As we wrote over the summer, one of Okularity's targets was the well known Paper Magazine, put out by the publisher Enttech Media Group. Enttech said that Okularity sought to have Paper Magazine's Instagram account shut down, and then offered to "settle," demanding a pretty massive sum in the process. The lawsuit alleged violations of DMCA 512(f) which is the (unfortunately) mostly toothless part of the DMCA that is supposed to allow those on the receiving end of bogus DMCA takedowns to fight back. In practice, however, courts have mostly rejected all 512(f) claims, or made it so they're basically impossible to do anything useful with. Because of that, any time we see a 512(f) claim that has legs, we pay attention.

The original complaint also tried to argue that Okularity violated the RICO statute, and long time readers here know what we think of RICO claims. While there did appear to be some unauthorized practice of law happening, there didn't seem to be nearly enough to make a RICO claim -- because there's basically never enough to make a RICO claim. We predicted that the RICO claim would get tossed out, but that the 512(f) claim might live on.

Turns out, we were right.

While the case has had some twists and turns, this week the judge tossed out the RICO claims, but is allowing the 512(f) claims to move forward. Nicolini and Okularity had argued that Enttech's lawyer, Robert Tauler, should face Rule 11 sanctions for ignoring evidence regarding their fair use analysis, but the court rejected those as well. Tauler did have to file a third amended complaint, however, to get to this point, as the court did find the first two complaints somewhat deficient.

But on the key point -- 512(f) -- the court notes that the case can continue, even under the confused Lenz standard in the 9th Circuit, that basically said (1) DMCA filers have to "subjectively" consider fair use to be a "good faith" filing, but (2) automated takedowns may be okay... because we say so. Nikolini and Okularity argued that they do consider fair use before sending notices, while Enttech argued the notices appeared to be totally automated. The court basically says -- Enttech has met the initial burden that the case can move forward.

One key point of contention in this: the takedown letters sent by Okularity do contain a "discussion of infringement and fair use," Okularity claims that shows that it does consider fair use. Enttech responded that every single notice Okularity sends contains an exact copy of this discussion, suggesting no actual analysis is done, and it's just a cut-and-paste. This point is what the judge focused in on:

ENTTech’s allegation that the DMCA notices contained an analysis of infringement and fair use presents a question of first impression with respect to the standard for pleading a claim under § 512(f). Is it sufficient for ENTTech to allege that, notwithstanding the takedown notices’ explicit and extensive fairuse analysis, Defendants did not actually or sufficiently consider fair use before issuing the takedown notices? At first blush, the fact that the DMCA takedown notices contain fair-use analyses—even if those analyses are identical and pro forma—seems to satisfy the requirement to “consider” fair use before issuing a takedown notice. See Lenz, 815 F.3d at 1154. The presence of the purported fair-use analysis in each takedown notice also distinguishes this case from Lenz where the plaintiff alleged that the defendant did not consider fair use at all. Cf. id.

Is ENTTech required to allege additional facts, in view of the appearance that Defendants considered fair use? For example, must ENTTech allege evidentiary facts concerning Defendants’ analytical process or subjective state of mind (the type of facts which, in most cases, are not available to a plaintiff before discovery is taken)? Does the Iqbal/Twombly plausibility standard require ENTTech to aver its own analysis of fair use to support an inference that Defendants merely paid “lip service” to the consideration of fair use? Cf. id. at 1163. Having considered these questions, the Court concludes that ENTTech’s allegations in the TAC are sufficient at this stage of the litigation.

The court points out that the ruling in Lenz supports allowing this case to move forward, saying that it's a factual question whether or not the takedown notice sender had a "good faith belief" that the notice was legit, and therefore, it's up to a jury to decide.

Although Lenz involved a motion for summary judgment, that decision is nevertheless instructive with respect to the issue presently before the Court. Lenz supports the conclusion that the question of whether a copyright owner formed a subjective good faith belief that an alleged infringer’s copying of the work did not constitute fair use is, in most instances, a factual issue that is not appropriate for resolution on a motion to dismiss. “Because the DMCA requires consideration of fair use prior to sending a takedown notification,” the Ninth Circuit held that “a jury must determine whether [the defendant’s] actions were sufficient to form a subjective good faith belief about the [allegedly infringing] video’s fair use or lack thereof.” Id. at 1154. In response to the arguments in the dissenting opinion regarding the propriety of granting summary judgment, the Lenz panel majority explained that the relevant question was “whether the analysis [the defendant] did conduct of the [alleged infringing material] was sufficient, not to conclusively establish as a matter of law that the . . . use of the [copyrighted material] was fair, but to form a subjective good faith belief that the video was infringing on [the] copyright.” Id. at 1154 n.3.

