Google’s Racketeering Challenge

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Eric Schmidt confers with some confused witnesses

According to a recent civil lawsuit, a plaintiff is suing Google for violating the racketeering laws (aka “RICO”).  (Attia et al v. Google et al, Cal. Sup. Ct. (Santa Clara) Case No. 1:14-cv-270143.)  I’ve been waiting for this since 2012 when it dawned on me one day that Google is running a criminal enterprise (see “Google’s Guide to RICO“).  So what does this RICO business mean?

If you’re even occasionally exposed to contemporary crime movies you’ll have heard of “RICO”.   The “RICO” statute is the acronym for the Racketeer Influenced and Corrupt Organization Act which allows a criminal prosecution against the leaders of an “ongoing criminal enterprise”, particularly where the leaders of that organization order others to commit crimes, often called “RICO predicates”.  The loophole was that leader didn’t do the crime, but ordered or assisted others in committing it.  (Recall the Senate hearings in The Godfather II, and see the first major RICO criminal case, US v. Scotto, 641 F.2d 47 (1980) for those reading along.)  You know, that thing that happened with those guys down at that place we used to go back in the day.

Often overlooked is the civil cause of action that may be brought either by the government or by private citizens under both the federal RICO statute and the 33 or so state law versions of RICO.  This allows private citizens who have been harmed by corrupt organizations to sue for treble damages and attorneys fees.  The Department of Justice civil RICO manual is also instructive for government action under the statutes:

Civil RICO, 18 U.S.C. § 1964(a), authorizes potentially intrusive remedies, including injunctive relief [typically sought by the government], reasonable restrictions on defendants’ future activities, disgorgement of unlawful proceeds, divestiture, dissolution, reorganization, removal from positions in an entity, and appointment of court officers to administer and supervise the affairs and operations of defendants’ entities and to assist courts in monitoring compliance with courts’ orders and in imposing sanctions for violations of courts’ orders.

RICO remedies are ample and were intended to be applied against white collar criminals as well as organized crime bosses.  The statute was drafted by Professor G. Robert Blakey–remember that name–now the William J. and Dorothy K. O’Neill Chair in Law Emeritus at the University of Notre Dame School of Law.  As Professor Blakey told Time magazine:

“We don’t want one set of rules for people whose collars are blue or whose names end in vowels, and another set for those whose collars are white and have Ivy League diplomas.”

Or whose collars are white, have Ivy League diplomas and live in Silicon Valley.

According to reports, Professor Blakey is advising Mr. Attia in filing an amended complaint in Mr. Attia’s case against Google alleging RICO violations in addition to the core claims of bad behavior by Google against Mr. Attia (The Verge has a good summary of the pre-RICO filing here).

What is particularly interesting about the RICO filing is that it turns on the RICO intellectual property theft predicate (at p. 28):

1. Defendants [meaning Google and certain Google executives and affiliates] have a long history of theft of others intellectual property which continues to date and which constitutes a pattern of racketeering activity 

112.  Defendants have engaged in a pattern of racketeering activity, as defined in 18 U.S.C. § 1961(5), through the repeated, relentless, and purposeful theft of other companies’ IP and trade secrets. 

113. Defendants have engaged, and continue to engage, in a pattern of activity whereby Defendants: 1) seek out inventors; 2) promise such inventors that Google will invest in, partner with and/or seek to acquire a license for any proprietary inventions of the investor; 3) sign a non-disclosure agreement (NDA) with inventors; 4) upon inducing inventors to reveal trade secrets and other confidential information, Google disregards the NDA and misappropriates the trade secrets; and 5) Google then subsequently attempts to box-out the victim inventors from the market by filing numerous patent applications which result in the unauthorized disclosure of the inventors’ trade secrets and the subsequent granting of a monopoly on the technology by the issuance of the patent. Where no NDA is required, Google has simply copied and criminally stole other inventors’ copyrights….

