F. SIXTH CAUSE OF ACTION – RICO
433. I repeat and reallege the allegations contained above as if fully stated herein.
434. This cause of action arises under 18 U.S.C. §§ 1962(c) and (d) of RICO, which provide in relevant part:
(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conducts of such enterprise’s affairs through a pattern of racketeering activity ....
(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection ... (c) of this section.
435. Alleged wrongdoers other than the defendants listed above are: The International Federation of the Phonographic Industry (IFPI), the Motion Picture Association of America (MPAA), the National Music Publishers Association (NMPA), MusicNet, pressplay, unnamed publishers, retailers, wholesalers, labels and studios and consultants and executives acting as agents for Trans World and entities that are affiliates of Trans World, including without limitation Pi2 Products LLC, Pi2 Inc., Pi2 Partners, Pi3 Inc., Amici LLC, have participated as co-conspirators with the Defendants in the violations alleged in this Complaint and have performed acts in furtherance thereof. More specifically, I allege that the named defendants have developed the scheme to monopolize the relevant markets described herein and to destroy my targeted-pricing invention principally through the trade associations of the RIAA and the MPAA, and that the co-conspirators have perpetrated the acts of the conspiracy through attorneys of the RIAA, the MPAA, the NMPA and the named defendants with the specific intention of using the attorney client privilege to keep secret their acts in furtherance of conduct that constitutes criminal conspiracy under Title 15 of the United States Code.
436. I have been, and continue to be injured in my business and property and bring this action in my capacity as the inventor of a proprietary method for targeted marketing of discounted prices that he created and owns personally, which is exclusively licensed to an unincorporated venture with Trans World called Aimster, to offer for retail sale licensed musical recordings, motion pictures and other digital products over the Internet.
437. I invented a proprietary method for targeted marketing of Internet retail of CD/DVDs. The invention calculated the discounted price that any given Internet customer was willing to pay, so that the discounted price could be advertised or promoted as a “special” low price to that given customer.
438. Targeted marketing of creative works is regarded in economic theory as a potential boon to the total welfare of both consumers and producers of creative works, provided that it is feasible. In fact, with the advent of the Internet, costs of production and distribution for CD/DVDs have been drastically reduced, and these reduced costs now make my targeted marketing feasible.
439. I launched a proof-of-concept of his targeted marketing beginning in August 2000. The proof-of-concept used a “share with buddies” model, and was adopted by Defendant EMI for a promotion of a new release by Radiohead. The proof-of-concept was considered a success and led to commercial interest by the distributor and retailer Trans World.
440. Beginning in September 2000, I personally guaranteed loans totaling at least $400,000 made by Trans World. I was charged with using these loans to develop a second prototype of his targeted marketing that would be acceptable to Trans World.
441. My second prototype was subjected to Trans World’s independent due diligence. When the due diligence was complete in January 2001, my second prototype was deemed acceptable, and the loans guaranteed by me were converted to stock in the corporation BuddyUSA Inc.
442. The stock purchase contained a term sheet that described the terms of an anticipated contract made primarily between myself and Trans World. The term sheet anticipated a contract in which I would complete my invention of targeted marketing, while sharing losses incurred in developing the invention, and then provide it for online retail of music and movies.
443. The term sheet anticipated that in consideration for my granting Trans World exclusive rights to his targeted-marketing invention, there would be an entitlement to “remuneration based on [Trans World’s] conduct of business within the Scope as set forth in the Business Plan.”
444. The term sheet also anticipated that I would be appointed to an Advisory Board to “establish in good faith a rate and method of remuneration”.
445. In February 2001, Trans World submitted further terms, describing the “Aimster (Peer-to-Peer) Test Requirements.”
446. Specifically, the Objectives of the Test Requirements were to:
a. Gain an understanding of the effectiveness of Aimster for “targeted marketing”;
b. Gain an understanding of “purchasing behaviors of online customers.”
447. In sum, the term sheet and the Aimster Test Requirements provide proof that I had a reasonable expectation that his targeted marketing would be utilized in a dealer contract with my joint venturer Trans World acting as a distributor to advertise and promote pricing based on “targeted marketing” and “understanding of purchasing behaviors of online customers.”
