Sending settlement letters to accused Internet movie pirates has become big business in the US this year, but a new class action lawsuit seeks to put the brakes on one of the main "settlement fraud and extortion" outfits: the law firm of Dunlap, Grubb, & Weaver.

Dunlap, Grubb, & Weaver (DGW) is a Virginia law firm that set up shop last year as the "US Copyright Group," and it has sued the people behind 16,000 IP addresses for sharing indie films on file-sharing networks. Those accused are given the chance to settle for $1,500 or $2,500 before being sued by name, though to date no such named lawsuits have been filed.

Dmitrity Shirokov was one of those charged with sharing the video game-inspired film Far Cry, and he responded late last week to DGW's settlement letter with a lawsuit of his own. It charges DGW with racketeering, copyright misuse, unjust enrichment, and fraud, and it demands that a judge stop the "scheme" and force DGW to reimburse everyone who has settled in the case so far. In addition, Shirokov wants punitive damages.

The suit makes two key claims. First up: that DGW lied to the Copyright Office when it registered the Far Cry copyright on behalf of German filmmaker Uwe Boll. Such registrations are highly desirable; without them, a rightsholder can recover only actual damages instead of the huge statutory damages of up to $150,000 per infringement. But registrations should be made within 90 days of "publication," and Far Cry appeared in US theaters In October 2008 and on US DVDs in April 2009. DGW did not register the copyright until January 2010, however, claiming that Far Cry had not been published in the US until November 2009.

Once the US Copyright Office granted the registration, DGW filed its lawsuits and tried to uncover the names behind the IP addresses.

"The false claims in Achte’s copyright registration and court filings share one purpose: to enable DGW/USCG to obtain the contact information of alleged infringers," says the complaint. "Using that information, Defendants have been able to make further fraudulent claims and extortionate threats directly to the proposed Class members, through their Letters and their settlement websites."

Shirokov contends the entire registration was fraudulent.

But there's a second, related issue. Even if the registration is valid, it was issued on January 19, 2010—but most of the infringement accusations predate January 19. The result, according to the complaint, is that most of the cases could only be brought for actual damages, and the Far Cry DVD was sold for no more than $26.99 (this argument would appear to ignore issues about further distribution). Yet the settlement letters to all defendants seem to demand at least $1,500.

"USCG, DGW, and [German film producer] Achte have a direct financial incentive to avoid settling claims in the amount of any actual damages Achte may have incurred, which (at some fraction of $26.99) would be more than 50 times lower than the settlement offer it has presented to members of the proposed Class," says the complaint, which then indulges in a bit of legal humor. "$26.99 is a far cry from $1,500."

The settlement letters are thus said to be misleading because they refer to huge statutory damage penalties that people might face if they don't settle up, and because they reference things like the Joel Tenenbaum $675,000 P2P verdict—but without noting that a judge has already slashed that amount as being unconstitutional. According to Shirokov, the idea is merely to scare the accused into paying up. Or, as the complaint puts it, DGW is all about "frightening and intimidating Letter recipients into hasty settlements under false pretenses."

At 96 pages, the complaint is enormous and packed full of accusations. Among them: the common complaint that DGW has no plans to bring named lawsuits at all, since "the small number of attorneys at DGW belies any claim that it honestly intends to pursue full-blown litigation against any more than a small fraction of the John Doe defendants."

The complaint, filed in Massachusetts, requests class action status and would encompass all 4,576 defendants in the Far Cry case, though it would not apply to DGW's other cases.