The judge’s ruling is significant because it rejects a controversial shortcut that a growing number of publishers and pornographers are using to target copyright infringers. In the bigger picture, the case may provide a clue into the ongoing delay in a long-awaited “six-strikes” deal between copyright owners and U.S. internet service providers.

Comcast stops a “shakedown”

In the Comcast case, a Caribbean-based holding company sought the names of subscribers it accused of sharing an adult video. The firm, AF Holdings, had obtained subpoenas in different states that required Comcast to supply the names of hundreds of these “John Does” based on their internet addresses.

AF Holdings sued Comcast for contempt of court after the internet giant told it to get lost by refusing to hand over the subscribers’ names and email addresses. In a court filing, Comcast said the subpoenas in question should be quashed because AF Holdings was abusing the legal system:

The plaintiffs have no interest in actually litigating their claims against the Doe defendants, but simply seek to use the Court and its subpoena powers to obtain sufficient information to shake down the Doe defendants.

According to Comcast, AF Holdings’ real agenda was to obtain the defendants’ email addresses in order to threaten and embarrass them into paying a settlement.

The court agreed with Comcast but did not provide written reasons. In a one-page order dated last week, the court wrote: ”The four subpoenas are quashed. Civil case closed.”

How the John Doe racket works

Comcast deserves credit for standing up for its subscribers but, unfortunately, they represent just a fraction of the tens or hundreds of thousands of Americans who are the target of similar intimidation tactics.

As Comcast points out in its court filing, lawyers for AF Holdings have filed 118 cases against over 15,000 “John Does.” But this is just the tip of the iceberg.

If you search federal court records for names like “Boy Racer,” “Patrick Collins LLC,” “Malibu Media” and other pornography-related corporations, you will discover thousands of other cases that are all pursuing a business model similar to that of AF Holdings.

The business model works like this: the pornography company files a copyright complaint against “John Does 1-150″ (where the John Doe names are to be filled in later). The complaint says computers that belong to the John Does are using bit torrent technology to share files and asks the court for a subpoena that requires an ISP (like Comcast) to identify the computers. The company then gets a court order like this:

The subpoenas shall be limited to providing Plaintiff with the true name, address, telephone number, email address, and Media Access Control address of the Defendant to whom the ISP has assigned an IP address

The John Does are now real people and the pornographers’ lawyers can contact them and demand a settlement. In some cases, the lawyers treat the order as a green light to begin a campaign of terror and embarrassment. Ars Technica, for instance, reported earlier this year about a rogue West Virginia lawyer who used outrageous methods to sue more than 22,000 John Does across the country.

The John Doe pornography cases smack of blackmail (one can imagine the settlement offers — “Mr. Smith, you can pay a $5,000 copyright fine to make this gay porn incident go away forever”) but that is just the beginning of the problem. There is also the question of innocent people getting swept into these indiscriminate lawsuits and facing threats, default judgments and more.

Worst of all, the John Doe-style litigation is now poised to go mainstream as not just pornographers but regular companies embrace it too. Publisher Pearson and its subsidiary John Wiley, for instance, are now suing thousands of John Does too.

The copyright concerns, however, are legitimate. John Wiley claims that tens of thousands of its “For Dummies” books are being downloaded without permission and it is probably telling the truth. The pornography industry too has a right to complain about unauthorized distribution of its movies. Like it or not, the law of the land grants the same copyright protection to Shakespeare in Love and Muffy the Vampire Slayer.

Content owners are entitled to protect their creations. Unfortunately, whatever efficiency the “John Doe” suits provide is simply not justified by the rampant abuse and legal disorder they produce. Comcast made the right decision to blow the whistle.

John Doe and “Six Strikes”

Comcast’s bold decision to stand up for subscribers comes at the same time that a “six strikes” copyright enforcement scheme was supposed to go into effect in the United States. The scheme is the fruit of a landmark agreement between content owners and ISPs who have reportedly agreed to take on a greater role in policing file sharing. Under its terms, repeat file sharers are to face an escalating series of warnings and penalties.