Therefore, because it is generally a factual issue whether the analysis that the defendant did conduct of the alleged infringing material was sufficient, see id., it necessarily follows that to plead a claim under § 512(f), it is enough for ENTTech to allege that Defendants did not consider fair use (sufficiently or at all) before issuing the takedown notices. And that is exactly what ENTTech alleges here. Requiring ENTTech to allege more would effectively impose a heightened pleading standard, see Fed. R. Civ. P. 9(b), and no authority holds that claims under § 512(f) must be pleaded with particularity. Thus, although it may be advisable for a plaintiff like ENTTech to aver additional facts (such as its own analysis of fair use) to support the allegation that a defendant’s fair use analysis was merely pro forma, the Court cannot conclude that ENTTech is required to plead such facts in order to state a plausible claim for relief under § 512(f).

In the grand scheme of things, this is only a small step forward, but it is a step forward for 512(f) -- a part of the law that rarely ever sees any positive news. This doesn't mean that Enttech is likely to win, but it does mean that the courts may crack the door open just ever so slightly in letting people and companies fight back against abusive DMCA notices.

It appears that Nicolini has since set out on his own, creating a more modern form of a copyright trolling operation called "Okularity." We've talked recently about how some folks have, instead of using the courts, simply been using social media takedowns via bogus copyright claims as a form of extortion, and that's become quite popular. However, so far, it seems that this has mostly been done by stupid kids looking to make a quick buck.

Nicolini and Okularity appear to have professionalized the extortion racket.

And they may have picked on the wrong person. In a recently filed lawsuit by Enttech Media Group, the parent company of the famous (and excellent) Paper Magazine, lawyer Richard Tauler lays out in great detail the kind of scam shakedown that Nicolini runs via Okularity:

Defendants are engaged in a scheme to deprive Plaintiff and similar digital media companies of their assets by unlawfully manipulating the take-down notice provisions of the Digital Millennium Copyright Act (“DMCA”). Specifically, Defendants have created software for the express purpose of disabling valuable commercial accounts on social media platforms (in this case Instagram) so that they can then demand extortionate sums (in this case over a million dollars) from the account holders to have the accounts restored.

The scheme operates in the shadows of the Copyright Act and the DMCA. The DMCA provides a rapid procedure (referred to herein as a “DMCA Notice”) so that copyright owners can protect the widespread proliferation of their content digitally. A DMCA Notice requires a statement under penalty of perjury that the submitting party has a good faith belief that the content identified in the notice is infringing on a copyright and that the submitting party is either the copyright owner or an authorized agent of the copyright owner.

Most social media platforms, including Instagram, have policies whereby accounts are disabled once a certain amount of DMCA Notices have been submitted on a particular account. Once an account reaches this threshold, Instagram will not reinstate the account until the underlying copyright “dispute” is resolved. Because of the work associated with the identification and investigation of copyright claims, as well the DMCA’s penalties for misstatements, it is generally unlikely that owners of legitimate copyrights would abuse this system.

However, given the massive financial incentives provided to mercenary litigants by the Copyright Act, would-be claimants have leveraged advances in technology to create economies of scale in pursuing claims. Specifically, Okularity has developed software that crawls the internet for images that infringe on allegedly protected works. Through its proprietary software, Okularity automatically generates and submits DMCA Notices to any social media platform, including Instagram, containing an image in Okularity’s database. Okularity does this without any of the investigation, warning, or legal analysis required by the DMCA, let alone any demand letter to the alleged infringer.

Rather, Okularity lies in wait while DMCA Notices accumulate to the point where Instagram disables the account. Only then does Okularity begin to negotiate “settlement” for the alleged copyright claims. Okularity operates this way because Okularity knows that Instragam is the lifeblood of any digital media company, particularly one like Plaintiff Paper, which primarily is engaged in the business of reporting and commentary of popular culture news and, as such, targets a young demographic that uses Instagram as its primary source of media consumption. Okularity knows that if a business like Paper has its Instagram account disabled, it has a metaphorical gun to the head of the target company, since it also knows that Instagram will not reinstate the account without a resolution of the “dispute.” With this type of leverage, Okularity (and in turn the Clearinghouse Defendants) can demand sums that they would never be able to demand with a straight face otherwise, putting owners of even large businesses like Plaintiff in a life-or-death situation.

