The US Court of Appeals for the Fourth Circuit recently reviewed a case involving a bunch of shady–but ingenious–lawyers. Here’s how the Court summarized the case in the opinion that it issued last week:

The Prenda Principals, through their law firm, Prenda Law, Inc. … set up a number of shell companies … that purchased copyrights to pornographic movies. When one of those movies was illegally downloaded, the shell company (via Prenda Law or a local attorney hired by Prenda Law) filed a complaint against “John Doe” in federal or state court for copyright infringement and used early discovery mechanisms to determine the identities of the persons it alleged illegally downloaded the film.

The shell company would then mail the purported “John Doe” a letter threatening to sue unless the individual paid roughly $4,000 to “settle” the case. Out of embarrassment and for economic reasons, many “John Does” settled, regardless of whether they, or another family member, friend, or guest, infringed the copyright. When the “John Does” settled, Prenda Law would voluntarily dismiss the case; Prenda Law never litigated a single copyright infringement case through to a merits judgment. By misusing the subpoena power of the court, the Prenda Principals made millions of dollars from suing hundreds to thousands of “John Does” across the country….

After a hearing, the district court judge sanctioned the Prenda Principals … and awarded Doe attorney’s fees, including a “punitive multiplier.” After the Prenda Principals posted a supersedeas bond of 125% of the value of the monetary sanction, the district court judge ordered them to post a second supersedeas bond of $135,333.06 (equaling the amount of Doe’s projected costs and attorney’s fees to defend the sanctions on appeal). The Prenda Principals appealed the sanctions.

Happily, the Court denied the appeal and upheld the sanctions!