You are on page 1of 117

1

1 IN THE UNITED STATES DISTRICT COURT


FOR THE DISTRICT OF NEW JERSEY
2 CRIMINAL NO. 10-114
UNITED STATES OF AMERICA :
3 Plaintiff, :
-vs- :
4 :
KENNETH LOWSON, KRISTOPHER KIRSCH, :
5 JOEL STEVENSON, :
:
6 : MOTIONS
Defendant :
7 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _:
Newark, New Jersey
8 September 27, 2010 10:30 a.m. & 2 p.m.
B E F O R E:
9
THE HONORABLE KATHARINE S. HAYDEN, U.S.D.J.
10
A p p e a r a n c e s:
11
UNITED STATES ATTORNEY-NEWARK
12 CHRISTOPHER J. CHRISTIE
Attorneys for Plaintiff-USA
13 970 Broad Street
Newark, New Jersey 07102
14 BY: EZEZ LIEBERMANN, AUSA
SETH B. KOSTO, AUSA
15

16 K&L GATES LLP


Attorneys for Defendant-Lowson
17 K&L Gates Center
210 Sixth Avenue
18 Pittsburgh, PA 15222-2613
BY: MARK A. RUSH, ESQ.
19 ANDREW R. STANTON, ESQ.

20 ALSO PRESENT
NONE
21
__________________________________________________________________
_____
22 Pursuant to Section 753 Title 28 United States Code,
the following transcript is certified to be an accurate
23 record as taken stenographically in the above-entitled
proceedings.
24
s\ RALPH F. FLORIO
25 Official Court Reporter

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


2

1 MCDONALD & ROGERS LLC

2 Attorney for Defendant-Kristopher Kirsch

3 181 West High Street

4 Somerville, New Jersey 08876

5 BY: JOHN PATRICK MCDONALD, ESQ.

7 FEDERAL PUBLIC DEFENDER'S OFFICES

8 Attorneys for Defendant-Joel Stevenson

9 972 Broad Street

10 Newark, New Jersey 07101

11 BY: JOHN H. YAUCH, AFPD

12

13

14

15

16

17

18

19

20

21

22

23

24

25

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


3

1 I N D E X

3 WITNESSES: PAGES:

4 NONE NONE

8 E X H I B I T S

9 NUMBER DESCRIPTION PAGE

10 SEE ATTACHED INDEXING

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


4

1 THE COURT: Good morning. On the record. This is

2 the matter of United States of America v Lowson, et al. We

3 have had appearances of counsel taken, but why don't we put

4 everybody's name on the record.

5 MR. LIEBERMANN: Good morning, your Honor.

6 Assistant U.S. Attorney Ezera Liebermann, on behalf of the

7 United States, with me at counsel table is Assistant U.S.

8 Attorney Seth Kosto.

9 MR. KOSTO: Good morning.

10 THE COURT: Yes.

11 MR. RUSH: Good morning, your Honor. Mark Rush, for

12 the defendant, Kenneth Lowson, who waives his appearance in

13 this hearing this morning.. Also, Andy Stanton, my colleague

14 is also here on behalf of Mr. Lowson.

15 MR. MCDONALD: Good morning, your Honor. John

16 McDonald, McDonald & Rogers, Somerville, New Jersey.

17 Appearing on behalf of Kristopher Kirsch who is not present

18 today and waives his appearance.

19 THE COURT: Thank you.

20 MR. YAUCH: Good morning, Judge. John Yauch,

21 Assistant Federal Public Defender for Joel Stevenson and Mr.

22 Stevenson is present.

23 THE COURT: Okay, welcome everybody. Thank you. I

24 told counsel before we went on the record that I thought it

25 would be helpful to everyone, if each side in order presents

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


5

1 the arguments in a 10 to 15 minute presentation and it can be

2 shorter. So that everybody kind of knows what you believe in

3 a coherent fashion the pertinent law is for the Court to

4 apply in these motions. And so we would hear first from the

5 defense. And then the government in opposition to a-- I know

6 we'll handle motion to dismiss first discretely, before we

7 move into the other motion which has to do with the

8 suppression.

9 After each side makes its presentation when except

10 for clarification I do not intend to pepper you with

11 questions unless I can not simply help myself. We'll go to

12 the defense and we'll engage in the more traditional back and

13 forth dialogue with the Court that goes into an oral

14 argument.

15 I should say preliminarily that I appreciate the

16 care and thought that went into the briefs. You have made it

17 very hard for every practicing lawyer to make an argument

18 that because the issues are complex they need an over-lengthy

19 brief. This was all presented, pretty well within the

20 confines of what can be done in the amount of time or space

21 that the Court could provide and the briefing was really

22 quite terrific. I also thank you the amicus brief. Are the

23 amicus folks here? Because they did a nice job as well.

24 Everything was readable and coherent. Who could ask for

25 anything more. Yes, persuasive and winning brief, but we

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


6

1 haven't gotten to that point.

2 How are counsel planning to divide up the

3 arguments? Put that on the record.

4 MR. RUSH: Your Honor, Mark Rush, on behalf of Mr.

5 Lowson. I will lead and then defer to my colleagues if they

6 have anything to add on the motion to dismiss, your Honor.

7 THE COURT: Okay. Fine.

8 MR. LIEBERMANN: Your Honor, I will lead on the

9 motion to dismiss with respect to 1030 and then Seth Kosto

10 will takeover with respect to the wire fraud and even with a

11 15 minute presentation we'll make sure to break that up.

12 THE COURT: Fine, thanks. Give me just a moment so

13 I can pull up my Realtime program here.

14 THE COURT: Okay. Mr. Rush.

15 MR. RUSH: Now, your Honor, may it please the

16 Court, counsel.

17 Your Honor, I'm actually going to try to be briefer

18 than the ten minutes allotted. Because candidly we are more

19 concerned about your questions, because we have really have

20 thoroughly briefed these issues. But you know your Honor

21 when you sit down and you think about, how do I broach the

22 Court with oral argument and simply not regurgitated what the

23 briefs say; I do that sitting in the island of my kitchen

24 usually drinking coffee. And I did that in this case and I

25 was sitting there kicking it around. And I stopped and I

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


7

1 paused and I opened up my mail and I saw that I had gotten

2 from my Alma Mater an invitation to the Entrepreneurial

3 Leadership Dinner, which is going to be held November 3rd of

4 2010. And one of the recipients of this year's award is the

5 CFO of Razorgator. And Razorgator is, your Honor, a

6 secondary market, an on-line market for tickets--

7 entertainment tickets, etc. The very tickets that our

8 clients are accused of purchasing from Ticketmaster that can

9 thereafter be sold on Razorgator, StubHub, Ticketsnow, which

10 is owned by Ticketmaster, etc. And I thought, how is it

11 different that my clients are sitting here charged with a 60

12 some page indictment and looking to be incarcerated by the

13 government, and the CFO of Razorgator is receiving an award

14 for from my Alma Mater. I had thought that I should write to

15 my Alma Mater saying, hey, be careful to make sure you get

16 this thing awarded prior this Court's decision. Because

17 they, if you believe the government's theory of the

18 indictment, Razorgator is aiding and abetting in violation of

19 the terms of service for anyone who purchases a ticket from

20 Ticketmaster or an on-line ticket vendors and then sells it

21 in a secondary market.