Pretty fucking sketchy, no? As the lawsuit notes, however, this appears to violate the terms of the DMCA regarding what you need to do in filing a notice -- making this an interesting test to see whether or not the courts might finally give Section 512(f) of the DMCA (the part that says you can't file bogus notices) some more teeth. As we've noted, courts have been reluctant to care much about 512(f), which has set up a very unbalanced system, in which tons of people and companies regularly abuse DMCA notices. Usually for censorship.

Here it appears to be for extortion.

The specifics of the Paper Mag / Okularity situation detail how this seems to be an entire business built around extortion, with a bunch of unauthorized practice of law built in as well.

Okularity, which is not a law firm, purportedly “represents” the “Clearinghouse Defendants” with respect to their Copyright “claims.” Okularity’s “CEO” Jon Nicolini, created the software Okularity deploys to file DMCA Notices, and negotiates “settlements” with victims of the scheme once they contact Okularity. Nicolini, who is not an attorney, implies that he is an attorney to victims by interpreting the application of the Copyright Act to images, engaging in damages analysis regarding “claims” of his “clients,” and by negotiating resolution of legal claims on their behalf.

Defendant Backgrid actively solicits members of the public, including persons with whom it has no relationship and about whom it has no knowledge, to upload to it photos which Backgrid will then ostensibly “license” (for payment) others to display and otherwise exploit. Backgrid then uses software to automatically generate copyright management information (“CMI”) so that it can track whenever an image is used. Since Backgrid conducts no due diligence of images uploaded to its website for exploitation, and the corollary opportunity for abuse, Backgrid itself has been sued by actual copyright holders for copyright infringement.

Defendant Splash is similarly a clearinghouse for photographs with a checkered past. In 2018, Splash was sued by soccer star David Beckham for its “predatory and distasteful” tactics, which included demanding payment from Mr. Beckham for posting a picture of himself (taken by a paparazzo) on his very own social media account. Beckham v. Splash, Case 2:18-cv-01001-JTM-JCW (E.D. La.). Counsel for David Beckham viewed the $40,000 demand as an attempt to “extort.”

Okularity’s new business model pre-empts such lawsuits by using DMCA Notices instead of demand letters. However, since the DMCA Notices are automatically generated and submitted without any attorney supervision, Okularity does not engage in any analysis prior to generating and filing DMCA take-down notices as it should.

Rather, Nicolini operates the scheme with the sole objective to disable social media accounts. Not only is no demand letter needed, the scheme makes it so that its victims come to Okularity, often in a state of desperation, once they realize their asset is being held hostage. This is precisely what occurred in the instant case.

It was only after Okularity filed forty-eight (48) DMCA take-down notices against Paper that Instagram disabled Paper’s account. The same day, July 8, Paper was provided with the contact information of Nicolini, who immediately began negotiating the “claims.”

Nicoloni suggested that Paper was facing $4.65 million in damages under the Copyright Act. Nicolini curiously added that it was not his “first rodeo.” A screenshot of the email is below:

Sixteen minutes later Nicolini responded, this time with apparent authority to communicate on behalf of his “clients” under Federal Rule of Evidence 408 to settle for $1.01 million:

However, Nicolini is not an attorney and is therefore unable to assert legal claims on behalf of his “clients,” and likewise cannot negotiate and enter into agreements on their behalf in the context of a copyright lawsuit.

Needless to say, this offer was unable to be accepted. In further effort to reach a resolution, the undersigned requested Mr. Nicolini provide the DMCA notices so that Plaintiff could assess the claims at issue. Nicoloni has refused to do in the absence of a “non-disclosure agreement.” When asked why a “non-disclosure agreement” would be needed, Nicolini had no answer

That's... pretty fucking sketchy in many different ways. The lawsuit argues that the defendants breached 512(f)... but then also throw in a RICO claim. And that always seems iffy. As we all know, the Popehat rule of "it's not RICO, dammit" tends to apply. And I'd still lean towards it not applying here, but I have to admit that this is closer to an actual civil RICO claim than you normally would see. You do have a group of individuals / companies, working together in a pattern to shake down businesses. I still don't expect that claim to last, but this sure does look like a traditional shakedown scheme, using DMCA takedowns for leverage over social media accounts.