448. I also had a reasonable expectation that I and Trans World would together share both the dealer profits or promotional funds and the expenses or losses resulting from the use of my invention for targeted marketing, in return for my granting to Trans World the exclusive rights to my invention.
449. Defendants have exploited Trans World’s perceived position of trust and expertise as joint venturor and exclusive licensee of mine, and Defendants’ similar positions of trust vis-a-vis my faithful disclosures of proprietary information about my business and my reports of fraudulent practices that I have sent to defendants in hundreds of mail and wire communications beginning in September 2000 and continuing until December 2002. In these acts and practices, all of the defendants named herein have breached their fiduciary duties to me.
450. Moreover, unbeknownst to me, Trans World’s transfers of funds and loan and securities documents by wire in order to finance and gain control and of my business (of $200,000 in October and again in November 2000, of $500,000 in January 2001 and of 4 payments of $250,000 during the period February 2001 to August 2001) (“Transfers of Funds”) were an investment at least in part of racketeering income from kickbacks paid to Trans World by the Labels and Studios, including fraudulent stock credits, unlawful profits from “clears,” and rigged bids for promotional funds, and also from interstate transportation of stolen money of numerous investors in California, New York and other states throughout the United States.
451. In the summer of 2001, the Antitrust Division of the Department of Justice launched an investigation into whether the joint ventures MusicNet and pressplay restrained competition among the Label Defendants, or allowed the Label Defendants to impede the growth of the Internet as a channel for the authorized promotion and distribution of music, and thereby help the major labels solidify their central roles in the existing music market. My targeted marketing provided Trans World with access to retail sales data material to the Department of Justice investigation. In or around July 2001, I conveyed truthful information to the Department of Justice law enforcement officers relating to the possible commission of the federal offenses of criminal antitrust violations and securities fraud.
452. Defendants knew full well that I had conveyed such truthful information to law enforcement officers because an agent and fiduciary of the Defendants intentionally witnessed and influenced the information I conveyed to law enforcement officers.
453. About one month later, Trans World and its co-conspirators knowingly and willfully fired me and refused to track and make payments for remuneration to which I was entitled in retaliation for my conveying truthful information to law enforcement officers of the Department of Justice. Trans World was acting under the direction and control of the Label and Studios. The President of RIAA several weeks earlier had directed Trans World by phone, “Let’s just work this out” – and this direction constituted a tacit agreement between Trans World and the Labels and Studios that Trans World would fire me and shut down my business in return for the Labels’ and Studios’ promise of increased payments of kickbacks to Trans World.
454. Indeed, thereafter, beginning in 2002 and continuing to the present time, the Labels and Studios increased their payments of kickbacks to Trans World, while at the same time eliminating or substantially reducing their payments of promotional funds to all other specialty retailers, many of whom as a result dissolved or were forced into bankruptcy reorganization (and in some cases were then purchased out of bankruptcy by Trans World using investment income from defendants’ racketeering activity).
455. Defendants – my Lawyers, Trans World and the Labels and Studios – held and hold a relationship of trust and confidence with me as a result of the following:
a. defendants acting in concert initially cultivated a relationship of trust and confidence with me by soliciting my expert advice about Internet solutions.
b. defendants acting in concert initially hold themselves out as highly-skilled industry experts, possessing special knowledge and expertise needed to interpret and understand the complex licensing agreements they offer.
c. defendants, in acting in concert and initially inducing me to license my invention for targeted marketing exclusively as discussed herein, hold themselves out as experts and confidants of mine, thereby encouraging me to reveal confidential, personal and proprietary information. This confidential and proprietary information includes that contained in financial statements, tax returns, business plans, earnings projections, proprietary methods of encryption, my litigation claims (including claims against defendants) and numerous other documents and related business information.
456. Based on the foregoing, defendants owe me fiduciary duties, including the duty of good faith and fair dealing, the duty of full and fair disclosure, the duty of loyalty and the duty of care arising out of their relationship with me.
457. Defendants have a duty to provide complete and truthful information to me when financing and controlling my business and sharing profits and losses with me, including, without limitation, disclosing the source of all income Trans World receives and otherwise curing any prior misrepresentations or omissions.
458. In addition to their duties derived from their relationship of trust and confidence, defendants have an independent duty to disclose information to me by virtue of their special relationship with me. Defendants have sole knowledge of the source and amount of all income paid and received, including the promotional allowances, stock credits and other fees.
