Monday, April 29, 2013

Internet Scammers Targeting Lawyers

Attorneys in the United States, particularly solo practitioners and lawyers with small firms, are apparently falling prey to sophisticated international Internet scams that can have severe consequences, financial and otherwise, the California Bar Association has noted in an Alert.

To date, these scams have been more prevalent among, although not exclusive to, collection and commercial lawyers, mainly because these practice areas make it easier for those initiating the scams to make them appear legitimate. However, such frauds have affected lawyers working in family law and other practice areas, as well.

The fraudsters perpetrating the scams engage in the following conduct:

1.  The lawyer receives what appears to be a legitimate solicitation e-mail from a prospective client.  The client may be a company or an individual. The e-mail sounds something like this:  "We are a media publishing company in Japan. We have a breach of intellectual property agreement matter in your jurisdiction, we can forward you the agreement and other party information for your review to enable you run a conflict check."  The client will be willing to forward seemingly legitimate incorporation documents.

2.  The lawyer and client discuss a fee agreement by e-mail.  Most commonly, the client will offer that the attorney may keep a certain sum in exchange for collecting on an unpaid debt.  The lawyer signs the agreement, creating an ostensible attorney-client relationship.

3.  The lawyer then receives a "congratulatory" e-mail from the new client announcing that they have received a settlement offer from the debtor, and that all the lawyer needs to do is deposit the settlement check and forward the proceeds of settlement, minus the lawyer's fees and expenses.

4.  The lawyer quickly receives in the mail what appears to be a valid paper check from a reputable bank, which is deposited into the lawyer's trust account.

5.  The client then demands an immediate wire distribution of the settlement proceeds (nearly always to a foreign bank).

6.  The lawyer then wires the proceeds to the client from the trust account, as requested.

7. By that point, the lawyer's bank has discovered that the paper check is fraudulent and it is returned unpaid.  By this time, the scammer is long gone, and the lawyer's trust account is overdrawn by the amount of the fraudulent check.

This chain of events leaves the victimized lawyer in a vulnerable position.  The lawyer cannot easily press criminal charges, because of possible fear of violating client confidences.  Second, the identity of the fraudster isn't even clear.

Further, the lawyer cannot easily recoup his losses.  Malpractice insurers may not qualify the lost sum as "damages" from professional negligence.

The California Bar Association notes that, in choosing clients and accepting to represent them, it is better to err on the side of caution.  Hitting the "delete" button may be the best course of action when receiving one of these "too good to be true" new client offers.

Wednesday, April 24, 2013

Daunting Math Facing Brand Owners

The new reality on the Internet is a game of very large numbers -- a reality that brand owners and content creators trying to protect their intellectual property rights online may find depressing.  

Here are a few statistics to ponder:

Between 1995 and 2013, the number of Internet domain names registered went from 15,000 to 250,000,000.

There are nearly 150,000 new domain names created each and every DAY.  Even taking deletions and expirations into account, there is still a net gain of tens of thousands of new domain names created every single day, 365 days a year.  In addition, there are estimated to be 634,000,000 websites, with 51,000,000 added each year.

It is currently estimated that 2.4 BILLION people use the Internet worldwide, with 1.1 billion of them in Asia alone.

The statistics also demonstrate that counterfeiting on the Internet is similarly skyrocketing.  For example, domain name registrants frequently register names that cybersquat upon the established rights on trademark owners.

In the 1990's, Congress passed the Anti-Cybersquatting Consumer Protection Act (ACPA), to give rights owners a vehicle for protecting themselves by filing suit in federal court.  Brand owners can also initiate Uniform Domain Name Policy (UDRP) proceedings.  But litigation under the ACPA/UDRP can be expensive and time-consuming.

A very successful and aggressive brand owner may be able to set aside several hundred thousand dollars per year to budget for proactive brand protection on the Internet.

But is that even enough?

Given the massive scale and scope of counterfeiting on the Internet, this math presents a very daunting reality.

Assuming 20 newly-created domain names registered each day infringe upon a brand owner's rights, in one year alone, a trademark owner would need to spend hundreds of thousand of dollars getting all of them locked and transferred under Court Order.

Of course, a new infringer lurks around every corner, so there is nothing to stop new domain names from being created tomorrow, and the day after that, and so on.

A brand owner may hire a team of attorneys and investigators dedicated to combating this escalating problem.  But counterfeiters can find armies of extremely cheap labor to draw upon for programming, coding, marketing and distribution of counterfeit goods.

Therefore, in a long drawn out war of attrition, the math facing brand owners is daunting.

The solution?

First, brand owners need to act MUCH more aggressively and diligently.  The problem is not going away.  By ignoring the problem, it will only get worse.

Second, brand owners need to lobby the government for much more stringent penalties and enforcement mechanisms.  Individual ACPA and UDRP proceedings against infringing domain names made sense in the 1990's, but today they are anachronistic given the scope and scale of the problem.

Some brand owners have been creative and have filed large-scale litigations that have shut down thousands of domain names through sweeping Court Orders in a single case.  However, these cases have inherent limitations, and need to be filed repeatedly.

Third, ICANN needs to begin to adopt policies that are pro-brand owner, rather than pro-infringer.  The core economic dilemma is that ICANN (and its affiliated registries and registrars) stand to gain tens of millions of dollars in fees each year from newly-created domain names, and therefore have little incentive to protect the intellectual property rights of the few.  Their economic incentives, in fact, are quite in the opposite direction.