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Google’s Racketeering Challenge

October 9, 2017 Leave a comment
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Eric Schmidt confers with some confused witnesses

According to a recent civil lawsuit, a plaintiff is suing Google for violating the racketeering laws (aka “RICO”).  (Attia et al v. Google et al, Cal. Sup. Ct. (Santa Clara) Case No. 1:14-cv-270143.)  I’ve been waiting for this since 2012 when it dawned on me one day that Google is running a criminal enterprise (see “Google’s Guide to RICO“).  So what does this RICO business mean?

If you’re even occasionally exposed to contemporary crime movies you’ll have heard of “RICO”.   The “RICO” statute is the acronym for the Racketeer Influenced and Corrupt Organization Act which allows a criminal prosecution against the leaders of an “ongoing criminal enterprise”, particularly where the leaders of that organization order others to commit crimes, often called “RICO predicates”.  The loophole was that leader didn’t do the crime, but ordered or assisted others in committing it.  (Recall the Senate hearings in The Godfather II, and see the first major RICO criminal case, US v. Scotto, 641 F.2d 47 (1980) for those reading along.)  You know, that thing that happened with those guys down at that place we used to go back in the day.

Often overlooked is the civil cause of action that may be brought either by the government or by private citizens under both the federal RICO statute and the 33 or so state law versions of RICO.  This allows private citizens who have been harmed by corrupt organizations to sue for treble damages and attorneys fees.  The Department of Justice civil RICO manual is also instructive for government action under the statutes:

Civil RICO, 18 U.S.C. § 1964(a), authorizes potentially intrusive remedies, including injunctive relief [typically sought by the government], reasonable restrictions on defendants’ future activities, disgorgement of unlawful proceeds, divestiture, dissolution, reorganization, removal from positions in an entity, and appointment of court officers to administer and supervise the affairs and operations of defendants’ entities and to assist courts in monitoring compliance with courts’ orders and in imposing sanctions for violations of courts’ orders.

RICO remedies are ample and were intended to be applied against white collar criminals as well as organized crime bosses.  The statute was drafted by Professor G. Robert Blakey–remember that name–now the William J. and Dorothy K. O’Neill Chair in Law Emeritus at the University of Notre Dame School of Law.  As Professor Blakey told Time magazine:

“We don’t want one set of rules for people whose collars are blue or whose names end in vowels, and another set for those whose collars are white and have Ivy League diplomas.”

Or whose collars are white, have Ivy League diplomas and live in Silicon Valley.

According to reports, Professor Blakey is advising Mr. Attia in filing an amended complaint in Mr. Attia’s case against Google alleging RICO violations in addition to the core claims of bad behavior by Google against Mr. Attia (The Verge has a good summary of the pre-RICO filing here).

What is particularly interesting about the RICO filing is that it turns on the RICO intellectual property theft predicate (at p. 28):

1. Defendants [meaning Google and certain Google executives and affiliates] have a long history of theft of others intellectual property which continues to date and which constitutes a pattern of racketeering activity 

112.  Defendants have engaged in a pattern of racketeering activity, as defined in 18 U.S.C. § 1961(5), through the repeated, relentless, and purposeful theft of other companies’ IP and trade secrets. 

113. Defendants have engaged, and continue to engage, in a pattern of activity whereby Defendants: 1) seek out inventors; 2) promise such inventors that Google will invest in, partner with and/or seek to acquire a license for any proprietary inventions of the investor; 3) sign a non-disclosure agreement (NDA) with inventors; 4) upon inducing inventors to reveal trade secrets and other confidential information, Google disregards the NDA and misappropriates the trade secrets; and 5) Google then subsequently attempts to box-out the victim inventors from the market by filing numerous patent applications which result in the unauthorized disclosure of the inventors’ trade secrets and the subsequent granting of a monopoly on the technology by the issuance of the patent. Where no NDA is required, Google has simply copied and criminally stole other inventors’ copyrights….