The deal, widely reported in 2011, was supposed to go into effect this year but the start date keeps getting pushed back. Recent reports predicted a July date but now that seems to receding too. In response to an e-mail query, a spokesperson for the Recording Industry Association of America wrote:

The dates set forth in the MOU are not hard deadlines but were intended to keep us on track to have the [Copyright Alert System] up and running as quickly as possible. No ISP plans to launch until we are confident that each of the key components of the program is ready and able to be implemented in a manner consistent with all of the goals of the MOU. We expect our implementation to begin later this year.

This is only speculation but the failure of “six strikes” (the RIAA disagrees with the terms, saying there is no “out”) to materialize may be tied to the tidal waves of John Doe lawsuits that are being unleashed across the land. Comcast and other ISPs, which are supposed to send emails to their own subscribers under the deal, may be wary of becoming associated with the more controversial tactics of AF Holdings and others. As a result, “six strikes” may be on hold until content owners or the courts solve the John Doe mess.

Comcast declined to comment on either the lawsuit or “six strikes.”

According to TorrentFreak, Verizon has argued that the request for subscriber information is flawed for several reasons, including that an IP address may lead to a name, but that name may not be the alleged pirate, and that the request seemed like it was designed to harass subscribers rather than achieve any legitimate legal goal. With this argument, Verizon joins others, including judges, that are beginning to view the content industry’s efforts to flush our pirates as a type of extortion designed to get a settlement.

As my colleague Jeff Roberts wrote in November when one of these suits was filed:

The decision to sue “John Does” reflects the fact that John Wiley cannot immediately identify the actual names of the file-sharers. The publisher is therefore using a procedural tactic that permits it to amend the complaint later on in order to add the defendants’ real names which it can obtain from internet service providers.

John Wiley’s goal with the litigation is likely to force the defendants to agree to a settlement rather than go to a full-blown trial. The publisher has considerable leverage because the Copyright Act provides draconian penalties of up to $150,000 per infringement, meaning many defendants could be willing to pay a few thousand dollars to end the matter.

Verizon’s decision to stand up for its users probably has less to do with some chest-thumping love of online freedom, and more to do with its historical reluctance to become an arm of the law when it comes to policing users for illegal downloads. While many of the historical suits of this nature have focused on music and pornography, the publishing industry and others are seeing their chance to take a little back from online pirates.

If they are successful Verizon and other ISPs face a future of flushing out the John Does on their network and handing their names over to the content industry. That costs money and doesn’t exactly make your customers love you. For a sense of Verizon’s dilemma, check out this 2003 article for a reminder of the era when the RIAA was employing similar tactics to drag potential pirates into the bright lights of the courtroom:

[Sarah Deutsch, who was counsel for Verizon] had received dozens of subpoenas from RIAA and other entertainment trade groups, all of them fairly routine requests. But this one was different. Subscriber X wasn’t hosting illegal content on Verizon’s network; he was a Kazaa client that used Verizon for Internet access, and the disputed content was stored on his hard drive. Verizon had no way of verifying RIAA’s allegations. Deutsch refused to give up Subscriber X’s name.

“We’re not going to become the Internet police for RIAA,” Deutsch said. “There’s a delicate balance between copyright holders’ rights and our customers’ rights that needs to be preserved. RIAA crossed over the line.”

Looks like Verizon feels like Wiley is stepping over that line nine years later.

On a panel called “Content Industries in Digital Transformation,” Attaway was speaking for himself and others: moderator and AAP president and CEO Tom Allen, Business Software Alliance’s Robert Holleyman and Recording Industry Association of America’s Cary Sherman, all of whom grappled over whether legislation or collaborative approaches are the correct response to piracy.

“Among my friends in Congress, there is some alarm about what happened [surrounding SOPA and PIPA],” said Allen, who was previously a Maine congressman. “The woman who replaced me in the first district of Maine got 800 e-mails in two days, every one of them opposed to the bills. How in this environment can our respective industries do more to defend the principles of copyright when we’re confronting this wave of the public that goes every day to the Internet and downloads and reads all sorts of stuff for free?”

In general, panelists came down on the side of collaboration — though not necessarily collaboration with the consumer.