459. Defendants were aware that I have no access to the foregoing information and therefore could not evaluate the accuracy of the information provided to them. Defendants intentionally concealed this information and kept me uninformed of these facts. Defendants capitalized on their sole possession of material facts by providing me with false, misleading and incomplete information in connection with their financing and control of my business.
460. At all times relevant to this complaint defendants used thousands of mail and interstate wire communications to create and manage their fraudulent scheme through virtually uniform representations, concealments and material omissions. Defendants’ scheme involved agreements, loans, investment proposals, stock purchase agreements, purchase orders, stock credits, invoices, payments from my Lawyers, Trans World and the Labels and Studios, and documents by which defendants financed and controlled my business that constituted the fruits and benefits of defendants’ wrongful conduct.
461. Defendants’ use of the mails and wires to perpetrate their fraud involved thousands of communications sent by defendants via the Postal Service, commercial carrier, wire, or other interstate electronic media, including:
a. Materials containing false, fraudulent and virtually uniform misrepresentations that my Lawyers and/or Trans World would represent my interests in the financing, control and exclusive licensing of my business and invention.
b. Materials that uniformly concealed or failed to disclose the existence of the kickbacks, promotional allowances, stock credits and other undisclosed compensation and/or fees, including the conflict of interests that defendants had created between their legal and contractual obligations to me and the economic disincentives to honor those obligations from the unlawful payments.
c. Virtually uniform misleading materials intended to induce me to disclose proprietary information about my business and invention in order to maximize the kickbacks, promotional allowances, stock credits, LSAG earn outs and other undisclosed compensation and/or fees to Trans World and their related entities.
d. Invoices and payments related to defendants’ improper scheme.
462. Defendants’ uniform misrepresentations, acts of concealment and failures to disclose were knowing and intentional and made for the purpose of deceiving me and enabling my Lawyers, Trans World and the Labels and Studios to finance and control my business and invention in order to collect kickbacks, promotional allowances, stock credits, LSAG earn outs and other undisclosed compensation and/or fees.
463. Defendants either knew or recklessly disregarded the fact that their misrepresentations and omissions described above were material, and I relied on the misrepresentations and omissions as set forth above by providing an exclusive license to my business and invention to Trans World.
464. As a result of defendants’ acts committed in furtherance of the scheme, I have been injured in my business or property in the form of: (a) substantial loss of income, loss of benefits, and loss of reputation; (b) substantial loss of my property and competitive business; (c) substantial loss of the payments to my business which I was and am lawfully entitled.
465. My injury was therefore sustained directly and proximately as a result of and by reason of: (1) defendants’ fraud and breach of fiduciary duty in conspiring to conceal the payment of kickbacks to Trans World by the Labels and Studios; (2) defendants’ investment of racketeering income to control my business; and (3) defendants’ direct targeting of me for competitive injury in retaliation for my conveying truthful information to law enforcement officers.
1. The Pattern of Racketeering
466. I repeat and reallege the allegations contained above as if fully stated herein.
467. Defendants’ predicate acts of racketeering with the meaning of 18 U.S.C. § 196(1) include, but are not limited to:
a. Mail and wire fraud, in violation of 18 U.S.C. §§1341, 1342, 1343 and 1346. Defendants engaged in a scheme to defraud me, the general public and governmental agencies. To carry out or attempt to carry out their scheme to defraud or obtain money by means of false pretenses, representations, or promises, defendants, in violation of 18 U.S.C. §1341, placed in post offices and/or official depositories of the United States Postal Service matter and things to be delivered by the Postal Service, caused matter and things to be delivered by commercial interstate carrier, and received matter and things from the Postal Service or commercial interstate carriers, including, but not limited to, correspondence, policy materials, requests for proposals, invoices, payments and CD/DVDs sent from or to Label and Studio Defendants, and the resulting Transfers of Funds made by wire transfer by Trans World to finance and control my business that constituted the fruits of defendants’ wrongful conduct.
