14 May 2010

Sinkin' the Queen Anne's Revenge

Wednesday was a bad day for pirates: a pirate ship and its pirate captain are walking the plank in the Hon. Kimba Wood's courtroom.1 Earlier this week, Judge Wood granted summary judgment to the recording-industry plaintiffs in a lawsuit against filesharing service/software vendor L1m3w1r3.

That's not exactly breaking news anymore; I'm sure that /. has ten thousand or so rants claiming that this will be the end of civilization because Judge Wood wants to keep the peeps from gettin' their free tunes. Finding liability isn't too hard — it's almost compelled after Grokster. Note to filesharers: Post hoc rationalizations that there really, really was a legitimate use for that set of lockpicks aren't very convincing. Instead, the legitimate use needs to be contemplated and designed in from the start; and you need to operate your business from day one as if that's your expectation. Even then, you might not get anywhere, but you've got a better chance than if you dare people to sue you.2

The interesting part, though, is buried late in the opinion (PDF), where Judge Wood finds the founder/proprietor personally liable despite his attempts to weave in multiple layers and means of corporate structures to shield himself.

Gorton is the sole Director of LW. From 2000 to the end of 2006, Gorton was LW's CEO. Gorton is also the CEO and sole Director of Lime Group. Gorton owns 100% of Lime Group. Until June 2005, Lime Group owned an 87% share of LW.

The Court has already found that LW is liable for inducement of infringement, common law copyright infringement, and unfair competition. The evidence establishes that Gorton directed and benefited from many of the activities that gave rise to LW’s liability. In his deposition, Gorton testified that, as CEO, he "ran" LW. LW's former Chief Operating Officer stated that Gorton was the company’s "ultimate decisionmaker," and that his approval was required for "any major strategic and design decisions." Another LW employee stated that Gorton had the authority to "veto" decisions regarding the development of LimeWire.

Gorton directed and approved many aspects of LimeWire’s design and development. Gorton admits that he conceived of LimeWire and decided that the program should be decentralized and should use P2P technology. Gorton oversaw the development of LimeWire’s filtering system, and decided that the filter should be turned "off" by default. Gorton conceived of and was heavily involved in developing the Conversion Plan. He represented LW in negotiations with the recording industry over the Conversion Plan and over plans that the industry proposed for filtering infringing content. Gorton made decisions regarding LW’s public relations and advertising efforts, and was involved in discussions about marketing LimeWire to Napster users. This evidence, taken together, also establishes that Gorton knew about the infringement being committed through LimeWire.

The evidence further shows that Lime Group was intimately involved in LW's operations. Gorton was CEO of both LW and Lime Group. While LW and Lime Group are formally separate companies, the evidence establishes that Gorton operated them "as a single company." Lime Group and LW share offices, computer services, and support staff. Employees moved between Lime Group and LW without changing titles or job responsibilities. Lime Group employees developed much of LimeWire's original technology, and then provided systems administration support for LimeWire and developed user guides, FAQ guides, and merchandising for the program. Lime Group provides numerous services to LW, including managing LW's financial operations and employee benefits; hiring LW employees; and performing investor relations, public relations, and customer support functions for LW.

As the majority owner of LW until 2005, Lime Group directly benefited from LW's inducement of infringement through LimeWire, which drove the company’s success. Because he owned 100% of Lime Group, Gorton indirectly owned a majority share of LW, and thus also benefited from LW's infringing conduct.

As a result of the actions and benefits described above, Lime Group and Gorton are liable for LW’s inducement of infringement.

Arista Records, llc v. Lime Group, llc, No. 06 CV 5936 (KMW) (10 May 2010), slip op. at 53–55 (citations and footnote omitted). In other words, the mere fact of incorporation isn't enough to insulate you from personal liability; you must act like a corporation, too, including respecting corporate formalities. You can't run your pirate operation as the captain of the ship and then expect your ship's flag-of-convenience registration to shield you from all personal responsibility.


This litigation has also led to two other, perhaps more disquieting, notions. First of all, it might be slightly unfair to Gorton (and his company) to use the "pirate" images for them, as there doesn't seem to be much (if any) evidence that they personally pirated music. Instead, it appears that Gorton was, perhaps, more the mayor/chief proprietor of Port Royal. Nonetheless, I can't help it; the community itself invites the pirate ship comparison...

Second, the WSJ has started/perpetuated some disquieting interpretations concerning advice that an EFF counsel may (or may not) have provided concerning document retention (see also pages 13 to 16 of the slip opinion — context matters). I seriously doubt that Mr von Lohman exceeded the (loose) limits of what legal ethics allowed — perhaps required — him to do. I have a great deal of disdain for the substance of some (not all!) of the EFF's positions; I also think that EFF's public statements, and even legal filings, on occasion distort both the facts and legal authority (but certainly no more than EFF's BigLaw opponents tend to do), and usually succumb to a distressing tendency to treat any regulation of anything having to do with electronic communications as the beginning of the end of civilization (reading position papers and briefs will reveal that that characterization is not hyperbole... even if the position papers and briefs are). However, my interactions with Mr von Lohman over the years do not provide any support for implications that he acted improperly. Perhaps advising a pirate operation on document retention was unwise... but none of us were in the room, so

  • we don't actually know what was asked of him in the first place
  • nor its context
  • nor what he actually advised
  • let alone what the defendant(s) actually did with any advice he provided
  • or whether (as seems more likely based on the passage quoted above) the defendant(s) asked a question on a legitimate concern and then applied the answer in a different way in furtherance of unlawful purposes.

Further, the WSJ blog post completely neglects that users (and the defendants) had some legitimate privacy concerns — even duties — that would have resulted in discussing "document retention policies" at some point. This, I think, is more an instance of a corporate-sponsored blogger unconsciously (or perhaps even consciously) choosing to emphasize a possible smear against an anticorporate activist. Bluntly, Judge Wood's opinion simply does not support the interpretation that the blogger put on it; it does not refute it, either, but then Mr von Lohman is at best a peripheral figure in this entire matter.

  1. As an interesting aside, Judge Wood also sentenced Michael Milken and rejected most of his pleas for leniency. I suspect she has little sympathy for the captain of a pirate ship...
  2. Yes, I knew about this. Hell, I've got one of the "sue me" responses to a DMCA notice. You just don't go swimming in shark-infested waters after dumping a gallon of blood in, ya know?