22 Now, the government is going to say, well, we would

23 never prosecute that and that's not what this case is about.

24 This case is about liars. They made that point I think seven

25 times in the first two pages of their brief. But of course

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


8

1 as we all know federal law doesn't proscribe lying, at least

2 in most cases unless you're lying to federal agents and it

3 looks like there's a lot of those back there.

4 But, your Honor, I guess the point is this case is

5 in fact a case of first impression. It will be interesting

6 to hear if the government can come forward and say, you know,

7 there are other criminal cases that have been brought because

8 Congress has authorized this type of prosecution in this type

9 of fact pattern. But I dare say that in our search we

10 haven't found any, your Honor, we simply haven't found any.

11 And if one looks at the indictment which this Court is bound

12 by law to focus on, you will see in the language of the

13 indictment, your Honor, the conjunctive and, because this

14 case cannot stand without a violation of the terms of service

15 being a federal criminal act.

16 So they put violation of terms of service or

17 contract-based restrictions and violations of code-based

18 restrictions. If they don't allege code-based restrictions,

19 your Honor, this case is gone. Judge Wu, I think in the Drew

20 case, he made that clear that we simply can't have companies

21 or individuals setting forth contractual rights or terms of

22 service and allowing them to be the predicate of a federal

23 criminal act.

24 And, your Honor, this case illustrates that as well

25 as any. The simple reason is, when one's trying to prepare

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


9

1 for the oral argument to try to inform the Court as to the

2 position of defense it becomes circular. I know the

3 government will split up the 1030 and the 1343 wire fraud

4 analysis but, your Honor, they are both dependent on each

5 other. In the wire fraud analysis we don't have traditional

6 rights of issue here, we have these intangible rights. And

7 that is a spin-off of the 1030 analysis. Because the

8 intangible rights, your Honor, are what is it-- it's right to

9 be the exclusive dealer, the exclusive distributor of

10 tickets. The on-line ticket vendors negotiated for the

11 exclusive right to distribute these tickets. That is an

12 intangible right in which the government says is protected by

13 the wire fraud statute. Well, your Honor, we know that there

14 is an $4 billion a year industry in the secondary ticket

15 market. Ticketmaster, the largest quote unquote "victim" in

16 this case has its own secondary ticket market called

17 Ticketsnow.

18 So there's no exclusive distributor of tickets out

19 there, your Honor. I mean, people purchase tickets and they

20 sell them. People purchase tickets and then they go. So

21 what's the next one. Well, there's the goodwill. That's

22 another intangible right that the government focuses on. And

23 once again that goodwill is tied back to the contractual

24 terms of service between the on-line ticket vendors and users

25 of those sites.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


10

1 So it really is, if you will, your Honor, it's not

2 a traditional wire fraud counts and computer crime. They are

3 both interwoven to a point where they cannot be separated.

4 THE COURT: You're saying the wire fraud infirmity

5 and the CFAA infirmity as you're arguing can't be separated?

6 MR. RUSH: They can't be separated, your Honor. I

7 mean, they are joined at the hip if you will. If the CFAA

8 prosecution fails as we think it should because Congress has

9 not criminalized yet ticket brokers or ticket scalping, I

10 mean, we could use the pejorative term, then we shouldn't be

11 here. And the best example of that is, if the on-line ticket

12 vendors terms of service did not proscribe computer

13 purchasing of tickets, automated ticket purchases; we

14 wouldn't be here. There would be nothing illegal about it.

15 There would be no federal criminal allegation that could even

16 be made. So the entire case is premised on that. And that's

17 the one issue that the government hasn't answered in its

18 pleadings other than to say, strongly, in a one sentence

19 stand-alone paragraph that that isn't the government's case.

20 We are very interested in hearing today what the government's

21 case is. And if they are in fact abandoning a contract-based

22 allegation for a violation of the CFAA. We don't believe it

23 can stand. We don't believe a jury if presented with this

24 indictment could convict because in Counts 2 through 20, it's

25 both alleged that there are contract-based violations as well

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


11

1 as code-based violations. And the jury, I don't know how we

2 an even form the jury charge or a jury questionnaire. We

3 wouldn't be able to discern which some jurors concluded were

4 a violation of federal law and perhaps others concluded not

5 so you wouldn't have a unanimous verdict. So there's all

6 kind of problems interwoven into this indictment. And the

7 reason that that is the case, your Honor, is that this is a

8 creative indictment.

9 These are smart guys. They sat down and they

10 worked through the indictment. They threw in some wire

11 fraud-- excuse me, wire fraud counts because they're

12 traditional criminal violations that all of us understand,

13 but they had to stretch it. But they're creative, they are

14 aggressive lawyers and there's nothing wrong with that except

15 they're not lawyers in a contractual sense. This isn't

16 Ticketmaster versus Wiseguys, in an injunctive proceeding or

17 seeking contractual damages. It should be. That's where we

18 should be. And perhaps this Court would be hearing that.

19 But it shouldn't be the United States of America versus

20 Wiseguys. These guys are not regular litigants. They are

21 representatives of the United States. And they're empowered

22 and they're charged with enforcing federal criminal law. And

23 federal criminal law includes the Rule of Lenity. It does,

24 your Honor. You can't interpret criminal statutes the way

25 you interpret creatively or otherwise violations of terms of

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


12

1 service or contractual breaches. They allege a law of

2 contractual breaches. And they have to-- to get through this

3 motion to dismiss.