SOPA/Pipa Protests: A “Digital Tsunami”

“Right doesn’t always prevail,” Attaway said of SOPA and PIPA. “This time, it didn’t, because our opponents were able to energize a grassroots response. In my view, and I think all of us would agree, [the protest against SOPA and PIPA was spread] primarily through disinformation and spinning their interest in a way that captured the attention of a number of consumers.”

He added “we’ve been rather successful in negotiating with ISPs and other best practices that help protect our content on [user-generated content] sites….I’m very optimistic about our future.”

The Business Software Alliance, however, did not support SOPA or PIPA. “There was a tremendous amount of opposition and we can discuss how it was or wasn’t generated,” Holleyman said. “Shared responsibility and working with other industries is going to be the best, and maybe the only, solution we have, at least for the next several years. I hope we can build a climate where the rhetoric can be lower.”

The RIAA’s Sherman hopes further copyright discussions will be more “rational” than the debate over SOPA and PIPA. “The digital tsunami we encountered with SOPA and PIPA — we’re not going to get the same kind of engagement when we talk about statutory damages or open works,” he said. “We’ll have the opportunity for a more rational discussion. At the same time, I think we actually need to engage. We have criticized the other side for just saying no. We have an enormous piracy problem, and any solution we propose, they just say no. We [also] need to engage and not just say no.”

No, You Can’t Do Whatever You Want With That Movie

The music industry’s Copyright Alert program, which addresses piracy on P2P networks, will begin operation in the second quarter of the year, by July at the earliest, Sherman said. The software crawls P2P sites for pirated content, then works with ISPs to send notices to subscribers alerting them that they’ve been identified as possible copyright infringers.

“This is a concrete example of where we could go, and we would love to be following in your footsteps,” said the AAP’s Allen.

“Education is key,” Attaway said. “It is absolutely ridiculous that a movie that cost $100 million to create, a copy of which you paid $20 for, to say that you own that movie and should make any number of copies you want to. The intellectual base of the Copyleft is pretty flimsy, and we need to do a better job of pointing that out to the public. We need to do it from a grassroots base of the millions of people whose livelihoods depend on copyright protection. [Paying $20 for a movie] doesn’t mean you have the right to make all the copies you want and share them with all of your friends.”

In a suit filed last week in New York federal court, the indie labels say the only reason they didn’t sue Limewire themselves is because they reached an agreement with the file-sharing service. The agreement stated that if and when Limewire reached a settlement with the major labels, it would offer the indies the same “material terms” as that settlement.

After the majors got paid their $105 million, the copyright collection agency that represents indie labels, Merlin BV, contacted Limewire about getting its cut. “[W]hen confronted with their obligation to make such an offer, the Lime Entities simply refused, positing untenable arguments that find no support in the parties’ agreement,” Merlin BV says in the lawsuit (embedded below.)

Merlin BV represents some of the most popular independent music labels, including Epitaph, Merge, and Beggars Group; artists on such labels include acts like Vampire Weekend, Arcade Fire, Tom Waits, Neko Case, and Spoon.

Limewire fought the labels in court for more than four years before losing. But now that the company is an “adjudicated Internet music pirate,” as Merlin BV’s lawyers remind the court on the second page of this lawsuit, everyone involved wants to make sure they get something out of this company and its still-wealthy founder, Mark Gorton. (The music publishers piled on in 2010, and Limewire quickly settled with them.)

Merlin BV v. Limewire

As users move their music to the cloud, it’s likely that a large number of the tracks moving into the cloud are of, shall we say, dubious parentage. That is to say, many of them were likely transferred over a file-sharing network at one point. What’s going to happen with all those pirated tracks as music gets moved to the cloud? And what kind of information will Apple be gathering, and sharing?

While it’s not widely known, MP3 and other music files often contain personal information. Some of the biggest digital music stores-most notably Apple’s iTunes, but also Wal-Mart (NYSE: WMT) and the now-defunct Lala-encode metadata on MP3′s that are sold that include account names and email addresses. (Other services, like Amazon (NSDQ: AMZN), do not include such information-here’s a list of who does what.) Such information could be used in furtherance of a DRM scheme. TechCrunch published an article last year quoting a “music-industry insider” made clear that the encoding of such metadata was a direct result of pressure from certain record labels, which “have aspirations to use this hidden data to control future access to music.”