115. Google, Inc. and its executives—among others—have repeatedly had criminal and anti-trust investigations brought against them by governments around the world for their repeated theft. For example:

• Google was fined $500 million by the U.S. government for its role in the promotion of piracy through illegal online pharmacies;

• In June of 2017, Google was hit with a $2.7 billion fine from the European Union for its anti-competitive conduct in skewing search results. Google is still under investigation for its conduct with regards to its AdSense and Android software and business model which may lead the company to face even further fines;

• The U.S. Federal Trade Commission concluded that Google “used anticompetitive tactics and abused its monopoly power in ways that harmed Internet users and rivals”;

• Google was charged by the FTC with engaging in deceptive privacy practices for stealing and publishing consumers email contact lists and was ordered to submit to regular independent privacy audits for the next 20 years;  and

• Google was investigated by numerous countries when it was learned that Google’s street-view illegally stole persons’ wifi information, passwords, names, addresses and emails among other personal information….

c. Theft of others intellectual property is the Google and Flux Factory Enterprise’s regular way of doing business 

153. Violations of RICO predicate acts (e.g. theft of trade secrets and criminal infringement of copyright) are the regular way of conducting Defendants’ businesses. The previous non-exclusive list of acts of racketeering evidences a pattern of racketeering, the acts of which are related, not isolated, and continue to date by threat of further operation of Defendants’ business and through Defendants continued use of already stolen trade secrets for profits. Based on all of the following, Defendants have demonstrated that their regular way of doing business is through racketeering (e.g. by theft of trade secrets and criminal infringement of copyright) such that they are liable for harm done to others by their acts of racketeering under the Federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961, et seq.

6. Larry Page, Sergey Brin, Google, Inc., and its associates have participated in a criminal enterprise 

154. Each Plaintiff is a “person” within the meaning of 18 U.S.C. §§ 1961(3); 1964(c).

155. Each Defendant is a “person” within the meaning of 18 U.S.C. §§ 1961(3) and 1962(c)….

168. Plaintiffs hereby incorporate in the pattern of racketeering shown in ¶¶ 112–153. This pattern of racketeering evidences an intent by Defendants to continuously conspire to make income from acts of racketeering (e.g. theft of trade secrets) and to invest and/or use those funds within the greater Google Enterprise.

169. Moreover, Google, the Individual Defendants, and Flux Factory, Inc., conspired with certain venture capital firms (Does 1, 2, and 3) in order to assist in the development of the Flux Enterprise.

Sound familiar?  I’m not a RICO expert, but the RICO portion of the complaint seems to be very well-pleaded and a systematic application of the law and facts.  It’s also important to remember that Eric Schmidt, Larry Page and Sergey Brin have absolute control over Google (and Alphabet, the holding company) through Google’s bizarre voting rules as explained by the Motley Fool:

Google prevents activist investors from pressuring the company to do anything via its share class system.

There are currently three classes of Google stock — A, B, and C shares. Everyday investors can only buy A or C shares on the open market. A shares (GOOGL) are entitled to one vote, while C shares (GOOG) are entitled to zero votes. The C shares split off the original class A shares last year during its 2 for 1 split. Google uses A shares to pay its employees and fund acquisitions. Meanwhile, B shares, which are entitled to ten votes each, are only owned by Google’s founders and their inner circle.

Simply put, B shares give Google’s top brass the power to defend against any shareholder revolt. Shareholders united against that plan at a previous meeting, casting 180 million votes in favor of the elimination of share classes. Larry Page, Sergey Brin, Eric Schmidt and others crushed the proposal with 551 million votes.

Not only does the voting structure mean that insiders can block any shareholder revolt, it also means that insiders are totally responsible for any of the company’s bad acts.  That may explain why Eric Schmidt essentially “took the 5th” under questioning by Senator John Cornyn about Google executives’ narrow escape from criminal prosecution for violating and conspiring to violate the Controlled Substances Act.  Schmidt later claimed neither he nor his legal team “understood” the Senator’s questions and were “confused.”