4 What else did they allege to overcome their burden

5 in a motion to dismiss. They talked about encryption. They

6 used fancy buzz terms. I like them and some of them were

7 very interesting. Contract hackers. These are the

8 Bulgarians. I mean, that's kind of sexy stuff; they brought

9 Bulgarians in this case. I don't know how that assists us.

10 "Impersonated users." CAPTCHA bought. Surreptitious ticket

11 purchases. All of those buzz phrase are sprinkled throughout

12 the indictment and their pleadings. But they turn around and

13 they really kind of assert four specific areas in which they

14 have to assert to survive this motion to dismiss, the

15 indictment in its entirety, your Honor. One. They talk

16 about buy page encryption. That's a code-based encryption

17 that the government is alleging that the defendants

18 violated. IP Blocks is the second. Proof of Work is the

19 third. And this phrase called CAPTCHA, which lots of folks

20 didn't know what that was and a lot of folks whom I'm talking

21 about this case asked about that squiggly line word. And

22 that's simply what CAPTCHA is. It's a program that designed

23 to, for use on public access websites. These aren't secured

24 computers. These are computers in which, not only is the

25 public invited, the public is encouraged; the entire business

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


13

1 model is premised on the fact that we want the public to come

2 here and buy things from us.

3 So they put the CAPTCHA phrase in so that the term

4 of service that it must be a person is not violated as

5 opposed to a computer. And that's what we were talking

6 about. If that wasn't in there, that term of service, we

7 wouldn't be here today. But arguably, your Honor, if my

8 client instead of having a data base that could match a Jpeg

9 stored image with a CAPTCHA image, if they didn't do that,

10 but if they hired, let's say-- they keep talking about

11 100,000 IP addresses. 100,000 individuals to go on to Ticket

12 Master's website at 10 a.m. on Tuesday morning, whatever the

13 tickets are released. And we could talk about Springstein

14 because he's a hometown favorite. And they all got on that

15 web page and they all had a credit card and they went and

16 they bought, they typed it in, and they got those tickets and

17 they resold them-- would we be here? Or is it simply because

18 there's a computer that did that CAPTCHA. It didn't block

19 it. It didn't circumvent it. It didn't destroy the CAPTCHA.

20 It answered CAPTCHA as a person would.

21 THE COURT: Can I just interrupt. For purposes of

22 the record, it is spelled all caps CAPTCHA-- all caps

23 C-A-P-T-C-H-A.

24 Go ahead.

25 MR. RUSH: So, your Honor, our point really is, now

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


14

1 would they have violated the term of service that someone

2 purchased a ticket not intending to go to the show but to

3 resell? It sure. Congress clearly hasn't legislated there.

4 In fact, 47 states ticket scalping is legal. This all comes

5 back to and I've probably spoken longer than I wanted to,

6 because I do want to address the Court's questions. But it

7 all comes back to the difficulty here. And the view of the

8 defendants, if we are struggling this hard in these pleadings

9 with smart lawyers, to figure out if this is a violation of

10 federal criminal law, the indictment should be dismissed.

11 And the on-line ticket vendors who engaged in the business of

12 selling tickets, if they want to stop this course of conduct

13 they should sue. They should avail themselves of the courts

14 and of their legions of lawyers. Because there is a lot of

15 money in tickets sales as the Court would know. Much more

16 than it's even alleged that our clients made. But that's the

17 whole point, I guess the circular logic is, we are tortured

18 to get to the point of, is this a violation of federal

19 criminal law. And I ask that the Court consider putting it

20 directly to them; are you willing government to drop from

21 this indictment and agree-- enter into a stipulation, that

22 violations of terms of service alone, is not a violation of

23 federal criminal law because Congress has not legislated that

24 yet. And then ask them if they can proceed with this

25 indictment before a jury. The answer to the question is,

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


15

1 those two-- the terms of service and the code-based

2 restrictions are so intertwined that the case simply can't

3 move forward.

4 Because, your Honor, there isn't hacking. There

5 isn't theft of information. The word hacking is in the

6 indictment, but there is no specific allegation of hacking.

7 The theft of information is not even in the indictment.

8 THE COURT: Well, one of the things that I'm going

9 to ask you, but don't answer now is, they have a quote where

10 one of the defendants is-- or there's correspondence where

11 the word hack is used and broke is used, which are either,

12 oh-by-the-way or an accurate description. So that's

13 something that we'll be talking about later on.

14 MR. RUSH: Very good, your Honor. I'm just going

15 to close, your Honor, if I may, with-- and then of course

16 invite the Court's questions. And also Mr. Stanton, if

17 there's questions in this area, Mr. Stanton is very well

18 versed in this law.

19 THE COURT: He's younger than you are so it's

20 obvious he's well-versed.

21 MR. RUSH: Certainly I invite Mr. Stanton to

22 participate as well.

23 THE COURT: Right.

24 MR. RUSH: But, your Honor, once again I would

25 close with these gentlemen have drafted a creative

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


16

1 indictment. And if it was a civil complaint, we would be

2 engaged in interesting litigation, but it's not. Congress

3 hasn't legislated here. And our defendants, our clients,

4 shouldn't be prosecuted criminally.

5 I invite the Court's questions.

6 THE COURT: Thank you very much, Mr. Rush.

7 MR. RUSH: Thank you, your Honor.

8 THE COURT: Okay, Mr. Liebermann.

9 MR. LIEBERMANN: Thank you, your Honor.

10 THE COURT: And although, Mr. Rush proposed

11 provocative questions, yours is not to answer that now, if

12 you don't choose too. You've got your own presentation.

13 Go ahead.

14 MR. LIEBERMANN: Sure. Your Honor, and I appreciate

15 his compliments about the creative indictment.

16 THE COURT: He said you were smart too.

17 MR. LIEBERMANN: Yes, and I'll take that.

18 THE COURT: Yes.

19 MR. LIEBERMANN: But this is the case we see in

20 federal court all of the time, your Honor. These defendants,

21 they lied, they lied, and they lied. And when they were

22 caught they lied some more. They talked about lying and they

23 talked about lying some more. Pardon my French, but they

24 were caught they talked about bull-shitting the guys by lying

25 some more about who they are.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


17

1 When they purchased tickets they lied about their

2 identities. Each and every step of the way they lied. They

3 spoke of back doors and they lied about their identity when

4 set up the computers. They spoke of hacks. They used shells

5 and corporate names. They made sure no mail came to their

6 business addressed to them. They may sure nobody knew how

7 they do their business. Each and every step of the way is

8 the traditional fraud. And that's what this case is about.

9 It's that traditional fraud, your Honor. And each every step

10 of the way, it's the same thing that we see in court every

11 day.

