Tony Smith had a porn problem. A 27-year-old nursing student in
Collinsville, Ill., Smith was listening to music and doing homework one
night last August when he heard a knock on his apartment door. He opened
it and an imposing-looking man with a flashlight handed him a lawsuit
and his business card. A name was written in pen on the back. “Give this
guy a call, he can help you get through this,” the man told Smith.
“He’s looking out for people like you.” Smith turned it over and read
the name: John Steele.
According to the complaint, Smith was accused of conspiring with
6,600 anonymous people to hack into computers owned by Lightspeed Media,
an Arizona adult-entertainment company, and steal its porn. Before
serving him with the lawsuit, Smith recalled, Chicago’s Prenda Law firm
had mailed him threatening letters for three months. “They always said
that if I went ahead and wrote a check for $4,000, they’d drop it,”
Smith says. Because he didn’t know how to hack into anything and didn’t
have any illegally downloaded porn on his computer, he’d thought it was a
scam and ignored it.
Assuming Steele was a defense attorney, Smith called him. He says
Steele explained the allegations and offered to help. Steele asked about
Smith’s job (school made full-time work impossible), his roommates
(none), and his computer (an old hand-me-down). The two talked for
several minutes before Steele mentioned that he worked with Prenda,
helping on a lot of its cases. Smith became suspicious and hung up.
After an hour of frantic Googling, he determined that Steele “didn’t
just work with Prenda, he ran Prenda,” he says. “That’s when I knew, I’m
never talking to this guy again.”
Since 2010, Prenda Law, under various names, has initiated hundreds
of copyright infringement lawsuits in courts across the country. Steele
and his partner, Paul Hansmeier, are said to oversee a team of lawyers
that has threatened to sue more than 25,000 people for illegally
downloading porn. In every case, it appears, the lawyers try to settle
early for a few thousand dollars.
Prenda’s methods exhibit a dark understanding of copyright law and
the Internet, as detailed in hundreds of court documents and by the few
defendants brave enough to fight back. Typically, Prenda starts by
filing preliminary lawsuits against John Does identified only by their
IP address, the number assigned to every computer with an Internet
connection. Then it asks judges to compel Internet service providers
(ISPs) such as
Comcast (CMCSA) and
AT&T (T)
to surrender the names of those customers. Next, Prenda says it will
sue those people unless they pay to settle the claims. When it does name
someone in a suit, Prenda usually posts his name—defendants are almost
always men—on its website, along with a link to the lawsuit. If a spouse
or potential employer Googles the defendant, they’ll learn he’s been
accused of stealing salacious movies such as
Sexual Obsession and
Shemale Yum.
In a 2012
Forbes interview, Steele said these suits had
earned him “more than a few million” in settlement fees. The magazine
estimated $15 million. Yet Steele and Prenda have never won a single one
of these cases on its merits, according to Morgan Pietz, a Los Angeles
copyright lawyer who’s fighting Prenda in court. “I’ve read briefs that
say about 30 percent of people are misidentified,” says Jonathan Tappan,
a Michigan attorney who worked on some of the cases. Even for the
innocent, settlement is the easiest way out. Most people don’t want to
be named in federal lawsuits, especially ones involving porn. Prenda’s
settlement offers are often less than the cost of hiring a lawyer. “I
tell people right off the bat that it’s possible they may be able to
settle for less money than it costs to retain me,” Pietz says. “In most
cases, there’s no pot of gold at the end of the rainbow for people who
stick up for themselves.”
What Smith didn’t know last summer is that Prenda’s innovative
business plan was nearing the end of its lucrative run. Some of its
lawyers are suspected of buying copyrights to porn films and then
secretly suing on their own behalf, without disclosing that information
to the court. They’ve been accused of fraud, attorney misconduct, and
stealing at least one person’s identity to obscure the scheme. A
California court is working to unravel the multistate plot and figure
out how Smith and 25,000 others got caught in this mess. “I’m confused
as all get-up,” Smith says. “I don’t know why they went after me.”