This is, of course, another reason why Google was sued by its stockholders after insiders authorized the payment of $500,000,000 of the stockholders’ money as a fine for the bad behavior of insiders such as Larry Page.  In fact, the U.S. Attorney for Rhode Island told the Wall Street Journal that Larry Page was directly implicated in profiting from illegal drug advertising–which may have something to do with why the RICO claim refers to the $500,000,000 fine.  That stockholder settlement has one bizarre requirement that may shed some light on the RICO claims:

2.7 Criminal Activity Reporting

Google’s General Counsel shall be responsible for reviewing every situation in which a  Google employee is convicted of a felony under U.S. federal or state criminal statutes in connection with his employment by Google and for reporting to the Board (or an appropriate committee of the Board) with respect to that violation. Presumptively, any employee convicted of a felony under a U.S. federal or state criminal statute in connection with his employment by Google shall be terminated for cause and receive no severance payments in connection with the termination. If the General Counsel determines that such termination is not warranted, he shall so recommend to the Board (or an appropriate committee of the Board), which will act upon his recommendation in its discretion.

Leave aside how strange it is to have such a requirement in the settlement of a shareholder lawsuit in the first place–if it turns out that any of the Google insiders have actually been or get convicted of felonies as part of the racketeering case, the shareholder settlement will require the company to terminate that insider’s employment and  that will be that.

Where does it go?  Before you laugh it off, remember this:  If you had told a room full of MBAs in the mid 1980s that in a few years time Master of the Universe Michael Milken would be in prison and Drexel Burnham Lambert would be bankrupt, you would have been laughed out of the room as a quixotic buffoon.  But on March 29, 1989, Michael Milken was charged with 98 counts of racketeering and fraud and was facing life in prison.  That’s right–racketeering under the RICO Act.  Milken copped a plea to six lesser included crimes of securities and tax fraud, paid a $600 million fine and served 22 months in a federal pen on a 10 year sentence.

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He’s still rich, just not as rich as he was.  But Drexel never would have claimed the “don’t be evil” brand.  Even though unlike Google and the drug case, Milken paid his fine himself.  Drexel’s stockholders didn’t pick up the tab.

Of course, Milken was being prosecuted criminally and Attia is a civil case.   Different proof standards, no doubt, and different remedies, but otherwise, making a civil RICO case and a criminal RICO case are not wildly different.

Watch this space.

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@theblakemorgan takes the #irespectmusic message on the road

The folks in Congress and the powers-that-be at Spotify better wake up to the fact that they don’t control the future. These California State University students in Chico do. And with one voice, they’ve got a message to those who are trying to make billions off the work of hard-working music makers while stiffing the very people who make their only product: music. These brave students and musicians are organized. They’re energized. They’re righteous. And I’ve got their backs. #IRespectMusic

@ethanbaron: Google accused of racketeering in lawsuit claiming pattern of trade secrets theft

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[Editor Charlie sez:  This is nothing compared to what Google has done to the music business–can you say “notice and shakedown”?]

In an explosive new allegation, a renowned architect has accused Google of racketeering, saying in a lawsuit the company has a pattern of stealing trade secrets from people it first invites to collaborate.

Architect Eli Attia spent 50 years developing what his lawsuit calls “game-changing new technology” for building construction. Google in 2010 struck a deal to work with him on commercializing it as software, and Attia moved with his family from New York to Palo Alto to focus on the initiative, code-named “Project Genie.”

The project was undertaken in Google’s secretive “Google X” unit for experimental “moonshots.”

But then Google and its co-founders Larry Page and Sergey Brin “plotted to squeeze Attia out of the project” and pretended to kill it but used Attia’s technology to “surreptitiously” spin off Project Genie into a new company, according to the lawsuit.