12 Your Honor, this is a motion to dismiss and we take

13 the allegations as true. For example, your Honor, with

14 respect to questions about what kind of hacking did they do

15 and what did the code do, and how effective was this code,

16 which the defense counsel alluded to in their briefs. These

17 are questions left to the jury. And indeed often we see

18 these motions to dismiss and indeed Wu, decided his case--

19 Judge Wu decided the Drew case after the whole case came in

20 and the government present its case.

21 Your Honor, I'm going to leave to Seth all of the

22 discussions with respect to 1343. But I do want to talk

23 about the question of 1030. And with respect to the question

24 of 1030, you've would asked us in the back and one of the

25 clear questions is; is this ground breaking? The simple

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


18

1 answer is no. Every day the United States brings cases that

2 deal with hacking. That deal with gaining unauthorized

3 access to computers-- every day, your Honor. And there's a

4 reason that they spent all their briefs trying to get away

5 from the code-based restrictions here. Because they know

6 that every day we bring code-based restrictions. And the

7 reason that there aren't many cases if any reported on

8 code-based restrictions and whether they constitute

9 unauthorized access, it is because it's a truism. Of course

10 if you read the code-based restriction that is meant to keep

11 you out, you gained unauthorized access. There's no question

12 about that.

13 I just tried a case against Mr. Yauch last week,

14 any time that you're beating these code-based defenses, any

15 time you have a password to stop someone from entering your

16 computers, it's a violation of a code-based restriction. And

17 that's why we don't have questions about 1030 and that it's

18 an unauthorized access to enter a password and getting into

19 the computer when they're trying to keep you out. Because

20 obviously that's what 1030 is all about.

21 It's all about these code-based restrictions. If

22 we take a step back, we can look at what Ticketmaster and

23 what other websites did. Maybe at first they had a sign up

24 that said, you can't buy tickets more than this many at a

25 time and they just had terms of service. That didn't work.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


19

1 And this isn't a hypothetical, this is true that it didn't

2 work. After they went from the phone systems to the computer

3 systems and didn't work to just keep out. These people,

4 these guys individually, the defendants and others, just

5 violated that left and right.

6 So what did they do. They instituted these

7 code-based restrictions specifically to keep out the

8 defendants and others similarly situated. They instituted

9 specifically to restrict access to their websites. And it is

10 because they instituted these protections such as CAPTCHA,

11 and they say you don't know what CAPTCHA is without terms of

12 service. Go to CAPTCHA and enter the wrong word and see if

13 you could get access. The fact of the matter is that you

14 don't need the term of service to know. You simply can't get

15 access without entering that. Without getting through that.

16 You simply can't get access, your Honor, when you're

17 blocked. That is another lock on their access. So there

18 aren't any questions in this case really about whether or not

19 they are blocked because they did block them.

20 Your Honor, the defendants wish this case is just

21 like Wu. I'm sorry, Drew, decided by Judge Wu. And Drew is

22 very different, your Honor. At the very least the biggest

23 issue throughout the Drew opinion is the notice issue. There

24 is no such question. They noticed it. They knew it all the

25 time. And that's why the discussions among the defendants,

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


20

1 and we've put some of this in the indictment are very clear.

2 We need to use stealth measures. We need to lie about what

3 we're doing. We can't talk about who has access to our

4 servers. They knew about this and so took every step

5 conceivably possible to make sure that they were going around

6 these restrictions.

7 So all of the notice issues that we have in Drew,

8 they aren't present here. But Drew, your Honor, isn't the

9 case we have here today. This case has code-based

10 restrictions and Judge Wu in that opinion specifically

11 mentioned that the only thing that is at issue in that case,

12 the only thing at issue in Drew were the restrictions in the

13 terms of use.

14 Your Honor, I am hesitant to even go this far,

15 because I don't want to make this about a contract-based

16 case. But let's make sure that we answer that question as

17 well.

18 Criminal as well as civil cases have held that even

19 without code-based restrictions you can have unauthorized

20 access to a protective computer. So we don't even need to

21 have code-based restrictions, I will answer Mr. Rush's

22 question right now. No, we will not concede that if you don't

23 have code-based restrictions it is not a case. And United

24 States v John and United States v Salum, the circuit courts

25 have held that you can have in a criminal context, a

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


21

1 violation of 1030 without code-based restrictions.

2 The same is gone on with the exact same statutes

3 cited by the exact same type of judge, federal district court

4 judges in the civil context. And they too have said that you

5 can have unauthorized access to a protected computer with

6 contract-based restrictions.

7 Your Honor, the defendants-- and I will turn this

8 over to Seth in one minute. The defendants would you have

9 believe that the only reason you have code-based restrictions

10 is to enforce the terms of service. And so therefore it is

11 only a term of service case. That would be like saying, your

12 Honor, that if you have a sign that says no trespassing and

13 you then put up a gate, barbed wire, a lock and use all of

14 that to keep people out, well when you break and enter that

15 gate and you take down barb wire and you get threw that, all

16 you're doing is trespassing. You're not also committing

17 breaking and entering. But here, your Honor, there is all

18 those measures. And if they don't get around those measures,

19 those code-based restrictions they simply can't gain access

20 that system.

21 For that reason, your Honor, we're confident that

22 under 1030 the restrictions that are put up make it very

23 clear that this is indeed a traditional case in which people

24 have instituted code to keep out other individuals. But even

25 if we interpret it the other way based on circuit court

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


22

1 precedent, there is a case both with code and with contract.

2 And as I said, you can even with contract there's been cases

3 under the federal system in criminal cases.

4 With that, your Honor, I will turn it over to Seth

5 and he will talk a little bit about 1343.

6 THE COURT: Thank you. Thank you. Mr.

7 Liebermann.

8 Mr. Kosto.

9 MR. KOSTO: Thank you, your Honor. Counsel. Good

10 morning.

11 I'll pick up briefly where Mr. Liebermann began and

12 only because it's the government's view that this is a

13 typical day in a typical criminal case. Because for the 100

14 plus years that the fraud statute has been around, things

15 like impersonating customers in telephone calls, creating

16 fake email addresses, forbidding your employees, forbidding

17 the employees of Wiseguys to even mention the fact that they

18 worked at Wiseguys on their resume, building a business model

19 based on reacting to being shut out of a system. Making sure

20 that you didn't get block. Lying to internet service

21 providers about the purposes of what your technology would be

22 used for-- not to purchase tickets.

23 I come back to it over and over again to the fact

24 that this isn't a case about the purchases. It's a case about

25 the purchase and sale of tickets, it's not a ticketing case.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


23

1 It's a case about lies and deception used to gain access to

2 something that the victims in this case would never have sold

3 if they were told about the material misrepresentations that

4 went to the center of the bargain that the defendants were

5 trying to get at.