Steele,
42, declined to be interviewed for this story. Hansmeier did not
respond to inquiries; neither did most of the lawyers who worked for
Prenda. From previously published interviews, court documents, and
websites that track copyright infringement lawsuits, Steele emerges as a
headstrong entrepreneur. A tall, handsome, broad-shouldered man who
dresses in flashy suits and bold ties. Acquaintances describe him as
confident and prone to brash remarks that get him into trouble. He grew
up in Minnesota and spent his early career running a chain of Florida
vocational schools, then enrolled in the University of Minnesota Law
School, graduating in 2006. There he met a quiet, cerebral
kid—Hansmeier, now 32—with a knack for computing. In Chicago he opened
Steele Law Firm, specializing in divorce; Hansmeier joined a small firm
in Minnesota.
They soon turned their attention toward copyright law and the
Internet, enticed by the possibility of massive, lucrative suits,
according to clients. Starting in 2003, the Recording Industry
Association of America sued an estimated 35,000 people for illegally
downloading music on peer-to-peer file-sharing programs such as Grokster
and Kazaa. In one case, a court ordered a Minnesota mother to pay
$222,000 for downloading songs by artists such as Guns N’ Roses and
Gloria Estefan. Most people settled out of court, but the cases weren’t
worth the trouble for the RIAA—they triggered an avalanche of negative
coverage—and it hasn’t sued anyone since 2008.
Still, settlement fees looked like easy money and soon inspired
entertainment companies to fish for downloaders to sue, a practice known
as copyright trolling. In 2010 a Hollywood production company, Voltage
Pictures, filed a lawsuit against what would eventually grow to 24,500
John Does for downloading its film
The Hurt Locker over
BitTorrent. (The file-sharing service, whose 170 million users account
for an estimated 11 percent of all Internet traffic, has long been a
favorite tool for digital pirates.) In an interview with the
Hollywood Reporter, one of Voltage’s lawyers said his aim was to create a new “revenue stream.”
Steele and Hansmeier knew that according to the 1998 Digital
Millennium Copyright Act, ISPs are required to turn over the personal
information of subscribers suspected of wrongdoing. While it’s not
Comcast’s fault if you download
Game of Thrones, the cable
provider can be forced to rat you out. The lawyers would focus on
copyright infringement committed through BitTorrent. And since
pornography was both widespread and taboo, they’d never run out of
defendants willing to pay their way out of trouble. “John had the
ambition, and Paul had the computer expertise,” says Daniel Voelker, a
Chicago litigation attorney who knows Steele. All they needed were
clients, which they found at the most obvious place in the world: Las
Vegas porn conventions.
One was Steve Jones, owner of Lightspeed Media. He introduced them to
his friend Paul Pilcher, who runs a six-employee pornography company in
Phoenix called Hard Drive Productions. His main product is Amateur
Allure, a subscription service he likens to a hard-core version of
Playboy.
A decade ago, Amateur Allure made $2.8 million a year, Pilcher says,
but digital piracy has since cut his revenue by 60 percent. He hoped the
lawyers could help him recoup his money. Pilcher says Steele and
Hansmeier described their work to him as a “reverse class action,” where
one company would go after thousands of people, and offered him a 50-50
split of the proceeds. He agreed.
Steele Hansmeier PLLC filed its first copyright infringement cases,
on behalf of Lightspeed, Hard Drive, and another company, on Sept. 2,
2010. In the beginning, Steele worked the cases, successfully acquiring
the identities behind 1,200 IP addresses that had been downloading the
companies’ porn on BitTorrent, as detected by an Internet piracy
monitoring company managed by Hansmeier. It was a virtuous system in
which one lawyer found people on BitTorrent while the other lawyer sued
them.
The money started rolling in. “They would send me a check for, let’s
say, $35,000, for a month,” Pilcher says. “They’d be pounding their
chest and jumping up and down, thinking they were the greatest in the
world.” Over a year and a half, Steele and Hansmeier filed a total of 65
suits on behalf of Hard Drive against 4,760 people, according to court
documents. Pilcher earned just under $200,000, he says, but he never
knew what was happening with the suits, how many there were, or who
exactly his company was suing. “Getting information out of [Steele and
Hansmeier] was honestly kind of painful,” he says. “They claimed they
didn’t want me to have records of specific things in case something
happened.”
Eventually, judges started asking questions. Why was Hard Drive, an
Arizona company, filing dozens of cases in Illinois? Could they lump
1,000 people who lived all over the country into one lawsuit? In many
federal cases, judges decided they could not. One Illinois judge threw
out a suit against 300 John Does, citing “Steele’s effort to shoot first
and identify his targets later.” When a later case was randomly
assigned to the same judge, Steele dismissed it himself. “Whenever they
started to run into judicial opposition, they’d move on to the next
court,” says attorney Jason Sweet, founding partner at Booth Sweet in
Cambridge, Mass., who represents a number of Prenda defendants,
including Smith, the nursing student.