115. Google, Inc. and its executives—among others—have repeatedly had criminal and anti-trust investigations brought against them by governments around the world for their repeated theft. For example:

• Google was fined $500 million by the U.S. government for its role in the promotion of piracy through illegal online pharmacies;

• In June of 2017, Google was hit with a $2.7 billion fine from the European Union for its anti-competitive conduct in skewing search results. Google is still under investigation for its conduct with regards to its AdSense and Android software and business model which may lead the company to face even further fines;

• The U.S. Federal Trade Commission concluded that Google “used anticompetitive tactics and abused its monopoly power in ways that harmed Internet users and rivals”;

• Google was charged by the FTC with engaging in deceptive privacy practices for stealing and publishing consumers email contact lists and was ordered to submit to regular independent privacy audits for the next 20 years;  and

• Google was investigated by numerous countries when it was learned that Google’s street-view illegally stole persons’ wifi information, passwords, names, addresses and emails among other personal information….

c. Theft of others intellectual property is the Google and Flux Factory Enterprise’s regular way of doing business 

153. Violations of RICO predicate acts (e.g. theft of trade secrets and criminal infringement of copyright) are the regular way of conducting Defendants’ businesses. The previous non-exclusive list of acts of racketeering evidences a pattern of racketeering, the acts of which are related, not isolated, and continue to date by threat of further operation of Defendants’ business and through Defendants continued use of already stolen trade secrets for profits. Based on all of the following, Defendants have demonstrated that their regular way of doing business is through racketeering (e.g. by theft of trade secrets and criminal infringement of copyright) such that they are liable for harm done to others by their acts of racketeering under the Federal Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961, et seq.

6. Larry Page, Sergey Brin, Google, Inc., and its associates have participated in a criminal enterprise 

154. Each Plaintiff is a “person” within the meaning of 18 U.S.C. §§ 1961(3); 1964(c).

155. Each Defendant is a “person” within the meaning of 18 U.S.C. §§ 1961(3) and 1962(c)….

168. Plaintiffs hereby incorporate in the pattern of racketeering shown in ¶¶ 112–153. This pattern of racketeering evidences an intent by Defendants to continuously conspire to make income from acts of racketeering (e.g. theft of trade secrets) and to invest and/or use those funds within the greater Google Enterprise.

169. Moreover, Google, the Individual Defendants, and Flux Factory, Inc., conspired with certain venture capital firms (Does 1, 2, and 3) in order to assist in the development of the Flux Enterprise.

Sound familiar?  I’m not a RICO expert, but the RICO portion of the complaint seems to be very well-pleaded and a systematic application of the law and facts.  It’s also important to remember that Eric Schmidt, Larry Page and Sergey Brin have absolute control over Google (and Alphabet, the holding company) through Google’s bizarre voting rules as explained by the Motley Fool:

Google prevents activist investors from pressuring the company to do anything via its share class system.

There are currently three classes of Google stock — A, B, and C shares. Everyday investors can only buy A or C shares on the open market. A shares (GOOGL) are entitled to one vote, while C shares (GOOG) are entitled to zero votes. The C shares split off the original class A shares last year during its 2 for 1 split. Google uses A shares to pay its employees and fund acquisitions. Meanwhile, B shares, which are entitled to ten votes each, are only owned by Google’s founders and their inner circle.

Simply put, B shares give Google’s top brass the power to defend against any shareholder revolt. Shareholders united against that plan at a previous meeting, casting 180 million votes in favor of the elimination of share classes. Larry Page, Sergey Brin, Eric Schmidt and others crushed the proposal with 551 million votes.

Not only does the voting structure mean that insiders can block any shareholder revolt, it also means that insiders are totally responsible for any of the company’s bad acts.  That may explain why Eric Schmidt essentially “took the 5th” under questioning by Senator John Cornyn about Google executives’ narrow escape from criminal prosecution for violating and conspiring to violate the Controlled Substances Act.  Schmidt later claimed neither he nor his legal team “understood” the Senator’s questions and were “confused.”

This is, of course, another reason why Google was sued by its stockholders after insiders authorized the payment of $500,000,000 of the stockholders’ money as a fine for the bad behavior of insiders such as Larry Page.  In fact, the U.S. Attorney for Rhode Island told the Wall Street Journal that Larry Page was directly implicated in profiting from illegal drug advertising–which may have something to do with why the RICO claim refers to the $500,000,000 fine.  That stockholder settlement has one bizarre requirement that may shed some light on the RICO claims:

2.7 Criminal Activity Reporting

Google’s General Counsel shall be responsible for reviewing every situation in which a  Google employee is convicted of a felony under U.S. federal or state criminal statutes in connection with his employment by Google and for reporting to the Board (or an appropriate committee of the Board) with respect to that violation. Presumptively, any employee convicted of a felony under a U.S. federal or state criminal statute in connection with his employment by Google shall be terminated for cause and receive no severance payments in connection with the termination. If the General Counsel determines that such termination is not warranted, he shall so recommend to the Board (or an appropriate committee of the Board), which will act upon his recommendation in its discretion.