6 But these kind of lies are what underlie any

7 typical mail or wire fraud case. What's really at issue

8 underneath that is whether the rights the government's

9 alleged in the indictment are the traditionally recognized

10 rights. And I think the parties there's a trio of Supreme

11 Court cases that have addressed the fact that rights can be

12 intangible. The Carpenter case which deals with Wall Street

13 Journal's confidential business information. The depravation

14 doesn't need to be monetary. So we'll hear over and over

15 again during the course of the proceeding, they paid for

16 every ticket, your Honor, and the government's position is

17 there's more to this case than the price of the tickets--

18 printed on the tickets. The interests that we alleged in the

19 indictment and three of them. The traditionally recognized

20 rights.

21 First, the loss of a very-- it's intangible, but

22 it's a very valuable right. And the courts have recognized

23 that one of the most important rights about private property

24 is to be able to exclude others from it. And the indictment

25 alleges right in paragraph 2-C, the on-line ticket vendors

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


24

1 negotiated for and obtained the right to be the exclusive

2 distributors of tickets to the primary market. It's alleged

3 to be a valuable right. The Supreme Court has said

4 exclusivity is important. Al-hediathy, right here in the

5 Third Circuit, gave companies the right to-- in the case of

6 Al-hediathy, they were given the right to exclude imposters

7 from their test taking procedures. They set those terms, if

8 you will, but were given those right. A hallmark of the right

9 to exclude somebody else from it. Franchisers can select

10 their franchisees. Can select a distributor. That's a

11 valuable right that the court likely sees brought and it's

12 one that's enforceable. You set up a mall. Somebody is

13 given the exclusive distributorship to sell cookies in the

14 mall. Somebody else comes along, buys cookies and sells them

15 in the same mall. That's a lawsuit. That's a suit that the

16 court would recognize.

17 When you combine a traditional right with the lies

18 and the misrepresentations and the deceit, that's where the

19 wire fraud comes in. And if we look at the indictment, the

20 on-line ticket vendors paid good consideration, they

21 negotiated with the venue entities. Right in paragraph C, to

22 obtain the exclusive right to distribute to the primary

23 market, to the general public. And obtaining and maintaining

24 that right, your Honor, was central to their business

25 strategy. In the words of Al-hediaty, the Third Circuit case

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


25

1 dealing with the ETS testing, they went to great lengths to

2 protect it. They negotiated and they paid consideration to

3 obtain it. They spent millions of dollars, setting up

4 computer infra structure that would fairly distribute those

5 tickets. Setting up computer infra structure to make sure

6 that automated programs were not accessing it. They made it

7 just like ETS did in the Alfrodieity case, the binding Third

8 Circuit case that we deal with. They made restrictions part

9 of their contractual terms. Setting aside the 1030 issues

10 right now, when you make contractual terms and someone

11 violates them thousands and thousands and thousands of times

12 with no intent to perform, that's a classic promissory fraud

13 and it is something that criminal law recognizes.

14 They went so far as to enforce this valuable right

15 that they purchased. They sent cease and desist letters

16 alleged right in the indictment. They brought lawsuits. We

17 mentioned one in our brief. Designed to protect this right

18 that they had invested in so much. And I guess the reasonable

19 question again before back to the indictment is, why, did

20 they make this big investment? It just a question about

21 getting all the tickets out of their inventory. At the face

22 value they could have turned them over and handed them to Mr.

23 Rush's client without investing all of this money and without

24 investing all of this infra structure and computer

25 protections they put in place. And the reason is that there

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


26

1 is value in that exclusivity. The on-line ticket vendors

2 made revenue as alleged in paragraph 2-C of the indictment,

3 from people visiting their website from seeing it advertised

4 and it was posted. And then saying, maybe I'll go to that

5 concert. Well, I'm here for this concert, but I might come

6 back for that one.

7 The defendants computer systems do not see what a

8 human eye sees. There is goodwill as alleged in the

9 indictment from having traffic at your website. From having

10 the ability to show things to the customers as they come

11 through. Automated programs don't see those. Alleged in the

12 indictment again, this is the stage of the case where we are

13 at, there is goodwill in being the place to go to get

14 tickets. That's what they invested in. And there's damage,

15 this is another aspect of how you understand this as a

16 tangible-- well an intangible but a valuable right.

17 There's damage when 882 tickets or 1000 tickets

18 goes on sale for the Rose Bowl, U.S.C. v Texas. I am not a

19 huge football fan but it was a big game at the time. National

20 Championship in the Rose Bowl. Defendant brags in paragraph

21 48 of the indictment, we got 882 of them. There's a loss of

22 goodwill alleged in the indictment, when people feel they

23 don't have access to the tickets. And it is a loss of

24 goodwill to the ticket vendors, not to the ticket purchasers.

25 And people won't come back and they won't generate that

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


27

1 additional revenue for the on-line ticket vendors.

2 And to understand what Wiseguys and their shell

3 companies did, they created-- as alleged in paragraph 41 and

4 42 of the indictment, they create another company RAM, to

5 step in and deal with that dissatisfaction. RAM had a

6 business plan put together by the defendants that said, RAM

7 can make sure, they went to the venue entities, the artists

8 and the promoters. RAM can make sure that the tickets get in

9 to the hands of the fans. The clear implication being,

10 Ticketmaster and the other on-line vendors couldn't do that.

11 That's a classic two step. Damage to goodwill, damage to the

12 public's perception that they can get tickets fairly to one

13 place and then offer yourself as to the solution to the very

14 problem you've created.

15 So this exclusivity, the right to exclude others

16 from the tickets, is a very valuable and tangible right.

17 Goodwill that was damaged by the defendants' conduct, is

18 another valuable right and we'll touch on it later I'm sure.

19 But simply the right to decide who you sell to and who you do

20 not, as articulated in Al-hediaty, is a recognized Third

21 Circuit intangible right that we have to deal with. It was

22 talked about by the court in Schwartz, in the Second

23 Circuit. Also in the concurring opinion in Brook Housing and

24 the basic gist of it is that, even if they paid every cent

25 for the ticket, you've been defrauded as surely as if you

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


28

1 were paid with a rubber check, if you weren't informed of the

2 truth of who you were dealing with.