Read the post in the San Jose Mercury News

@illusionofmore: Study Shows Piracy Losing Premium Ad Revenue

Among the standard responses to any proposal to mitigate online piracy is an insistence that it just cannot be stopped.  Perhaps not entirely. But it can be starved.  That was the underlying goal of SOPA, but people decided the criminal sites deserved the money they were making because freedom.

As many readers know, the piracy universe is still largely supported by advertising.  The majority of the ads on many sites are “non-premium,” which is a polite way of saying sleazy.  These are usually promos for snake-oil products, VPNS to hide your identity so you can pirate more, and “dating” services offering men the opportunity to spend hundreds of dollars to exchange sexy emails with Sabrina in Odessa, who is more likely to be Todd in Duluth.

Research varies with regard to how much premium vs non-premium advertising supports particular sites, but major advertisers have been working for a few years now to bring their own contribution closer to zero. Although the total amount of premium advertising on pirate sites represents a small fraction of the US digital ad buy of over $60 billion/year, the advertisers view the presence of their brands on these sites as generally bad for business.   In addition to representing waste and lack of transparency in the digital advertising ecosystem; appearing on pirate sites associates their brands with criminal activity and spammy advertising; and it associates their brands with the increasing risk that visitors to pirate sites will stumble into malware.

In February of 2015, the major advertisers launched the Brand Integrity Program Against Piracy, led by the Trustworthy Accountability Group (TAG). As described in this post written at the time, the program was designed to establish protocols to certify suppliers and partners that work to mitigate exposure to risky entities with the ultimate aim of keeping premium brand dollars out of the pockets of pirate site owners.  A new report released today by EY indicates that these efforts seem to be working. From the report …

“If the industry were taking no quality-control steps and digital piracy operators served only premium advertisers, we estimate those operators could earn $213m annually from digital ads. In actuality, they earned an estimated $111m from those ads in 2016. The difference of $102m is a strong indication that quality-control efforts are having a significant effect.”

Read the post on Illusion of More

@musictechpolicy: Holding The Line On Statutory Damage Tradeoffs

It is very likely that we will hear about a move to make significant amendments to the Copyright Act at some point before the beginning of campaign season in 2018.  There are a high number of copyright-related bills that have been introduced in the House of Representatives in the current session, so brace yourself for an “omnibus” copyright bill that would try to cobble them all together Frankenstein-style.

A Frankenstein omnibus bill would be a very bad idea in my view and will inevitably lead to horse trading of fake issues against a false deadline.  Omnibus bills are a bad idea for songwriters and artists, particularly independent songwriters and artists, because omnibus bills tend to bring together Corporate America in attack formation.

Read the post on Hypebot

@RobertBLevine_: Congressmen Introduce CASE Act Bill Aimed at Helping Independent Creators With Copyright Claims

[Editor Charlie sez:  Big thanks to Rep. Hakeem Jeffries, a great friend of creators!]

Copyright may be one of the few nonpartisan issues left in Congress. As the issue of copyright reform continues to heat up, Congressmen Hakeem Jeffries (D-NY) and Tom Marino (R-PA), along with Representatives Doug Collins (R-GA), Judy Chu (D-CA), Ted Lieu (D-CA), and Lamar Smith (R-TX) introduced in the House of Representatives the Copyright Alternative in Small-Claims Enforcement (CASE) Act, which is intended to give creators a cost-effective way to enforce their rights.

The idea of a copyright small-claims court, which has been discussed in Washington D.C. for several years, would not have a substantial effect on major labels or publishers. But it could make it easier for small companies and independent creators to enforce their rights — especially where merchandise is concerned. And it could be a game-changer for photographers and visual artists.

Read the post on Billboard.biz

Holding the Line on Tradeoffs for Statutory Damages — Music Tech Solutions

Instead of creating fake problems to try to extract concessions that further undermine creators like offering ice in winter, the tech monopolies like Google, Spotify, Amazon and Pandora should identify real problems and work with us toward real solutions–and not a loophole-driven shakedown.

via Holding the Line on Tradeoffs for Statutory Damages — Music Tech Solutions