While mass settlement lawsuits filed against alleged BitTorrent users have the potential to bring in millions in revenue, recent rulings in US District courts are going to severely cut into potential profits. Has the tide turned? It looks like a distinct possibility.

Some US District Court judges have entered rulings that might bring the lawsuits to a screeching halt. How? By crippling the ability to abuse the US legal system to extort BitTorrent users en masse. This article explains those rulings and provides an economic analysis to show why.

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.