Steele Hansmeier didn’t need to win cases; it just needed to get
people’s names. And at that it was incredibly successful. As its client
list grew, Steele adopted the nickname “the Pirate Slayer,” and in
spring 2011 the firm hired other attorneys—many from Craigslist—to file
hundreds of lawsuits in multiple states. Their biggest recruit was Paul
Duffy, a Chicago commercial litigation specialist, who came on board in
September 2011. Duffy would not comment for this article.
In November of that year, the firm filed a notice to change its name
to Prenda Law. Steele and Hansmeier have repeatedly declared in court
that the two firms are separate and that Steele Hansmeier was dissolved.
Steele has said he has “no ownership interest” and that Duffy is the
founding partner and principal counsel of Prenda. Indeed, Duffy took
over for Steele in many of their cases. When Steele represented
Lightspeed in Smith’s case, he appeared on behalf of Prenda Law.
Pilcher, who was represented by both firms, refers to Steele and
Hansmeier as the chiefs of Prenda.
In early 2012, Hard Drive was sued twice for harassing plaintiffs to
settle claims. Prenda took care of everything—Pilcher didn’t even have
to show up in court—but he started to wonder what his lawyers were up
to. “I got very uncomfortable feelings from them,” he says. “But I
figured, Well, if there are judges involved, and they’re ruling for us,
and money is coming in, then it must be OK.”
Pietz, the Los
Angeles attorney, has a reputation for winning cases for accused
copyright violators. He often defends clients against a California
pornography company called Malibu Media, getting judges to toss some of
its lawsuits or deny its requests for IP address owners. “I had read
what I’d style as rumors about Prenda’s purported shady dealings,” he
says. When he got a call last November from a man being sued by a
company Prenda represented, Pietz immediately took the case. He started
by reviewing the firm’s earlier lawsuits to see how it operated. “Then
three things happened simultaneously,” Pietz says. “That’s what made the
light bulb go off.”
First there was a bizarre court hearing in Tampa on Nov. 27, in which
one of Prenda’s employees, Mark Lutz, identified himself as a
representative for the pornographer, SunLust Pictures. According to
several defendants, Lutz frequently called to follow up about settlement
offers from Prenda. During the hearing, he kept whispering to Steele,
who’d shown up to watch the proceedings. When the judge asked Steele to
identify himself, he said, “I no longer actively practice law.”
“John Steele says he’s just an interested member of the public?”
Pietz asks. “That was the first thing I started to wonder about.” Pietz
looked into Ingenuity 13, the company suing his client. Along with
another Prenda client, AF Holdings, it turned out to be an offshore
company based in St. Kitts and Nevis, a notorious privacy haven. Pietz
had trouble tracing where Ingenuity 13’s copyrights had originated or
who owned the company. The level of obscurity, he says, suggested that
somebody had something to hide. Then Pietz stumbled onto a document in a
Minnesota Prenda suit that made him realize these were more than
small-time copyright trolls.
A man named Alan Cooper filed a notice with the court claiming his
identity had been stolen. For the past six years, Cooper had worked as a
caretaker on Steele’s Minnesota vacation property. Recently he’d
discovered that his signature appeared on documents as the manager or
owner of two of Prenda’s clients, Ingenuity 13 and AF Holdings. “Perhaps
the CEO of AF Holdings has the same name as my client,” Cooper’s lawyer
wrote, but “we have substantial information that would indicate that
this is not a mere coincidence.” After Cooper came forward, Steele
threatened to sue him. “Your life is going to get really complicated,”
he said in a voice mail on Cooper’s phone that was played in court.
Pietz was astonished. “If you combine the hearing in Florida—where Mark
Lutz holds himself out to be the client—and you have Cooper appearing as
the straw man, and then this mysterious Nevis entity, it becomes very
clear that something is happening,” he says. He didn’t need to defend
his client against Prenda; he needed to go after Prenda itself.
When Pietz revealed Cooper’s accusations, U.S. District Judge Otis
Wright II, who’d been assigned to 45 cases Prenda had recently filed in
Los Angeles on behalf of clients, demanded to know if they were true.