So will Apple be gathering such “metadata” when users who buy in to the cloud scheme allow the company to scan their hard drives, looking at all the music they bought? The gathering of such information would probably be part of any thorough scan, although that doesn’t mean Apple has to keep that data. In fact, if they’re smart, they won’t hold on to it.

Metadata ownership information about users’ music collections would be mighty interesting to copyright owners, even if they didn’t have any interest in filing a lawsuit over it. Imagine the sort of “See! We told you so!” we’ll be hearing if content owners are able to establish, for instance, that a high proportion of music files sent to the cloud were transferred illegally-in other words, that they have a username or email embedded in them that’s different than the cloud customer.

But let’s imagine how a more direct legal battle could erupt over cloud-music. We might not see a big record label go after a tough target, like Google (NSDQ: GOOG) or Amazon itself (although the labels certainly do seem to be keeping their options open in that regard.) Instead, consider this possibility, outlined to me by New York Law School’s Prof. James Grimmelmann: a much smaller copyright owner-like the ones now engaging in mass-copyright litigation-decide to file a broad lawsuit over music sharing, and try to use courts to get large amounts of metadata that would demonstrate which files were pirated.

“Somebody from a smaller label will be approached by a lawyer, who says, ‘I want to try this fishing expedition lawsuit,’” explains Grimmelmann. “I will try to force Apple to tell me which users have unauthorized versions of this, and then I’ll just file a shotgun lawsuit against all of them.”

To be clear: “Such a lawsuit would have serious problems and I think it would probably lose,” said Grimmelmann. “But because of the iCloud service, it could be a lot more intrusive.” Grimmelmann says he’ll be looking closely at the iCloud privacy policy to figure out just what types of information-gathering, and information-sharing, Apple intends to do with iCloud.

And consider that Google and Amazon are potentially even richer data sources. Apple’s big advantage over those services is that because they have struck licensing deals with the music labels, they’ll be able to simply scan user hard drives and then provide copies of music, obviating the need for big uploads. But users of the Google and Amazon cloud services will have to directly upload their own files-which will inevitably contain metadata indicating the original ownership of some files.

Think it’s unlikely that copyright owners would be able to pressure online companies into handing over private user information? Think again. The fact is, it’s already happening-routinely. For about a year now, enterprising copyright lawyers have been launching mass-copyright suits, suing thousands of “John Doe” defendants believed to have downloaded movies. The lawyers and their investigators collect IP addresses from BitTorrent sites, and then insist that the internet service providers hand over the user’s identity. While some have balked the ISP’s have handed over the identities of hundreds, if not thousands, of users.

This isn’t so hard to imagine. It’s already clear copyright owners are watching the development of online locker services very warily. The entertainment industry has already sued some services that they argue have overstepped the law-that includes mp3tunes, which won its case against the EMI record label in the lower courts and is defending on appeal; as well as the Hotfile service, which was just sued by the MPAA. And while it doesn’t seem likely at the moment, if the RIAA were to re-start its litigation campaign against individual music downloaders, a defendant’s iCloud data could be a big source of evidence.

The settlement was reached in the middle of a trial over how much Limewire would have to pay in damages. The trial was only on the damages issue, because Limewire had already been found to be breaking copyright law by a judge in the middle of last year. The service was forced to close up in October. Had the jury reached a decision, it could have picked a figure as low as $7.2 million or as high as $1.4 billion.

Limewire’s founder, Mark Gorton, had been testifying earlier this week, and admitted that he knew a large amount of files were being traded illegally on Limewire, but he had misread the law. “I was wrong,” Gorton told jurors, according to a CNET report. “I didn’t think our behavior was inducing [copyright infringement]. I understand that a court has found otherwise.”

For PR purposes, it was vital that the RIAA get a settlement that was more than $100 million. There’s something about a nine-figure legal settlement that really drives headlines. And as CNET’s Greg Sandoval pointed out, the file-sharing service KaZaa-which was only relevant for two years-had to pay $115 million to the music and film industries. So anything under $100 million would have looked like not enough.

