The Economics of Mass John Doe File-Sharing Lawsuits

File-Sharing Lawsuits

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 file-sharers 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 (find out more in the class action lawsuit Xarelto case). With the 2011 surge of BitTorrent lawsuits, very few went 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.

• 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.

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