The London-based law firm at the heart of a huge row over illegal filesharing this week turned off its overworked photocopier, and vowed to no longer pursue the tens of thousands of Britons it suspects of copyright infringement.The method is referred to as "speculative invoicing." A firm will mail out demand letters to anyone suspected by its client of illegal filesharing, operating primarily on a contingency basis, hoping to gain penalty payments from as many of the receivers of said letters as possible.
From its Hanover Square office, ACS:Law has led the charge in sending letters demanding payment from alleged illicit filesharers, attracting unwanted attention from online activists, industry regulators and privacy commissioners along the way.
The problems with this system are obvious: it amounts to the threat of legal action being used in a manner akin to a shotgun. Some of those preparing a class action suit against ACS:Law claim they were wrongfully targeted by the firm, and at least some of them claim they paid the demanded monies to avoid prosecution. The fact that they did so should not be surprising, since volume delivery of demand letters will usually result in some percentage of the targets immediately acceding to terms.
More importantly is that speculative invoicing raises questions about one of the major concerns of contingency fees: the use of them to enrich firms unduly. In this instance the firm, ACS:Law, was keeping sixty-five percent of all fines paid by accused infringers. With such a fee structure, the firm clearly had incentive to make sure that as many potential infringers were identified and given demand as possible - and further they had incentive to stretch the definition of "potential" as widely as they felt fit. Bluntly, fee arrangements of this sort can very easily be seen as sleazy.
By comparison, regulations governing Ontario contingency fee agreements provide that "a solicitor for a plaintiff shall not recover more in fees under the agreement than the plaintiff recovers as damages or receives by way of settlement."