With the falling value of the dollar, the cost of imported Thai coconut milk has gone up over 400%. Restaurants don’t have a large profit margin to begin with and because of this increase in cost, John was running his restaurant on a dangerously tiny profit margin.

Factor in the ailing US economy and John was barely managing to keep his business afloat. I was happy to lend him a sympathetic, if somewhat distracted, ear. Then he mentioned a female lawyer from BMI had stopped by during the previous week’s lunch hour.

When a lawyer from BMI stops by a local neighborhood business, it’s typically not to buy something. True to form, the BMI lawyer in this story wasn’t there to support a local business. She was there for a public performance license shakedown.

BMI is a collective rights organization (CRO). A CRO collects royalties and then distributes them back to copyright owners. This is conventionally thought of as the most effective way to collect royalties and it likely is – imagine if every single music label was in charge of collecting royalties for its artists!

Royalties are an enormously important source of revenue for copyright owners. Music copyright owners in particular. When an artist gets a song played on the radio, royalties are collected and paid out. But in recent years, BMI and ASCAP (another CRO) have increasingly turned to a more obscure way to collect royalties – the public performance license.

The license is exactly what it sounds like – a license that grants the right to perform the copyrighted work of another to the public. Most people would think this only applies to live music venues with lots of different bands playing each week. But BMI and ASCAP are now actively applying this license to small, local, neighborhood businesses that decide to have a little live music for the benefit of their customers.

This is completely within BMI and ASCAP’s legal rights. But just because they have the right to do it, it does not mean they should. As my friend John put it:

“At the restaurant, we wanted to support local artists and decided to start having live music on Friday nights. It was a big success. Our customers enjoyed the music and the band was happy to have a steady gig. Several months later a female lawyer came into our restaurant during lunch and demanded we buy a public performance license from BMI. She wanted $3000!”

“Even though we only played original music, she said we should buy the license anyway. Apparently, even if the band members use something as minor as a Led Zeppelin riff while they tune-up their instruments – that’s a violation.”

John’s experience illustrates exactly why BMI’s heavy-handed bullying can have a negative impact on the future of music. It wasn’t a “let’s work together” scenario. BMI didn’t offer John any alternatives – just pay up – or else. They wanted John to get a license simply because there was a slight chance of a future violation!

The purpose of copyright law is “to promote the progress of science and useful arts.” Copyright is the financial incentive that drives creative innovation. When properly administered, copyright can be a powerful tool for fostering greater creativity. However, BMI’s public performance license bullying in this situation resulted in the exact opposite – the progress of music was suffocated. John eloquently stated the result of BMI’s threat:

“I said the hell with it! We only have music on Friday nights. It’s not worth $3000. How is a neighborhood restaurant running on a razor-thin margin in this economy supposed to afford an extra $3000? So I cancelled the band. Net result? Our customers suffered, local music suffered. A complete lose-lose situation.”

The bottom line to BMI and other collective rights organizations? Your customers are not your enemies. Promoting live music is good for BMI and the artists they collect royalties for. Working together with local businesses rather than trying to bully and intimidate them will leave all parties better off.

As for John’s restaurant, it really is a shame. The coconut curry still tastes as awesome as ever. But the lively dueling banjos in the background are gone for good.

The above is a guest post by Allan Gregory. Allan is a bar-certified lawyer in the state of Florida, with a special interest in Internet Law.

Source: TorrentFreak, for the latest info on copyright, file-sharing and anonymous VPN services.

Why do so many of these lawsuits aggregate thousands of John Does into a single suit? The first answer is often, “More potential victims means more settlements, which means bigger profits.” That is true, but there is an equally important reason for bringing a mass lawsuit. Filing fees. The filing fee in most US District Courts, and indeed the courts where 90% of these cases have been filed, is $350. Every separate case filed costs $350. 

Although filing fees can be recovered if the plaintiff wins, that only applies if the cases are taken to trial. With the recent surge of BitTorrent lawsuits, none have gone to trial, and it is unlikely one ever will. So the costs of filing eat directly into the profit margins of these lawsuits. Additionally, each case will require other form-related fees, such as subpoena fees.

When judges refuse to allow many BitTorrent users to be joined in a single lawsuit, these cases become much more cost intensive. That is exactly what is happening.