Limewire’s law firm, Willkie Farr & Gallagher, released a statement confirming the settlement, and emphasizing how much lower the settlement was than some of the RIAA’s more out-there demands. And it seems to imply that the settlement was somehow connected to Limewire’s attorneys’ cross-examination of Edgar Bronfman Jr., co-owner of Warner Music Group (NYSE: WMG), one of the plaintiffs in the case. The law firm’s statement, in part:

Plaintiffs… claimed that they suffered $40 to $50 billion of damages and that Lime Wire was responsible for it all. At other times they have claimed that the amount of damages exceeded $1.4 billion.

On May 11, Defendants cross-examined Edgar Bronfman, Jr., the billionaire co-owner of Plaintiff Warner Music Group… Before that cross-examination was completed, the parties conducted a mediation and settled the case with a total payment of $105 million from the Defendants, thereby ending Mr. Bronfman’s cross-examination.

Probably best to take that with a few grains of salt. RIAA chairman Mitch Bainwol offered a different statement, noting that “LimeWire wreaked enormous damage on the music community, helping contribute to thousands of lost jobs and fewer opportunities for aspiring artists.”

The record industry wants to make a powerful example out of Gorton, and is demanding the maximum damages from the company and its founder–which would be $1.4 billion, according to CNET’s reporting from the courtroom. That’s far more than Gorton has, although he is wealthy–the RIAA’s lawyer made sure to mention to the jury that Gorton has a $100 million retirement fund and a fancy Upper West Side home.

Limewire lawyers said the service was being treated like a “scapegoat.” Record sales were dropping before Limewire took off, and in any case, file-sharers have been able to switch easily from one service to another since the dawn of the Internet. Gorton shouldn’t have to pay anywhere near the maximum damages, argues his lawyer, Joseph Baio. “Music that is free is here to stay,” he told the nine-person jury. “The consumer has won.”

The lawyer representing the record labels, Glenn Pomerantz, told the jury that what Gorton did was tantamount to stealing–and Gorton knew it. He designed Limewire so that he could pretend like he didn’t know illegal file-sharing was going on, working hard to establish “plausible deniability.” Pomerantz told the jury that Limewire had kicked off “the biggest theft of music in the history of the world,” according to a report in Courthouse News Service.

How will these competing narratives go over with the jury? It’s always hard to say, but I wouldn’t bet on Limewire in this situation. This is only a trial focused solely on damages–Limewire has already been found to be guilty of copyright infringement, and the jury has been told that. Juries in such a situation, knowing that a judge has already evaluated the case and favored one side, can sometimes be prone to judge somewhat harshly–consider the multiple tough judgments against the two individual file-sharers that have gone in front of juries, Joel Tenenbaum and Jammie Thomas. In addition, the RIAA is making emotional and moral arguments about right and wrong, which are easier to grasp than the economic arguments that Limewire is making.

In a sense, Limewire’s argument to jurors has to be “We know we’re bad, but come on, we’re not that bad.” It’s tough to make that argument in a compelling way. If Baio manages to limit the damage here, it will be impressive.

The jury, composed of eight women and one man, appears to be mostly middle-aged, according to CNET’s Greg Sandoval. That doesn’t favor Limewire either, since those more familiar with file-sharing–and perhaps sympathetic to it–tend to be younger and male.

The judge notified lawyers on Wednesday that the trial could last four weeks, which seems to me like a long time. I’ve seen complex patent cases argued to juries within six or seven days, so holding a four-week trial for a case that isn’t that complicated seems like it could be overkill. But judges do have great discretion in scheduling matters.

The RIAA can “double-dip” when collecting damages from Limewire. As part of a massive litigation campaign began in 2003, the RIAA sued tens of thousands of individual downloaders who used Limewire and other services. Those include relatively small settlements of several thousand dollars each for 104 songs that were downloaded by individuals from Limewire, and are also in the RIAA’s big list of tracks it wants the service to pay damages for. Defense lawyers for Limewire argued that such “double dipping” shouldn’t be allowed. Even though copyright law allows statutory damages of up to $150,000 per work, those can only be collected for each work once, the file-sharing service said. But the judge rejected that argument and RIAA lawyers will be able to get statutory damages for all infringed tracks, even ones it has already collected for from individuals.