3 So for those reasons, your Honor, we think we are

4 squarely within the kind of intangible rights that have been

5 recognized by the Third Circuit and recognized by the Supreme

6 Court in the wire fraud statute. This is a classic wire

7 fraud case. It involves computers, it involves technology,

8 but it's got the same deceit and lies put together with the

9 taking of a valuable right that's been present in the wire

10 fraud statutes since its inception.

11 THE COURT: Thank you very much, Mr. Kosto. Okay.

12 Let's delve down, now that we kind of know what we're talking

13 about. And, Mr. Rush, you made a couple of points.

14 You are ready to role?

15 MR. RUSH: Yes, your Honor.

16 THE COURT: Come up to the podium then. Let's

17 begin with the question that I asked you and find that

18 portion of the indictment, where the CAPTCHA box are being

19 discussed. Paragraph 45, on page 32-- no, no. I'm sorry.

20 Pages 31 and 32.

21 MR. RUSH: Subparagraph E, your Honor, of 44.

22 THE COURT: Yes, E, F and G. This is within a

23 section of the indictment entitled, Efforts to Defeat CAPTCHA

24 by OCR.

25 MR. RUSH: Yes, your Honor.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


29

1 THE COURT: You have to come up to the podium.

2 MR. RUSH: I apologize, your Honor.

3 THE COURT: And let's define OCR. That's all caps

4 and no dots.

5 MR. RUSH: Optical Character Recognition, your

6 Honor.

7 THE COURT: Yes.

8 MR. RUSH: Your Honor, in subparagraph E and page

9 31, an individual named PS, not the defendants in this case.

10 Indicate through hacks we were able to obtain a source code

11 of Telecharge uses its distorted images. And there is

12 obviously quotes in here about use of OCR to defeat CAPTCHA--

13 that's not done here. The indictment doesn't allege that was

14 done here.

15 They talked about conversations about potential OCR

16 use in CAPTCHA, but that wasn't done here. What was done

17 here was a simple, almost like the kids memory game of match

18 what you saw before that turnover game; the computer program

19 matches in a Jpeg a data base that was created by a number of

20 individuals here. And actually out source, to type in the

21 images of the audio CAPTCHA terminology. So OCR wasn't done

22 here. Was there conversation about using OCR? Apparently

23 there was. I don't know the basis of the government's-- I

24 didn't look at the government's evidence here, but that

25 allegation is certainly here as a conversation. And they do

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


30

1 use the vehicular hacks. Although the indictment is clear

2 that CAPTCHA was not hacked. It was responded to. It was

3 responded to by a computer-- that's the allegation. And

4 they're alleging that the computer response is not a hack of

5 CAPTCHA, but a violation of that term of service and that

6 would be our position, your Honor.

7 THE COURT: So there's another portion of the

8 indictment that talks about spending a weekend typing in

9 45,000 or 145,000. What was that about?

10 MR. RUSH: Well, that's what I was referring to

11 earlier.

12 THE COURT: Well explain that a little bit more.

13 MR. RUSH: The allegation here, and I mean this is

14 complex but it's not in a sense. It's complex in a sense of

15 is what they did or what they alleged to have done in the

16 indictment a violation of hacking or circumvention and

17 perhaps expert testimony would need to be taken. But, you

18 know, our view is that in the indictment it does not allege

19 that there was in fact hacks or circumvention, there was a

20 data based that was created so that CAPTCHA could be

21 responded to and not circumvented to get to the buy page.

22 Not hack to get to the buy page. But as the computer acted

23 as an individual and answered the CAPTCHA response correctly,

24 which allowed them-- the computer to then go to the buy page

25 to order tickets.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


31

1 THE COURT: Okay. So they had as it were a data

2 base of all of the possible squiggly-lined prompts and an

3 immediate recognition capability in their bot, right?

4 MR. RUSH: Yes, your Honor. It wasn't all of them

5 it was a limited number. The allegations for the audio

6 CAPTCHA as opposed to the written CAPTCHA and they developed

7 it.

8 The government has made, you know, we continue to

9 hear about lying and, etc. But also, you know, one of the

10 reasons why ^ Wiseguys didn't want their employees talking

11 about any of this stuff was that it was proprietary. There

12 are a lot of individuals out there as we all know selling

13 tickets in the secondary market and those tickets were

14 valuable commodities and they did not want their competitors

15 to learn how they obtained tickets.

16 You can talk about proprietary confidential

17 business information, you sprinkle a bunch of allegations in

18 there lying and it seems not so nice. I'm trying to remember

19 the name of the case that involved a trademark action and the

20 criminal enforcement of trademark restrictions. And the

21 court in that case-- I think it's in the amicus brief. The

22 court said in that case, you may not like the fact that there

23 is this improper use of these intellectual property rights,

24 but Congress had not yet legislated against it. And

25 reasonable people may say, this course of conduct is

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


32

1 unsavory, but it's not a criminal offense. And the court

2 there said, we think it's best to allow Congress to address

3 this issue as opposed to the Department of Justice and any

4 jury. And until Congress frames the issue of, and they

5 haven't framed it on authorized access or hacking in a public

6 website, your Honor.

7 The cases that the government talks about are

8 secured computers. We're not talking about public

9 available-- publicly available access. The Internet has

10 blossomed or boomed since Al Gore invented it. And CFAA was

11 drafted prior to that blossom. So in essence, the technology

12 is way out in front of the law on this, your Honor. And our

13 position remains that it's best if the legal-- the lawyers

14 that work in Congress define the scope of the CFAA in the

15 electronic commerce world as opposed to us folks here trying

16 to define it.

17 THE COURT: All right. Supposing this case were to

18 go forth to the jury. Talk to me more about what you

19 anticipate your arguments would be with respect to this

20 intermingling of the wire fraud statute and the CFAA. You

21 said point blank that, if the CFAA falls then the wire fraud

22 falls. If the Court concerned about that were instructing

23 the jury, would the Court be asking the jury to answer

24 special interrogatories in order to keep the strain separate;

25 so that could you make the same argument afterwards?

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


33

1 MR. RUSH: Your Honor--

2 THE COURT: I mentioned before kind of a double

3 helix feeling about the two statutes and you've made the

4 argument that they are inextricably intertwined to the point

5 where the indictment suffers from infirmities that require it

6 would be dismissed.

7 Give me a little bit more about what you're talking

8 about.

9 MR. RUSH: Well, your Honor, you're talking about

10 special interrogatories. My recollection is defendants are

11 entitled to a general verdict form if we want one. We get an

12 up or down. And the problem with they way that the drafted

13 this creative indictment is, if the jury does an up or down,

14 because of the way the charges have been framed by the grand

15 jury and by the government, we don't know if we have 12 votes

16 for a conviction or for an acquittal. We might have six

17 votes for-- they violated the terms of service, but they

18 didn't quote unquote "hack".