b. Defendants’ scheme was calculated to ensure that my business would be financed and controlled by my Lawyers, Trans World and the Labels and Studios in exchange for undisclosed or inadequately disclosed compensation paid to Trans World or its agents by the Labels and Studios and by Boies. Defendants executed (or attempted to execute) such schemes through the use or the United States mails and through transmissions by wire communications in interstate commerce beginning in or around September 2000 and continuing to the present time.
c. Engaging in interstate travel in aid of racketeering activities and the use of facilities in interstate commerce to distribute the proceeds of unlawful activity and otherwise promote, manage, establish, carry on, or facilitate the promotion, management, establishment or carrying on of its unlawful activity, in violation of 18 U.S.C. §1962.
d. Receipt and payment of monies and other things of value in violation of 18 U.S.C. §1954. The undisclosed compensation described above was accepted and/or paid with the intent of influencing the action, decisions and/or conduct of Trans World with respect to the finance and control of my business, the administration of my business and the tracking and monitoring of payments relating to my business. Trans World acts as agents for me and provide advice to me concerning matters and/or questions concerning its reporting of marketing allowances and sales, their practices in making and tracking such marketing allowances and sales, and the consideration paid and received in exchange for marketing allowances and sales. Trans World’s position as advisor, fiduciary and agent of mine allowed it to exercise influence over matters concerning my business. Trans World’s acceptance and the Label and Studio Defendants’ payment of undisclosed compensation influenced Trans World’s actions, decisions and/or conduct with respect to my business. For example, Trans World and the Label and Studio Defendants devised a rigged bidding system in order to pay kickbacks in the form of promotional allowances to Trans World rather than to my business of targeted marketing of discounted prices. The payment of rigged promotional allowances are matters concerning a conflict of interest with Trans World’s advisory, fiduciary duty to me and my competing business. Additionally, the Trans World and Label and Studio Defendants deliberately failed to disclose to me the payment of such rigged kickbacks to Trans World. The failure to disclose such rigged kickbacks to Trans World was a matter of conflict of interest concerning Trans World’s advisory, fiduciary duty to me and my competing business because I am legally entitled to such disclosure. Trans World accepted and the Label and Studio Defendants paid monies and/or things of value in violation of 18 U.S.C. §1954 on multiple occasions beginning in or around September 2000 and continuing to the present time.
e. Interstate Transportation of Stolen Property in violation of 18 U.S.C. §2314. The Transfers of Funds to finance and control my business were taken on information and belief from bank accounts in California, New York and various other states within the United States, and belonging to numerous persons, including myself. Ccertain of such persons, including me, did not consent to or have knowledge of the fraudulent scheme to finance and control my business perpetrated by Trans World and Label and Studio Defendants. Such Transfers of Funds thus transported stolen money or property interstate in violation of 18 U.S.C. §2314 on multiple occasions.
f. Criminal Infringement of a Copyright in violation of 18 § 2319. The Agreements to send or return CD/DVDs from or to Label and Studio Defendants – in order to obtain the Transfers of Funds to control and finance my business – fraudulently involve on information and belief the pressing and distribution of CDs/DVDs for the primary purpose of fraudulently paying kickbacks to Trans World and/or fraudulently inflating the revenues and profits of Label and Studio Defendants, while fraudulently depriving the artists of their rightful royalties. The pressing and distribution for the primary purpose of fraud thus violates Section 506(a) and Section 115 of Title 17, by which “A person may obtain a compulsory license [to press and distribute phonorecords] only if his or her primary purpose in making phonorecords is to distribute them to the public for private use, including by means of a digital phonorecord delivery.” The pressing and distribution of digital phonorecords on CD/DVDs by Label and Studio Defendants for the primary purpose of fraud infringes copyright in violation of 18 U.S.C. §2319 on multiple occasions.
g. Extortion in violation of 18 U.S.C. § 1951. On or about July 2001, and continuing to the present, Trans World and the Label and Studio Defendants knowingly and willfully committed extortion against me by illegally taking my job away and negligently and fraudulently failing to track and make payments to which I am entitled, and continuing such fraud to the present time, in violation of 18 U.S.C. §1951 on multiple occasions.
