Antitrust Law Daily Wrap Up, RICO—D. Mass.: ‘Ordinary’ copyright infringement constitutes a ‘predicate act’, (Jun 28, 2016)

By Mark Engstrom, J.D.

Software company Iconics Inc. could proceed with civil RICO claims against a former employee and various associates who allegedly copied portions of the company’s software code for remotely monitoring and controlling industrial and manufacturing systems, the federal district court in Boston has ruled. Because the asserted acts of "ordinary" copyright infringement qualified as predicate acts of racketeering—and because the predicate acts of copyright infringement, bankruptcy fraud, and obstruction of justice could form a pattern of racketeering—the defendants’ motion for summary judgment was denied (Iconics, Inc. v. Massaro, June 27, 2016, Woodlock, D.).

Copyright infringement. The defendants argued that the acts of copyright infringement that Iconics had alleged were not the sort of copyright infringement that qualified as a predicate act under RICO. Only the most serious acts of counterfeiting and piracy, they argued, could serve as a predicate act.

The court acknowledged that some district courts limited the predicate act of copyright infringement to "only the most ‘egregious acts’ of infringement," but the approach of those courts—which relied on the legislative history of the Anticounterfeiting Act—was unpersuasive. In the court’s view, nothing in the legislative history suggested that Congress had intended to exclude "ordinary" acts of copyright infringement from the protection of the RICO statute.

In addition, no such limitation appeared on the face of the RICO statute. In fact, the statute clearly defined racketeering as "any" act that was indictable under 18 U.S.C. §2319. Moreover, the U.S. Supreme Court had rejected other judicial attempts to narrow the legislatively enacted text of the statute.

Continuity. The racketeering activity alleged by Iconics began in 2008 and continued, with some regularity, to the present, the court observed. In the court’s view, the conduct at issue presented an "intermediate" case of closed-ended continuity that was neither "sporadic" nor "so extensive that common sense compel[led] a conclusion of continuity."

To evaluate these "intermediate" cases of closed-ended continuity, the First Circuit established multiple factors for identifying closed-ended continuity, including whether the defendants were engaged in multiple schemes, whether the schemes affected more than a "closed group" of targeted victims, and whether the scheme could "last indefinitely" or have a "finite nature."

In this case, the set of alleged victims was not expansive, but it included more than ICONICS. Through frauds that were committed during the bankruptcy proceedings of Volpe Industries (a company that was formed by one of the defendants, Christopher Volpe), the bankruptcy court and the bankruptcy trustee were also victims of the defendants’ alleged acts of racketeering.

Further, although the number of alleged schemes was finite (particularly if the bankruptcy frauds were understood as a mere cover-up that was adjunct to the defendants’ infringing project), they did not constitute "one scheme with a singular objective." Finally, the factual nature of the defendants’ ongoing use of the ICONICS source code, and thus the issue of duration (i.e., whether the scheme could last indefinitely), was hotly contested. Ultimately the court found that a genuine issue of material fact was present regarding closed-ended continuity.

Similarly, the issue of open-ended continuity included factual disputes for trial. Iconics alleged that the defendants had perpetrated the same scheme twice and would do so again, but the extent to which copyright infringement was entirely in the past—or would continue to the present and likely into the future—was a contested question of fact for the jury. According to the court, the jury could find that a threat of repetition, and thus open-ended continuity, was present.

For those reasons, a pattern of racketeering could not be established as a matter of law. Summary judgment was therefore unwarranted.

The case is No. 11-11526-DPW.

Attorneys: Richard D. Hosp (Fish & Richardson PC) for Iconics, Inc. Howard J. Susser (Burns & Levinson LLP) for Simone Massaro.

Companies: Iconics, Inc.

Cases: RICO MassachusettsNews