19 So is that a good you know verdict? If we're not

20 issuing special interrogatories? And the same problem rolls

21 into the wire fraud statutes in the sense that, you know, Mr.

22 Kosto is right they have alleged deception. And both of them

23 have alleged deception throughout and I am sure that it will

24 get great media play, but the wire fraud statute doesn't stop

25 there. It doesn't say, if you deceive someone in the course

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


34

1 of a contractual dealing you have violated the federal

2 criminal wire fraud statute. There's a reason that there is

3 property interests defined and that's what we're saying here

4 your Honor. That's the element that the government has

5 failed to allege correctly.

6 And the reason that they haven't alleged it

7 correctly, is because there is no definition within the

8 statute-- or in this area of the law. Moreover, this area of

9 the law hasn't gotten to this point and Congress hasn't

10 legislated there. So even when we're talking about

11 intangible rights, yes, the courts have recognized intangible

12 rights and we're both in agreement that intangible rights can

13 be a definition of property. These intangible rights

14 however, the exclusive right to sell tickets that does not

15 fall under that category, that's what we're saying, your

16 Honor. And since we're talking about the tickets again, they

17 have to get to, how is that property-- the tickets obtained,

18 which takes you back to the CFAA.

19 THE COURT: Okay. You talk about the buy page

20 encryption, IP blogs, proof of work, CAPTCHA; how is the

21 Court, Mr. Rush, in a position to totally buy your argument,

22 that these otherwise code restriction type allegations in the

23 complaint are such that there is no hacking ongoing on?

24 I mean, once you start getting technical like that

25 a court has to be pretty sure. For instance, if there were a

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


35

1 motion to dismiss in a civil case, alleging patent violations

2 and who knows what all else. If this were an RMG R-M-G case

3 for instance. Where RMG was a company who was selling to

4 brokers, similar capacities to what Wiseguys was using. And

5 they were sued and successfully sued because a preliminary

6 injunction was issued within months of the lawsuits being

7 filed, finding all kinds of problems with the exception of

8 the CFAA, because there wasn't enough money involved

9 according to the court. But other than, it was a powerful

10 injunction and ultimately put RMG out of business.

11 I don't think I can equate my role here with the

12 reasonable probability of success prongs, in the public

13 interests and so on so forth; that a judge sitting as a civil

14 court contemplating a preliminary injunction would sit.

15 There's too much at stake here in dismissing at this point.

16 There are other points at which the same argument can be made

17 with a lot more proofs to argue with. Right now I have it on

18 your best representation, or maybe Mr. Stanton's if he wants

19 to assist in this regard. That what Wiseguys did, either

20 because they were lucky or because they carefully engineered

21 around what they thought the statute might reach, didn't in

22 fact technically hack in the way that the statute requires.

23 Because we've conveniently broken down terms of

24 service i.e. contract restrictions and code-based

25 restrictions, and stuffed a lot into the code-based. I am

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


36

1 sitting here frankly telling you that there really isn't a

2 lot in the indictment other than that it's pleaded enough, I

3 think to probably pass muster-- it's there. We've got a

4 whole lot of time ahead of us for the government to put forth

5 its proof. And it may well be entitled to put forth its

6 proofs, that there are code-based restrictions that fall

7 within the CFAA's purview.

8 MR. RUSH: That is the gravamen of this issue. I

9 mean, in fact when I described these lawyers are smart

10 lawyers, the reason I said that or the reason that I said

11 that this is a creative indictment was that they had to put

12 those four references in the indictment. What we're asking

13 the Court to do in its heavy lifting, your Honor, but we

14 believe that there's so much at play here, that we're

15 requesting respectfully that the Court do this heavy lifting

16 now; is look beyond the mere use of the word hack,

17 circumvention, encryption and see what they allege.

18 I would posit to your Honor a careful fly-specking

19 of the indictment. We will make no allegation that hacking

20 incurred or that an encryption was circumvented or an IP

21 block was breached. You will see that the IP block is a

22 mechanism to prohibit that IP address from future purchases,

23 not from that purchase. And if an IP block was placed on a

24 Wiseguys IP address, that IP address wasn't used again, they

25 didn't circumvent the block, that was merely one of the

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


37

1 investment matters that Mr. Kosto was talking about.

2 If you look at the buy page encryption, you are not

3 going to see in that indictment an allegation that they

4 circumvented or hack their way to the buy page encryption.

5 What happens frankly, your Honor, is once CAPTCHA is answered

6 correctly by a computer or by a human you get to the buy

7 page. So the buy page encryption basically steers you

8 through CAPTCHA, if you answer its correctly you get the buy

9 page-- if you don't you don't. There's no allegation by that

10 grand jury in that indictment that that Wiseguys hack. The

11 buzz words are there in those four categories, in order to

12 get over a motion to dismiss and hopefully get this to a Rule

13 49 proceeding, where the defendants have been subjected to a

14 trial and the jury has struggled with some of the issues that

15 we've talked about. I don't know if we go that route. I

16 don't know what form the indictment would even look at that

17 that point. But it's our position--

18 THE COURT: Well, that raises an important issue.

19 Let's assume that in all candor the government was not able

20 to see its way clear to allege a flat out hack. And instead

21 puts forth through various means possible hacking type of

22 things or has at it plan presentation the issues some expert

23 way in which all of this adds up to hacking. The totality of

24 this hacking and that hacking whatever. Is the amount of

25 persistence, the catch me if you can attitude of the

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


38

1 defendants, the well-structured effort to hide the fact that

2 this is non-human bulk purchasing going on; is that's

3 impermissible? Why is that not an impermissible part of the

4 computer-based clever CAPTCHA fooling that is going on; so as

5 to amount to a fraudulent activity that is accomplished

6 through CFAA violations.

7 Why can we not take a more both general and

8 specific way of looking at this indictment and not run afoul

9 in what I think is a good point. Which is, if you permit

10 this indictment to go forward the guy who is being honored by

11 your Alma Mater, won't know when the FBI may come knocking at

12 his door and so on. Because you have to have this confluence

13 of deliberate persistent conduct, impersonations, albeit they

14 are mechanical impersonations they are still deceitful. And

15 a clever well-engineered way of getting around a program that

16 is meant to block access. That is in fact specifically

17 designed to block access and was penetrated?