h. Obstruction of justice in violation of 18 U.S.C. §§ 1512, 1513 and 1519, as amended by the Sarbanes-Oxley Act §§ 1102, 1107 and 802. On or about July 2001 and continuing to the present, Trans World and the Label and Studio Defendants knowingly and willfully fired me and refused to track and make payments for remuneration to which I was entitled, for the purpose of:
i. illegally and corruptly influencing and attempting to influence witnesses, to conceal evidence of criminal conduct, and to hinder, delay, and prevent the communication to a law enforcement officer or judge of the United States of information relating to the commission of Federal offenses, so as to continue to conduct the defendants’ racketeering enterprise.
ii. concealing violations of the Injunctive Order, and 2) willfully disobeying discovery orders in official proceedings in the District Court of Maine, In re CD Minimum Advertised Price Antitrust Litigation.
iii. by illegally and corruptly influencing and attempting to influence witnesses, to conceal evidence of criminal conduct, and to hinder, delay, and prevent the communication to a law enforcement officer or judge of the United States of information relating to the commission of Federal offenses, so to continue to conduct the defendants’ racketeering enterprise and to obstruct and impede the due administration of justice with regard to my pending lawsuit and bankruptcy.
468. Defendants’ acts from a “pattern of racketeering” as defined under 18 U.S.C. §1961(5) by committing at least two acts of racketeering activity (i.e. indictable violations of 18 U.S.C. §§1341, 1343, 1954, 2314, 2319, 1951, 1512, 1513, and 1519) within the past six years. This pattern constituted a common course of conduct intended to deceive me and others. These activities shared the common objectives of maximizing undisclosed profit for my Lawyers, Trans World and Label and Studio Defendants while controlling my business for the purpose of continuing their racketeering activities. These acts had the same or similar purposes, results, participants, victims and methods of commission.
2. The Racketeering Enterprise
469. Based upon my current knowledge, the following persons constitute a group of persons and entities associated in fact, hereinafter referred to in this Complaint as the RIAA Enterprise (“RIAA Enterprise”):
a. defendants;
b. publishers, retailers, wholesalers, labels and studios, that pay or have paid Trans World kickbacks, marketing allowances and other undisclosed compensation;
c. other brokers, intermediaries, agents and other retail entities that receive or have received such undisclosed compensation; and
d. other entities that engage or have engaged in retaliation, extortion or interference with my lawful employment and livelihood.
470. The RIAA Enterprise is an ongoing organization which engages in, and whose activities affect, interstate commerce.
471. Defendants are not employees, officers or directors.
472. Through the RIAA Enterprise, defendants engage in consensual decision making regarding the implementation of their fraudulent scheme and function as a continuing unit for the purpose of retaliating against and extorting me, controlling my business and interfering with my lawful employment and livelihood.
473. While defendants participate in and are members of the RIAA Enterprise, they also have an existence separate and distinct from the enterprise.
474. In order to establish and maintain the system of kickbacks, marketing allowances and other undisclosed compensation, while concealing the system and the inherent conflict of interests it creates from law enforcement officers, consumers, artists and myself, defendants are required to participate in the conduct of and exercise control over the RIAA Enterprise.
475. Defendants have participated in the conduct of, controlled, and operated the RIAA Enterprise as follows:
a. by sharing and disseminating information regarding the my business and proprietary method of targeted marketing of discounted prices;
b. by formalizing relationships among participants in the RIAA Enterprise for the payment of kickbacks, promotional allowances and undisclosed compensation;
c. by uniformly coercing me to consent to participation in the RIAA Enterprise so as to maximize the amount of kickbacks, promotional allowances, stock credits, LSAG earn outs and other undisclosed compensation;
d. by having Trans World perform administrative functions for Label and Studio Defendants;
e. by requiring of me an exclusive license and control of my business by Label and Studio Defendants who have agreed to pay the kickbacks and undisclosed compensation to Trans World;
f. by submitting false or misleading information to me regarding the existence and nature of compensation paid by Label and Studio Defendants to Trans World;
g. by engaging in bid-rigging;
h. by sharing management and employees between and among Trans World and the Label and Studio Defendants;
i. by meeting annually, and perhaps more frequently, to discuss Trans World’s brokering and consulting practices and Label and Studio Defendants’ participation in and compensation from the Copyright Agreements.
476. The RIAA Enterprise has an ascertainable structure separate and apart from the pattern of activities in which the defendants have engaged.
477. In violation of 18 U.S.C. § 1962(c), defendants have, as set forth above, conducted or participated in the conduct of the affairs of the RIAA Enterprise through a pattern of racketeering activity.