The Roadblocks

Below we discuss three rulings and a procedural rule that vitally impacts the costs inherent in these lawsuits. They could spell doom for the profitability of the mass BitTorrent lawsuit scheme, bringing an end to a travesty of justice that has seen a grandmother, a blind man, and a dead person sued for alleged copyright infringement.

First, Judge Ryu of the Northern District of California ruled that defendants cannot be joined when they are from different swarms. Where two defendants downloaded the same copyrighted work, but did it via different torrents or on different trackers, they cannot be joined.

Second, Judge Zimmerman, also of the Northern District of California, ruled that BitTorrent users in the same swarm can only be joined if they are present in the swarm at the same time. If a defendant comes along a week later when another defendant is no longer part of the swarm, those defendants cannot be joined.

Third, multiple judges have raised the issue of jurisdiction. While jurisdiction is not a ruling, it requires adherence to certain laws of legal procedure. A US District Court can only hear cases concerning defendants that fall within its jurisdiction. Many judges have questioned how an IP-address from another part of the country could fall within the power of their district. This issue has prompted multiple judges to dismiss vast chunks of these BitTorrent lawsuits.

Fourth, Judge Baker of the Central District of Illinois ruled that an IP-address does not constitute a person.  He decided this in ruling on the issue of “good cause”, which is required for the court to issue a subpoena that allows the plaintiffs to discover the subscriber’s personal information associated with the IP address.  This is vitally important because without the information the plaintiffs have nowhere to send the settlement letters. 

In his ruling, Judge Baker stated that many of the IP addresses before his court could be associated with institutions like universities, or even public wi-fi hotspots. Additionally, he expressed doubt that a subscriber was the likeliest person to be the infringer – “[it] might be…someone in the subscriber’s household, a visitor with her laptop, a neighbor…”

The Economics

Let’s do a little economic analysis to illustrate the impact of these rulings. 

Before the rulings a plaintiff filed suit against 6,000 John Does, all joined together, in the Northern District of California.  Filing cost – $350.  Subpoena cost – $150.  Since it is just one lawsuit, a single lawyer working part-time can handle it.  The lawyer works 20 hours per week for 16 weeks at $300 per hour.  This lawsuit costs $100,000.  If a third of the John Does settle at $750 each, the revenue is $1.5 million. 

– The potential profit? $1.4 million.

After the rulings, a plaintiff files the same suit against 6,000 John Does. However, because of the rulings on swarms, only 12 Does can be joined in a single suit. Therefore, 500 suits must be filed. Filing cost – $175,000.  Subpoena costs – $75,000. Because of the rulings on jurisdiction, we must bring the suits in 20 jurisdictions. This amount of work will require 4 lawyers working full-time, 40 hours per week, for 16 weeks at $300 per hour. 

This lawsuit costs $1.01 million (lawyer fees plus filing/subpoena costs). Because of Judge Baker’s ruling, one third of the Does are dismissed for lack of “good cause.” One third of the remaining 4,000 Does settle for $750 each for revenue of $1 million. The potential profit?  None.

– The plaintiff actually loses $10,000.

The specific numbers above are just an illustration. Maybe less or more lawyers are needed, less or more Does are dismissed, and the number of Does joined in a single suit might be greater or less than 12. In the face of declining profits and increasing court costs the plaintiffs may also choose to increase the minimum amount per settlement. But, a higher settlement price doesn’t guarantee higher profitability.

However the numbers might vary, the underlying points remain the same.

Currently filed BitTorrent lawsuits aren’t suddenly going to disappear, at least not for solely financial reasons. But the rate at which thousands of John Does are being hailed into court? That will certainly decline. Before those rulings, the return on investment (ROI) for the lawsuit would be well over 10,000%. After these rulings, the ROI drops to, at best, single digits. At worst, the plaintiff will lose money attempting a mass BitTorrent lawsuit.”

Perhaps this is why the mass settlement lawsuits are now being filed in Canada?

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The above is a guest post from Allan Gregory. Allan is a bar-certified lawyer in the state of Florida, with a special interest in Internet Law.

Source: TorrentFreak, for the latest info on copyright, file-sharing and anonymous VPN services.