Leave aside how strange it is to have such a requirement in the settlement of a shareholder lawsuit in the first place–if it turns out that any of the Google insiders have actually been or get convicted of felonies as part of the racketeering case, the shareholder settlement will require the company to terminate that insider’s employment and  that will be that.  Aside from the whole money laundering for ISIS thing.  But ISIS is another story.

Where does it go?  Before you laugh it off, remember this:  If you had told a room full of MBAs in the mid 1980s that in a few years time Master of the Universe Michael Milken would be in prison and Drexel Burnham Lambert would be bankrupt, you would have been laughed out of the room as a quixotic buffoon.  But on March 29, 1989, Michael Milken was charged with 98 counts of racketeering and fraud and was facing life in prison.  That’s right–racketeering under the RICO Act.  Milken copped a plea to six lesser included crimes of securities and tax fraud, paid a $600 million fine and served 22 months in a federal pen on a 10 year sentence.

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He’s still rich, just not as rich as he was.  But Drexel never would have claimed the “don’t be evil” brand.  Even though unlike Google and the drug case, Milken paid his fine himself.  Drexel’s stockholders didn’t pick up the tab.

Of course, Milken was being prosecuted criminally and Attia is a civil case.   Different proof standards, no doubt, and different remedies, but otherwise, making a civil RICO case and a criminal RICO case are not wildly different.

Watch this space.

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Corporate Astroturf and Manipulation of Media Messages by @SharylAttkisson at TEDxUniversityofNevada

February 7, 2015 Comments off

Uncle Sugar and Big Daddy and their Edifice Complex

As we enter the a new session of Congress, we can anticipate being assaulted by the combined forces of Google, Facebook, Pandora and SiriusXM, the Electronic Frontier Foundation, Public Knowledge, the Digital Media Association, the Computer & Communications Industry Association and its host of “studies”, the Cato Institute, the Heritage Foundation, the Stanford Institute for Internet and Society, the Berkman Center, the Consumer Electronics Association, the Internet Association and of course, the National Association of Broadcasters.

What’s different about the current state of play for artists, songwriters, producers is that our side really doesn’t have anything like the complex and systematized network of 501(c)(3)s, cy pres awards, special interest groups and academics that are on Google’s payroll and increasingly on the payroll of Facebook and the new Internet Association (which itself spends approximately $400,000 a quarter on lobbying alone).

I highly recommend you read this article by Tom Hamburger and Matea Gold from the Washington Post, “Google, once disdainful of lobbying, now a master of Washington influence.”  You’ll begin to get the idea that Google spends so much money on “astroturf and manipulation of media messages” that it had to start finding ways to create other ways to spend the money.  Hamburger and Gold lead their reporting with this example:

In May 2012, the law school at George Mason University hosted a forum billed as a “vibrant discussion” about Internet search competition. Many of the major players in the field were there — regulators from the Federal Trade Commission, federal and state prosecutors, top congressional staffers.

What the guests had not been told was that the day-long academic conference was in large part the work of Google, which maneuvered behind the scenes with GMU’s Law & Economics Center to put on the event. At the time, the company was under FTC investigation over concerns about the dominance of its famed search engine, a case that threatened Google’s core business.

Indeed, this manipulation has gotten so bad, the judge in Oracle v. Google required the parties to make court filings listing all the public commenters on the case which has come to be called the “Google Shill List” which you can read here.  The Trichordist has an excellent “connect the dots” post showing Google’s history of financing those filing “friends of the court” briefs in Google’s efforts to stop Mississippi Attorney General Jim Hood’s investigation into Google’s violation of various laws.  All this in the aid of what the EFF might call “obfuscation”–Google and its “amici” would have you believe that Hood’s case is just about the acts of people using Google or its products, for which Google has a variety of statutory protections.  Nothing to see here, move along.

But as Hood points out, the four-year sting operation run against Google by a combination of federal agencies before a federal grand jury in Rhode Island showed that Google and its senior management team right up to Google’s CEO Larry Page was complicit in violating the Controlled Substances Act to the point of helping the bad guys get around Google’s own filters.  Google paid a $500,000,000 forfeiture for those drug violations for advertising the sale of prescription drugs–not for what the advertisers did, but for what Google did.

Sorting through more than four million documents, prosecutors found internal emails and documents that, they say, show Mr. Page was aware of the allegedly illicit ad sales. Under this week’s $500 million settlement, those emails won’t be released, avoiding the possibility of disclosure at trial.