478. At all relevant times, defendants were “persons” within the meaning of 18 U.S.C. §1961(3), because each was “capable of holding a legal or beneficial interest in property.”
479. At all relevant times, the RIAA Enterprise, including defendants, constituted a single “enterprise” or multiple enterprises within the meaning of 18 U.S.C. § 1961(4), as individuals and other entities associated in fact for the common purpose of engaging in defendants’ profit-making scheme, as described herein.
480. The RIAA Enterprise was created and/or used as a tool to carry out the elements of defendants’ illicit scheme and pattern of racketeering activity by entering into secret agreements to pay and receive illicit kickbacks in exchange for stopping competition from my business by retaliating against my lawful employment and livelihood. The RIAA Enterprise had ascertainable structure and purpose beyond the scope and commission of defendants’ predicate acts and their conspiracy to commit such acts. The enterprise was distinct from defendants.
481. The RIAA Enterprise engaged in, and its activities affected, interstate and foreign commerce by representing, submitting proposals, and Transfers of Funds to finance and control my business from numerous persons in California, New York and various other states within the United States.
482. The RIAA Enterprise actively disguised the nature of defendants’ wrongdoing and concealed or misrepresented defendants’ participation in the conduct of the enterprise or enterprises to maximize profits while minimizing their exposure to criminal and civil penalties and damages.
483. Defendants exerted control over the RIAA Enterprise. Defendants participated in the operation and managed the affairs of the enterprise or enterprises by:
a. Asserting direct control over information disseminated to me about their reporting of marketing allowances and sales, their practices in making and tracking such marketing allowances and sales, and the consideration paid and received in exchange for marketing allowances and sales.
b. Asserting direct control over the creation and distribution of communications sent to me of proposals and investments entered into by defendants in connection with their proposals and Transfers of Funds to finance and control my business in New York, California and throughout the United States.
c. Asserting direct control over information submitted to governmental agencies with respect to the practices alleged herein; and
d. Placing their own employees and agents in position of authority and control in the enterprise.
484. Defendants conducted or participated, directly or indirectly, in the conduct of affairs of the enterprise through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c).
485. In violation of 18 U.S.C. §1962(d), defendants conspired to violate 18 U.S.C. §1962(c) as described herein. Various other persons, firms and corporations, not named as defendants in this complaint, have participated as co-conspirators with defendants in the offenses complained of and have performed acts and made statements in furtherance of the conspiracy.
486. I have been injured in my business or property by reason of defendants’ violations of 18 U.S.C. §1962(c) and (d). Specifically, I have been injured in my business or property by: (a) substantial loss of income, loss of benefits, and loss of reputation; (b) substantial loss of my property and competitive business, which was and is controlled instead by the racketeering activities of my Lawyers, Trans World and Label and Studio Defendants; (c) substantial loss of the payments to my business which I was and am lawfully entitled but for the racketeering activity of my Lawyers, Trans World and Label and Studio Defendants.
487. I relied, to my detriment, on defendants’ fraudulent misrepresentations and omissions, which were made by means of public relations materials, agreements and virtually uniform representation. My reliance is evidenced by virtue of payments made by me to develop encryption and host internet service as required by Trans World and by the exclusive license to my property that I gave to Trans World and by the 15% equity interest I paid to Datamine LLC.
488. My injuries were directly and proximately caused by defendants’ racketeering activity by reason of (1) defendants’ fraud and breach of fiduciary duty in conspiring to conceal the payment of kickbacks to Trans World by Label and Studio Defendants and the payment of LSAG earn outs by Boies; (2) defendants’ investment of racketeering income to control my business; and (3) defendants’ direct targeting of me for competitive injury in retaliation for my conveying truthful information to law enforcement officers.
489. Defendants knew that I relied on their representations about the making and tracking of payments to which I and my business would be entitled. Defendants knew that I incurred substantial costs and losses as a result of their conduct.
490. Under the provisions of 18 U.S.C. §1964(c), I am entitled to bring this action and to recover damages, the costs of bringing this suit and reasonable attorneys’ fees.
491. Defendants are accordingly liable to me for three times my actual damages as proved at trial plus interest and attorneys’ fees.
