Sanctioned By the Courts, The Great Porn Copyright Attorney John Steele Does a Q&A with Ars Technica

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from www.arstechnica.com- After years of fine-tuning a business model built around copyright lawsuits over pornographic movies, prolific anti-piracy lawyer John Steele is now on the receiving end of a devastating sanctions order by a federal judge in Los Angeles, who has recommended a criminal investigation of Steele and his colleagues.

For “copyright trolling” critics ranging from the Electronic Frontier Foundation (EFF) to anonymous anti-troll blogs, this week’s order has been sweet vindication—and it elevated the Prenda Law situation to the attention of the national press. But all Steele sees is injustice.

Several copyright trolling operations are now suing thousands around the nation and, against his will, Steele has become the poster boy for their cause. In the face of increasingly serious charges, Steele has largely maintained his silence, but he unexpectedly responded to Ars this week. We had a wide-ranging, 90-minute discussion about Steele’s reaction to the order—which he vows to appeal—and the true nature of his business.
A question of dignity

Ars: What was your reaction to yesterday’s order by US District Judge Otis Wright?

John Steele: I mean, it starts out with a reference to Star Trek. Here’s a general rule of thumb: any time there’s more references to Star Trek than to case law, I think that’s a bad sign. I counted over 30 references to Star Trek, myself. I just think this is a serious matter.

He talks about “battle-stations”? That tells you something about where this judge is coming from. In the same sentence he talks about attorneys having “moral turpitude,” he uses Star Trek terms to describe it? It’s really beneath the dignity of the court.

As for the needs of the many outweighing the needs of the few [a Star Trek quote at the top of Judge Wright’s order]—that’s not [how the legal system works]. If the needs of the few didn’t matter, black people wouldn’t vote in most Southern states.

The deposition that [former partner] Paul Hansmeier gave wasn’t even certified. It shouldn’t have even been allowed to be used. There are hundreds of problems with this order in my view.

Many people involved in this [Prenda] litigation probably think along the lines of winning in court, and less along the lines of PR on the Internet. I’ll be the first to admit: we have definitely lost the PR battle. But very few people can argue that these [sanctions] are allowed, legally. The overwhelming majority of courts have found in our favor in hearings. The only cases that stand out are Judge Wright.

These same allegations have been made by [defense attorney] Mr. [Morgan] Pietz in other cases. I—and others involved—have been in front of hundreds of judges. This is the first judge that has ever sanctioned anybody involved with Steele Hansmeier, Prenda Law, or whatever.

Ars: Could you react specifically to the statements in the order that your strategy was to intimidate people, using these accusations about pornography, into paying settlements?

“This judge is completely biased against our type of litigation. Anyone who’s researched this judge knows it.”

Steele: I understand there are people with partisan interests here, especially people who read your site. A typical order, especially one involving sanctions, points to evidence and proof as to what the sanctions are [about]. We think a lot of the assumptions made are inaccurate and not based on any evidence. The hearing involving me and some other people [in April] was 12 minutes long and no one testified. It’s my understanding that’s the only basis the court can use to enter sanctions.

This judge used things he heard in other matters, or maybe read on the Internet, or heard from attorney Pietz.

Ars: Judge Wright made clear that the April hearing was your chance to explain your side of the story. It was your choice not to do that.

Steele: It’s not our job to—there was no evidence against us! I think everyone, even the people that dislike anti-piracy litigation, would agree that I don’t have to answer questions if I don’t want to. That’s my right. The fact that people take the Fifth Amendment, against compelled testimony, is not allowed to be a negative inference.

I have no involvement in this case. I’ve never made a misrepresentation [to the court], either me or Paul Hansmeier.

This judge is completely biased against our type of litigation. Anyone who’s researched this judge knows it. There have been some very harsh rulings by this judge against intellectual property plaintiffs. I think there were some errors made, and that’s why we have appellate courts.

I think the judge knows we’re going to appeal. He wrote that the sanctions were designed to cost just less than [an effective appeal]. Look, you may hate me and the litigation that’s gone on in the past, but most people have to be a little nervous when a judge puts out a number and says that.
“They try to change the narrative”

Ars: You’re saying you have no involvement in this case. You have no involvement with these shell companies that have been suing people, AF Holdings and Ingenuity 13?

Steele: Not until I received an order to show cause. I’ve spoken to some of the other people [involved], and they’re in a similar situation. I didn’t know about this until February of this year. Until March I hadn’t read a single pleading in this case. I, quite frankly, had never been involved in any case in California.

If there was evidence I was involved and [Prenda Law lawyer] Paul Duffy was involved in more than just the somewhat supervisory role of Brett Gibbs, then that evidence would have come out.

Ars: Brett Gibbs testified at the March hearing that you and Hansmeier were “senior partners” at Prenda Law. He says you were supervising. Were you?

Steele: No. Absolutely not. Where’s the evidence that we supervised Brett Gibbs? Where are the e-mails?