“Larry Page knew what was going on,” Peter Neronha, the Rhode Island U.S. Attorney who led the probe, said in an interview. “We know it from the investigation. We simply know it from the documents we reviewed, witnesses that we interviewed, that Larry Page knew what was going on.”

Subsequently, Google’s lawyer said in open court that the Department of Justice apologized to Google for the statement by Mr. Neronha (Transcript of hearing at pp 11-12):

“The U.S. attorney in Rhode Island went off the reservation and gave a long interview about all the evidence and why it was he was so excited about the case,” lawyer Boris Feldman told the judge at a Delaware state court. “It ended up being so far off the reservation that the Justice Department apologized to Google for it and muzzled him.” (emphasis mine)

So when Hood served his subpoena, you could easily imagine Larry Page telling Google’s lawyers to MAKE IT STOP!  I’M RICH, I’M ENTITLED, HE CAN’T DO THIS TO ME!

MUZZLE HIM!

Because, the U.S. Attorney for Rhode Island told the Wall Street Journal that Page was implicated.  Google is now settling shareholder class action cases against Larry Page and the Google senior management team and board members alleging that Page is implicated.  There is a potential for a host of criminal violations at the State and federal level from consumer fraud, to RICO, to Sarbanes Oxley.  And the best Google can come up with for friends of the Court are the usual suspects and trade groups?  When the federal Justice Department is issuing apologies to multinational corporations, it’s left to state law enforcement officials to seek justice.

Just like the copyright battle in the Congress yet to come this year, Attorney General Hood’s investigation is a significant upping of the ante in these cases.  Hood’s case is one of the few times that an American multinational corporation tried to muzzle a criminal investigation into its own practices before it ever started.

And that’s worth bringing to bear a whole lot of astroturf just the copyright law–that in Google’s case presents a host of loopholes on which it’s built its business.

As the Trichordist points out, the venerable public interest watchdog “Public Citizen has released a study called Mission Creepy a great guide to Google’s labyrinthine influence buying.”  Even if you skim that report, I think you’ll agree we haven’t seen as comprehensive a takeover of the federal government, tax exempt organizations and the academy since the days of John D. Rockefeller, maybe not ever.  No wonder the Department of Justice is apologizing to Google.

But it’s not just controlling government officials that’s the problem.  It’s the combined work product of all this influence buying that is truly insidious.

How does this work?  This video by award wining investigative journalist Sharyl Attkisson is an excellent discussion by the former CBS news reporter about the new media world we live in.  Ms. Attkisson uses the example of pharmaceutical companies doing a variety of things like manipulating search results and controlling Wikipedia.  Ahem….

Here is a link to the Columbia Journalism Review article that Ms. Attkisson references:  Bitter Pill: How the press helps push deadly prescription drugs, sometimes with deadly consequences.

Attention Mr. Almunia: Justice Department Evidence Against Megavideo Confirms Adsense Account

December 26, 2013 3 comments

by Chris Castle

Joaquín Almunia, the Vice President of the European Commission in Charge of Competition currently investigating Google’s unsavory business practices in Europe may wish to consider the dark underbelly of Google’s advertising business when deciding whether to give the company an unprecedented third opportunity to settle the competition questions against the global monopolist.

According to evidence released by the Justice Department in the Megavideo criminal prosecution, Megavideo was a Google Adsense customer until at least May 17, 2007:

On or about May 17, 2007, a representative from Google AdSense, an Internet advertising company, sent an e-mail to DOTCOM entitled “Google AdSense Account Status.” In the e-mail, the representative stated that “[d]uring our most recent review of your site [Megaupload.com,]” Google AdSense specialists found “numerous pages” with links to, among other things, “copyrighted content,” and therefore Google AdSense “will no longer be able to work with you.” The e-mail contains links to specific examples of offending content located on Megaupload.com.

While the quotation appears to be carefully worded email relating to Megaupload.com‘s Adsense account, it is unclear whether the government is pursuing the role that Google played in shoveling money to the “Mega Conspiracy” prior to that termination, and whether all accounts that benefited the Mega Conspiracy prior to and after the email were in fact terminated.  Given the numerous examples of Google serving advertising to referring sites that drove traffic to Megavideo, this email quoted by the government actually raises more questions than it answers.