Prenda tried to get Wright removed from the case and sued Cooper and his
lawyer for defamation. The firm didn’t explain the signature and
dismissed most of its Ingenuity 13 and AF Holdings suits across the
country. When Hansmeier was deposed in a San Francisco suit, he offered a
baffling, seven-hour explanation of the company and its dealings. AF
Holdings didn’t make porn: Its business was buying copyrights to
existing films to sue people who download them without permission. All
of AF Holdings’ money was funneled through Prenda, he said, and Lutz was
in charge. (In an e-mail, Lutz said AF Holdings and Ingenuity 13 are
owned by trusts that he controls.)
Meanwhile, Pietz put together an account of Prenda’s history,
detailing mysterious signatures, company addresses that appeared to
belong to Steele’s family members, and one entity that appeared to be
run by a friend of Hansmeier.
With Judge Wright threatening imprisonment, Steele, Hansmeier, and
Duffy showed up in court on April 2. Wright was no longer concerned with
the case in front of him; he wanted to get to the bottom of Prenda Law.
A number of people who’d been sued by Prenda came to watch; they’d
never seen their accusers in the flesh. Adam Sekora, an IT developer
sued by Lightspeed Media, flew in from Phoenix. “These people made my
life hell,” he said. The showdown Sekora had hoped for never quite
materialized: The lawyers invoked the Fifth Amendment and refused to
talk. But a few weeks later, Wright issued the rebuke that Sekora and
thousands of Prenda’s other targets had been waiting for. In a court
order that opened with a quote from
Star Trek II: The Wrath of Khan,
Wright slammed Prenda for “boldly prob[ing] the outskirts of the law”
with its “web of disinformation,” and its practice of making statements
that “have varied from feigned ignorance to misstatements to outright
lies.” He found that the firm was creating shell companies and using
forged copyright assignments to sue people. Then he turned the firm over
to the U.S. Department of Justice, which may lead to a criminal
investigation. In his deposition, Hansmeier had admitted that AF
Holdings had never paid any taxes; Wright also promised to alert the
Internal Revenue Service.
Wright ordered the firm to pay $81,300 in attorneys’ fees and
penalties. (This includes $76,000 owed to Pietz that he says hasn’t been
paid.) That’s a pittance compared with what Prenda has likely earned
through its settlements, but the legal precedent may allow thousands of
defendants to recoup money they spent on lawyers. Smith was one of the
defendants awaiting the results of the California case. After his phone
call with Steele, he’d hired Sweet and fought Prenda for seven months
before the firm dismissed his case, leaving him on the hook for $70,000
in attorney fees he’s asked the court to make Prenda pay. “I told my
lawyer that I can’t actually pay him,” he says. “But if he wants to go
after Prenda for his money, I’m ready to fight.” Sweet has done just
that.
The prospect of thousands of other people doing the same, or worse,
terrifies Pilcher, although his Hard Drive Productions stopped working
with Prenda last fall. “If these guys fold, I don’t know if I’ll have
people coming out of the woodwork to sue or countersue,” he says. “I’m
obviously legally exposed.” Prenda still denies any wrongdoing; the
firm, Steele, and Hansmeier have appealed Wright’s sanctions. “There are
hundreds of problems with this order in my view,” Steele told the
technology blog ArsTechnica in May. “We think a lot of the assumptions
made are inaccurate and not based on any evidence.” Lutz pointed out in
an e-mail that the order “is the first sanction ever entered against any
of the attorneys or law firms in this case that I know of.”
Prenda has since undergone another name change: It’s now the
Anti-Piracy Law Group. Duffy is, again, in charge. The firm has
dismissed nearly all of its federal cases but is still pursuing
litigation in state courts, where there’s no centralized database and
the paper trail is harder to follow. One judge in St. Clair County,
Ill.—the same court in which Smith’s case originated—recently allowed
the firm to subpoena more than 300 ISPs for information on an
unspecified number of people.
Duffy is working this new St. Clair case. His client, a subsidiary of
Livewire Holdings, is owned by Lutz. It’s also, as it happens, Steele
and Hansmeier’s new employer. Steele says he works on the business side
of Livewire, buying the rights to new films and attending shoots “to see
various scenes” of brand-new adult content, according to ArsTechnica.
He declined to name the films, but they may soon be on the Internet,
just waiting for someone to download them.
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