Ars: Gibbs testified that you were in control of these entities. You ran them. You initiated cases, you settled cases.

“Nobody I’m aware of, including myself, has ever forged Alan Cooper’s signature. That is a pretty outrageous claim.”

Steele: Where are the documents showing that I own any of these entities? I’ve never even heard of a couple of them.

Ars: So when people settle a case with Ingenuity 13 or another Prenda Law client, you don’t get any of that money?

Steele: I never have and I never will. I don’t own any of the entities I recall them mentioning in this case, other than Steele Hansmeier [Steele’s old law firm].

And the person who actually does control these entities—Mark Lutz—has stated under oath, in multiple hearings, that he does control them. The Court’s like, “I don’t care. I determine what I want.” Mark Lutz has indicated that he’s going to join the appeal, because his entities are liable for the financial portion of the sanction.

Let’s step back for a second and think about something. What none of [the defendants] are talking about is whether or not they’re responsible for what happened. The question is whether or not the defendant stole [the content] from the plaintiff. Many of the pirates tried to fight that with motions to quash, but the pleadings evolved to a point where that’s not an effective solution. Eventually the plaintiffs get your information.

They try to change the narrative. The last thing the pirates want to talk about is whether or not they stole that content. So the tactic has been to go after the credibility of the attorneys, the plaintiffs. And it’s been effective. They did a good job.

Ars: You’re saying there’s no evidence, and that Wright’s order is just based on the April hearing in which you didn’t testify. But there’s a lot more than the April hearing referenced. [Former Steele property caretaker] Alan Cooper says he never signed on as an officer of these shell companies, and the order states that Alan Cooper’s signature was forged.

Steele: I’m sure there will be some investigation into that. There are certain things—I have to be careful. I’m well aware Mr. Cooper said he never signed those documents. He said it was a forgery—those were words the court used. I’m very comfortable with the facts, and everything in my possession leads me to believe that Mr. Cooper’s involvement with AF Holdings was different than what he led the court to believe. It will ultimately come down to a “he said, they said.” Nobody I’m aware of, including myself, has ever forged Alan Cooper’s signature. That is a pretty outrageous claim.

And for the love of God, where is the evidence [of forgery]? If someone had found something, it would be on the front page of Ars Technica and half a dozen other sites within minutes. There’s no way any of that evidence could exist. Because it’s not true.

Ars: So you say you don’t have any involvement with these entities. Well, what do you do?

Steele: What I don’t do is practice law. Paul Hansmeier and I stopped practicing, I wound down my practice. In 2011, all the clients went over to a new firm created by Paul Duffy. I haven’t filed any cases since I moved down to Florida.

I work part-time with Livewire Holdings, one of the entities that Lutz owns. My role is on the business side. I acquire other adult content companies and deal with expanding the holding company. The main goal is to handle a lot of content and websites and to be involved in the adult space. For that, I’m paid a flat fee. I won’t say how much, but it’s a modest flat sum. I’m not getting a percentage or a piece of settlements or anything like that.

Ars: So Mark Lutz owns Livewire, which you work for. Mark Lutz [through a trust he controls] also owns AF Holdings and Ingenuity 13, the two companies being called out by Judge Wright. But you don’t have any involvement with those companies?

“You know, what pirates often times don’t get is that this is not a huge moneymaker.”

Steele: No. I’m not even aware of what their current status is. Now, there wouldn’t be anything wrong if I did have an ownership interest in Ingenuity 13 or AF Holdings. An attorney can own a company that makes content and sues people for stealing it. If I did have an ownership interest I would just say, “Yes, I do, and what’s the big deal?”

If you, or anybody else, can ever find any evidence to support these crazy conspiracy theories—that I own Prenda Law, or I have an ownership interest in these companies—please send it to me. I can bet my bottom dollar that none of that [evidence] ever existed. It’s a pretty bold claim to make. If there’s anything out there, let’s see it.

Ars: It looks odd. These men, Mark Lutz and Paul Duffy, are your associates and have been for some time. Mark Lutz used to work for you. He was a paralegal at Steele Hansmeier. Now you say he’s in control of all these different businesses, that he’s in charge, that he’s your boss. And Duffy is in charge of all the litigation.

Steele: Years ago, he [Lutz] was someone who came in to help with various aspects of Steele Hansmeier. My understanding is [that] he had other business interests and adventures. He saw certain opportunities. I think he got together some capital. He started pretty small—had a small little site, various movies on DVDs. I don’t know the exact details.

And I think what Paul Duffy is doing is great. What Prenda Law has done, going after people for piracy—I commend them. I know that Mark Lutz met Mr. Duffy while working with me, I know that for a fact. They began talking and working together on things.

Ars: All these companies are suing people for allegedly downloading pornography. Livewire, the one company you do acknowledge you work for, is also enforcing its copyrights and suing people. Now you’re saying you’re just not involved with these porn downloading lawsuits at all?

