracking and reporting of payments in 1995. One Wyoming law firm has tracked 14 environmental groups obtaining $37 million in fees, but many settlements and fees are sealed from public view. A Virginia Tech study made a FOIA request on two agencies that simply didn't compile any data on how much they were spending: settlement money below a certain amount comes from the Treasury without the need for Congressional budgeting or allocation.

Maybe this is a big problem; maybe it's a small one. But no one can dispute that transparency is likely to make it less of a problem. Rep. Cynthia Lummis has proposed HR 1996, the Government Litigation Savings Act, which caps fees going to a single entity in a calendar year, and requires the Administrative Conference of the United States to compile data on EAJA awards. (Senator John Barrasso has proposed the parallel S. 1061.) The bill would also prohibit attorney awards in cases seeking injunctive relief; it's unclear to me why this doesn't create more problems than it solves. Compare the testimony of Jeffrey Axelrad with that of Brian Wolfman. [Oct. 11 House hearing; BLD; Freddoso; Lummis]

Jamie Leigh Jones's lawsuit against KBR with its trumped-up sensational allegations cost the company $2 million in attorneys' fees (and almost certainly more in adverse publicity), so the request is not entirely unreasonable if indeed Jones received money for a movie deal based on her lawsuit: it would be inequitable for Jones to profit from a meritless lawsuit, given that Title VII permits prevailing parties to collect fees. But that's not the argument KBR makes in its brief: they're simply claiming that the case was frivolous. As such, the motion is unlikely to succeed given the Fifth Circuit standards for permitting a Title VII defendant to recover fees, where "frivolous" is a very small subset of "meritless," and KBR's expected recovery is probably less than the publicity hit it's taking from left-wing blogs. [WSJ Law Blog (h/t R.U.)]

More, please:

[Judge] Lourie wrote that Eon-Net's case against Flagstar "was part of Eon-Net's history of filing nearly identical patent infringement complaints against a plethora of diverse defendants, where Eon-Net followed each filing with a demand for a quick settlement at a price far lower than the cost to defend the litigation."

"The record supports the district court's finding that Eon-Net acted in bad faith by exploiting the high cost to defend complex litigation to extract a nuisance value settlement from Flagstar," he wrote. [...]

He observed that Eon-Net's settlement offer range of $25,000 to $75,000, which was less than 10% of what Flagstar spent defending its suit, "effectively ensured that Eon-Net's baseless infringement allegations remained unexposed, allowing Eon-Net to continue to collect additional nuisance value settlements."

He also mentioned that Eon-Net "had the ability to impose disproportionate discovery costs on Flagstar" because accused infringers often have "enormous amounts of potentially relevant documents."

Flagstar spent more than $600,000 to litigate the case brought by Eon-Net even though the district court stayed all discovery that not related to claim construction issues.

The patent troll and its attorney were ordered to pay over $631 thousand in sanctions and fees, though that does not fully compensate the defendant, given the appellate costs, and the costs to its business of diverting internal employees to comply with discovery obligations. [NLJ; Eon-Net v. Flagstar Bancorp (Fed. Cir. 2011)]

Relatedly, the E.D. Pa. has interpreted 28 U.S.C. § 1920 to make the costs of e-discovery taxable. The Third Circuit has a similar case pending on appeal. [Legal Intelligencer; Beck]

A Texas developer sued Carla Main and Encounter Books, an author and publisher respectively of a book criticizing the eminent domain practices he used—as well as Richard Epstein, who had the audacity to blurb the book. Fortunately, Texas law has procedural protections for victims of SLAPP suits, including interlocutory appeal when the trial court denies summary judgment, and an appellate court found there was no libel to be had. (This case was key in prompting Texas to pass anti-SLAPP legislation.) But there are dozens of other states where those who criticize the rich face tremendous risk of meritless libel suits to shut down their free speech rights, demonstrating the need for federal anti-SLAPP legislation. [Olson; Sullum @ Reason; IJ; Reporters' Committee; Dallas Observer; D Magazine; Main v. Royall (Tex. App. Jul. 25, 2011) (h/t W.C.)]

Rakofsky v. the Internet

Joseph Rakofsky's murder-defense mistrial received a great deal of Internet attention when bloggers discussed a Washington Post story detailing the judge's criticism of Rakovsky's performance. Now Rakofsky has found an attorney, Richard Borzouye, willing to sue several dozen bloggers who reported on the story, including Eric Turkewitz, who is not remotely impressed. Neither is Scott Greenfield.

In my mind, any attorney who files an abusive complaint like this should be disbarred as a danger to society. It certainly presents a reason for stronger anti-SLAPP laws. Walter Olson reports on one such effort in Texas.

Angry charges, procedural maneuvering and threat of a walkout by Democratic lawmakers lent drama to the Texas House's consideration of tort reform legislation Saturday and the bill's ultimate passage Monday.HB 274 bill history, text) passed by a vote of 96-49.

As Ted indicated below, the original “loser pays” proposition has been watered down substantially into procedural reforms. The Austin American Statesman’s report is good on the legislative substance:

As originally introduced, the bill would have created a true loser pays system — lawsuit losers would have to pay the other side's court costs and lawyer fees.

But House Bill 274 was changed in committee to assess legal fees against somebody who files a lawsuit that is tossed out under a so-called motion to dismiss for failing to state a valid legal claim.

Texas is among eight states that do not allow motions to dismiss before evidence is presented in civil court, and the bill would direct the Texas Supreme Court to adopt rules creating that option.

It IS progress. Texas Gov. Rick Perry issued a statement: "I applaud the House and Rep. Brandon Creighton's leadership for moving Texas one step closer to implementing a loser pays system that will help expedite legitimate legal claims and crack down on junk lawsuits. This legislation will also protect Texas jobs and stimulate economic opportunity by relieving Texans and employers of the costs and burdens created by frivolous and drawn-out lawsuits. I encourage the Senate to quickly take action on this important legislation." Earlier …





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Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.