What’s the significance? The effect on the damages in this case will be small; the ruling affects 104 tracks out of the 9,715 songs for which the RIAA wants to collect statutory damages. But it’s good precedent for the record labels, because it shows their campaign against individual downloaders won’t get in the way of pursuing lawsuits against the online services those individuals used.

The RIAA won a decisive victory over the “album v. song” issue. Copyright law allows for damages of up to $150,000 per work willfully infringed. But what’s a “work?” Limewire lawyers argued that for songs released in an album, they should only be held liable once for the whole album. But U.S. District Judge Kimba Wood ruled yesterday that for any song that was available as an individual track on iTunes–which is the overwhelming majority of the songs the RIAA is suing over–the labels are entitled to damages for each song.

What’s the significance? This is a great precedent for the labels and owners of music copyrights. iTunes has helped kill off whole-album sales by allowing consumers to just buy the tracks they want. That wasn’t great for the recorded-music business. But this ruling means that the iTunes revolution also may result in an unintended consequences–dramatically raising damages for infringing music copyrights. Going forward, it will be harder for defendants trying to limit their damages to hide behind “album only” legal precedents from the pre-iTunes era. “Many (if not most) of Plaintiffs’ sound recordings were issued and infringed on an individual basis,” wrote Wood. The fact that those sound recordings were also compiled as parts of albums does not alter this fact.”

In Joel Tenenbaum’s original trial in 2009, the only thing for the jury to determine was damages, since Tenenbaum had admitted to sharing the 30 songs at issue in the case. The jury stuck him with a $675,000 damages bill, or $22,500 per song. But the judge then said that was “unconstitutionally excessive” and cut it down to $67,500-a 90 percent reduction. The RIAA appealed, likely not wanting to be stuck with a precedent where a judge can cut a jury’s copyright damage award so sharply.

During yesterday’s arguments, a lawyer from the Justice Department spoke in support of the RIAA’s position that the high damage awards were fair, and were in line with what Congress intended. But the judges seemed skeptical of that position. One judge on the appeals panel asked asked if those damage awards were truly meant to apply to non-commercial copying of the sort Tenenbaum did-and if so, why were there so few non-commercial copying cases that actually went to trial? (Those would be the Tenenbaum case and the Jammie Thomas case in Minnesota.)

“The Copyright Act reflects Congress’ unmistakable judgment that copyright infringement is a serious problem,” said Paul Clement, the lawyer representing the RIAA. “Non-commercial copying was never excluded. This [file-sharing] technology turns home copiers into home distributors.”

But the judges seemed just as skeptical-if not moreso-towards Tenenbaum’s lawyer, Havard Law Prof. Charles Nesson. He tried to argue that Congress never meant the high statutory damage awards to apply to non-commercial copiers like his client. “It is now 2011,” noted one of the judges on the panel. “Congress is surely aware of this [RIAA] litigation. And they have taken no steps to amend the law… to exclude non-commercial users.”

Overall, the way that Tenenbaum’s legal team, led by Prof. Nesson and his law students, have handled this litigation has been criticized from many sides-even from some commenters who consistently oppose the RIAA’s position, who have questioned why Nesson took this case to trial at all. At times, Nesson’s argument in favor of Tenenbaum seemed to boil down to not much more than a “kids will be kids” kind of plea. It’s a bit ironic that it’s only now, after such a major loss, that Nesson and Tenenbaum have a shot at scoring a win on this damage issue. But after yesterday’s arguments, before judges that were sometimes sympathetic, even that still looks like a longshot.

»  Sound recording of the argument at the U.S. Court of Appeals for the 1st Circuit [MP3]
»  Briefs in this case are available via Ray Beckerman’s blog.

The reason that the music publishers were able to bring their own case is that music recordings generally have two separate copyrights-the copyright in the composition and the copyright in the actual sound recording. Several of the music publishing plaintiffs are connected to the record label plaintiffs, so Limewire is in the odd position of having reached a settlement with Universal Music Publishing Group, for example, while it’s still being sued by Universal Music Group. Terms of the settlement with the music publishers were not disclosed.