The DOJ also notes evidence that the Mega Conspiracy opened a Google Analytics account for Megavideo to provide data to help the company steal more efficiently, that apparently rose to the level of email exchanges with Google employees:

According to internal e-mails and documents obtained from Google, members of the Mega Conspiracy, including DOTCOM and VAN DER KOLK, began accessing Google Analytics reports for Megavideo.com, Megaupload.com, and Megaporn.com. The Google Analytics account was opened at least as early as November of 2008 under the name “TIM VESTOR,” which is an alias for DOTCOM. Google Analytics provides website measurement tools, such as the number of visits during a specified time period….

A particular Google Analytics report shows that between November 19, 2010, and February 18, 2011, Megavideo.com had roughly 1 billion visits. Less than 13% of these visits were “direct traffic” — meaning visits that were likely generated by the user having directly typed the URL link into the web browser or having bookmarked the URL link. More than 85% of the visits to Megavideo.com were from “referring sites,” meaning the user appears to have clicked a URL link on the referring site that directed the user to Megavideo.com. The top referring websites during that time period were third-party linking sites, such as seriesyonkis.com (more than 110 million referrals) and sidereel.com (more than 60 million referrals).

The reports from Google Analytics for the following time periods reflect similar data: February 19, 2011 — May 18, 2011; May 19, 2011 — August 18, 2011; August 19, 2011 — October 27, 2011….A particular Google Analytics report shows that between November 19, 2010, and February 18, 2011, Megaupload.com had roughly 1 billion visits. Less than 20% of these visits were “direct traffic,” and roughly 80% were from “referring sites.” The top referring websites during that time period were third-party linking sites, such as taringa.net (more than 50 million referrals), seriesyonkis.com (more than 25 million referrals), and multiupload.com (more than 20 million referrals). The reports
from Google Analytics for the following time periods reflect similar data: February 19, 2011 — May 18, 2011; May 19, 2011 — August 18, 2011; August 19, 2011 — October 27, 2011.

It’s not surprising, then, that the government obtained emails from Google relating to this level of traffic as it beggars belief that a Google Analytics customer with this level of traffic was just kind of getting an automated report.

These reports prepared by Google also demonstrates that Google knew or should have known that its terminated Adsense customer was in a business of getting most of its traffic from referring sites–and as Ellen Seidler has documented on Popup Pirates, these referring sites triggered pop up advertising pages that served “Ads by Google” and did so in the tens of millions.  Advertising for some of the biggest brands in the world.

There was clearly an Adsense account somewhere in this mix for these referring sites, even if the Adsense account for Megaupload got to hot to maintain.  It is now clear that Google was preparing reports that detailed exactly which sites were referring traffic to the Mega Conspiracy.

There are two questions that the DOJ has not asked as yet:

1.  What happened to the money that Google made on Google’s share of revenue paid to the Mega Conspiracy before May 17, 2007?  If this is like other instances where Google has profited from crime (as it told the BBC regarding advertising for counterfeit Olympics tickets, for example) and selling human growth hormone, RU486 and oxycontin, the only way Google will give up any of the proceeds from crime is if Google is criminally prosecuted.  So let’s get on that, shall we? and

2. What is the relationship was between Google and these referring sites documented in the Google Analytics statements it sent to the Mega Conspiracy, how were they paid, and did any of that income originate in the US or was the revenue disguised outside of the US (such as in Google’s China operations that played a leading role in Google’s payment of $500,000,000 for violating US controlled substances laws.  Did Google provide any income tax disclosure or filing regarding the income, including for its own share of advertising revenue?  (Actually paying tax might be a bit much to expect, but at least telling the government how much income it was not paying tax on might have happened.)  Was any of this income included in SEC filings and audited financial statements for Google and if not, why not?  What did Google’s CFO Patrick Pichette know and when did he know it?  Or perhaps John Dixon at Ernst & Young?

There’s a term for this…what is it again?  Oh, yes.  A Racketeer Influenced Corrupt Organization a/k/a how they sent  Michael Milken to prison and bankrupted his company for a lot less evil.  If the U.S. government is not going to pursue this investigation, Mr. Almunia is perfectly positioned to do so–why would he want to give an unprecedented third chance to a company that does not come to him with clean hands?

As the DOJ tells us:

On or about September 2, 2007, via Skype, VAN DER KOLK said to ORTMANN, “we’re modern pirates :-)”. ORTMANN responded, “we’re pretty evil, unfortunately”, “but Google is also evil, and their claim is ‘don’t be evil.’”

It takes a conspirator to know a conspirator.

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