Steele: I think they’ve done a few cases. I’m not involved with that litigation. I don’t file anything. You know, what pirates oftentimes don’t get is that this is not a huge moneymaker. I know from past experience at Steele Hansmeier that over half the clients we got never made any money off suing pirates.

Ars: Well, how much money have you made? Last year a Forbes reporter suggested you could have collected $15 million in settlements, and you responded by saying the actual figure was “more than a few million.” Have you made millions of dollars suing people?

Steele: I wish I had. At the time my wife made some joke wanting to know where I hid the other $14.5 million. There are a lot of costs associated with litigation.

Ars: So when people get a demand letter in the mail, and they decide they don’t want to litigate, and they pay—none of that money goes to you?

Steele: Correct. Well, let me clarify. I do get paid as a part-time employee of Livewire. I get a W-2. But I certainly do not get a statement at the end of the month saying, there was this much in settlements and here’s your cut.

Ars: Have you received a portion of illegal downloading settlements in the past?

Steele: As an attorney for Steele Hansmeier, I certainly received compensation for settlements then, working on contingency. [But not for Prenda].

The reality is, you can’t hide bank records. I’ve never hid that I owned Steele Hansmeier. But since the formation of Prenda, Paul Duffy owns it. There has to be some evidence that’s wrong [for us to be lying]. What else can we do? We have signed affidavit after affidavit. If my claims are wrong, they will be completely belied by bank records. It’s not like we’re dealing in cash.

Ars: Let’s talk about Livewire, which you do work for. Right now there are demand letters going out in a case filed by LW Systems, a Livewire subsidiary. It’s a hacking case where they won the right to subpoena hundreds of ISPs. You’re not involved with that? You have no involvement when LW Systems files a lawsuit?

Steele: My understanding is that’s being handled by Paul Duffy. I’m told about it, I’m aware when things happen. But I’m not involved.
“The value of the movie is minimal… because of piracy”

Ars: I think part of the criticism of your business model—referenced in the judge’s order, also from blogs, from attorneys on the other side—is that you’ve sort of hacked the copyright system. Does this company do anything other than sue people?

Steele: Well, they have websites. I know the next question is going to be to list out the websites and so on, but you’ll have to bear with me. I’m certainly not able to talk about the different entities… some of them are selling their content and collecting information on people that are stealing.

Livewire is a holding company. My role is company building and acquisitions. We’re buying other adult content companies. There’s a lot involved in that process—making sure the basic numbers are correct and so on. A lot of people want to sell adult content companies now because of the piracy problem.

Ars: If Livewire is an adult content company, tell me what movies you have, or are working on. I mean, name a few Livewire movies that are being sold.

Steele: I know some subsidiaries of Livewire are involved in making content. I’ve been on shoots to see various scenes.

“Why would we make piracy easier? ‘Go here, not here—do this, not this?’ Then the pirates know where to go.”

I’d have to get OK from Mark Lutz to tell you the titles [of movies being sold]. And, I’d have to be sure those [movies] aren’t being monitored by technical services [to check if they’re being downloaded].

Ars: You’re telling me you can’t identify your content because you’re in the process of finding people to sue for downloading that content?

Steele: We are not going to list [content we are using] to track thieves. They’ll come out. Your readers and pirates will quickly learn what companies are doing this. We just prefer that pirates not know who is being monitored.

Why would we make piracy easier? “Go here, not here—do this, not this?” Then the pirates know where to go. They also know what websites to hack. We had a website that just crashed, and we had to rebuild it. We’re not going to do something to help piracy and hurt our company.

Ars: What I’m getting at here is, people are saying you have no real business beyond suing people. That’s a big part of the criticism. People say you’re leveraging large damage payouts and high defense costs to threaten people. Livewire, and other Prenda-related companies, insist these users have to pay thousands of dollars for allegedly downloading movies that have little, if any, market value.

Steele: You’re right. A lot of times, the value of the movie is rather minimal, right now. I’ll be the first to admit that. We have to ask ourselves, why? I would argue, it’s because of piracy.

Ars: If you and Paul Hansmeier don’t run AF Holdings, why would Hansmeier be the person who was sent to be deposed about AF Holdings?

Steele: I believe he went out as a favor. They needed a corporate representative, and he was authorized to provide that, for AF Holdings, for Mr. Lutz. You want to have a strong corporate representative to get up and deal with Mr. Pietz for seven hours. There’s not a whole lot of people in a typical adult content company that can answer a lot of the questions that were asked.

Ars: And so what is Paul Hansmeier up to? I called him to talk about the order, and he referred me to you.

Steele: I believe he deals with some class action type of litigation. He also helps me when I’m looking for acquisitions, he’s got experience in that area. So he works essentially part-time for Livewire. It’s on a project basis.

[Ars note: The “flat fee” arrangement described by Steele apparently applies to both Hansmeier and his brother Peter Hansmeier, who gets a “flat fee” of $6,000 a month for forensic services, according to Paul Hansmeier’s testimony.]

Ars: Thanks for talking to me, John. I think it’s important to get your side of the story out there.

Steele: Thank you.

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