18 MR. RUSH: Well, your Honor, let me address the

19 first part-- or your last part first. CAPTCHA is not

20 designed to prevent access. CAPTCHA is designed to permit

21 access by a human. CAPTCHA--

22 THE COURT: To discern-- who is accessing, correct?

23 MR. RUSH: It is designed to prevent access from a

24 computer because there is a term of service drafted to

25 protect that contractual rights that no bots would be used.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


39

1 And that is kind of a segue into the broader answer.

2 Your Honor, there's no question that this

3 government wants to stand in front of 12 folks and put a lot

4 of inflammatory rhetoric from the jury box and otherwise,

5 about lies, deceits and other impersonations, avoidance, etc.

6 And 12 folks in the box may eat all of that up.

7 But our point is that the Court as the gatekeeper

8 to the law says, you know, you may not like that course of

9 conduct, you may not even like these defendants. I am not

10 quoting any names in particular. But, you know, I am a

11 federal charged with enforcing the criminal laws of this

12 country and this is not an allegation of criminal law, so we

13 will not even get into deceptive conduct.

14 So if it's not a violation of the law the deceit,

15 if you will, becomes irrelevant, it becomes moot. We have to

16 first have to establish that this is a fact in violation of

17 1030 and this indictment doesn't do that, your Honor.

18 THE COURT: So you're saying that the heart and

19 soul of criminal conducted alleged here or-- strike that.

20 The conduct that your client is engaged in, that is

21 set forth in the indictment, stripped of all of the

22 allegations that are dealing with fraud, deceit and so on, is

23 that they in violation of the specific terms of service put

24 on the website by the OTV, used automation to purchase in

25 bulk tickets that the vendor sought to sell to individuals in

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


40

1 small quantities per individual, correct?

2 MR. RUSH: That's correct, your Honor.

3 THE COURT: That was business model of the OTV.

4 And that your client's found a way to foil the efforts by the

5 OTV's to ensure that the folks or the things-- or the

6 purchasers-- that the purchasers were individuals, correct?

7 MR. RUSH: Yes, your Honor.

8 THE COURT: And that the means that were used do

9 not run afoul of the unauthorized access or exceed authorized

10 access proscriptions in the Consumer Fraud and Abuse Act--

11 the CFAA?

12 MR. RUSH: Right.

13 THE COURT: Okay. Then talk to me about why what

14 they did is not exceeding, or is not exceeding authorized

15 access or that they were unauthorized to do that? That they

16 committed unauthorized access?

17 MR. RUSH: Because you have to go back and you have

18 to look at Congressional intent when the CFAA was passed. In

19 the struggle that I assume that all of us had here is, the

20 terms of authorized and unauthorized access or exceeding

21 authorized access are open to, you know, common definitions.

22 But when we turn around and we look at congressional intent

23 there, that statute was designed to protect protected

24 computers, not public access sites. So when you--

25 THE COURT: But did Congress know at the time, I

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


41

1 mean, bring me up to date. Has it made amendments that make

2 it clear that it's still talking about password protected?

3 Or has it in fact modernized what may have been the way this

4 which Computerland worked in '87 or '84, whenever it was

5 passed, so as to capture some of the nuances of computers and

6 websites and so on that exist now.

7 MR. RUSH: The only updating, if you will, that we

8 are aware of is courts in a civil context interpreting the

9 very phrases that we're discussing now, not applying the rule

10 of lenity because they are in a civil context. And the

11 Supreme Court, you know I want to point out what's in the

12 papers and I'm not going to dwell on it. But the Supreme

13 Court said, where a statute has been drafted that contains

14 both civil and criminal remedies, it's to be interpreted

15 consistently. Meaning that, the civil aspects should be

16 interpreted consistently with the criminal aspects, which

17 you've seen cases that we've cited too. Some courts have done

18 it and said that the Rule of Lenity will apply in the civil

19 context and we'll not take it to that extreme and to that

20 level.

21 But, your Honor, and the only thing that I think to

22 simplify this is what I said in my opening remarks was, and

23 it comes down to if there was not a term of service that

24 prohibited computer purchasing of tickets we wouldn't be

25 here. And that is, I think one of the best illustrations of,

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


42

1 if we wouldn't be here that means that the CFAA doesn't cover

2 this course of conduct. And so when we talked about the

3 circular nature.

4 THE COURT: So in other words what you're saying

5 is, there is no prohibition against using a computer to buy

6 tickets in bulk? I mean in the world. God didn't say you

7 can't do that.

8 MR. RUSH: And neither did Congress. And I think

9 they confuse each other.

10 THE COURT: All right then so no higher authority

11 has come down and said that you can't buy tickets in bulk and

12 turn around and resell them?

13 MR. RUSH: That's right, your Honor.

14 THE COURT: Ticketmaster has, as the exclusive

15 on-line vendor of a portion of events tickets for any

16 specific event, said you can't.

17 MR. RUSH: They contracted with their users and

18 said you can't.

19 THE COURT: Right, you can't.

20 MR. RUSH: That's correct.

21 THE COURT: And, therefore, the CFAA can not be

22 used as an enforcement as far as criminal liability goes, it

23 can be used in its civil provisions as well as a host of

24 other more traditional laws and copyright and whatever, yes?

25 MR. RUSH: That is our position, your Honor, in a

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


43

1 nutshell.

2 THE COURT: One last thing-- maybe not the last

3 thing. The source code reference. Am I right reading the

4 indictment right that it talks about breaking the source code

5 of Telecharge and that has nothing to do with your guys?

6 MR. RUSH: Apparently that was an employee, a PS, I

7 don't know who that is. Who sent an email.

8 THE COURT: Sure you do.

9 MR. RUSH: Your Honor, they're clever and creative,

10 your Honor.

11 MR. RUSH: Talking about an attempt to quote

12 unquote "hack" into an OCR. The source code would be an

13 attempt to recreate an OCR or learn their source code so the

14 CAPTCHA could be circumvented.

15 THE COURT: How important is it that I know, for

16 purposes of an opinion in your favor which is what you want.

17 How important is it that I know what OCR is? How important is

18 it that I know what IP blocks are?

19 In other words, if I were sitting here as a judge

20 in patent case I promise you that I would have many more

21 lawyers than are seated at counsel table now and there are

22 enough right now, I would have Power Point. I would have a

23 little note book with Power Point things and it would all be

24 in color. And I would have OCR explained to me. I would have

25 IP blocks explained to me. I would have IPs explained to

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


44

1 me. I would have little pictures of all of this. I would

2 have points of access explained to me. I would have all of

3 this stuff explained to me. And then the attorneys would

4 walk down the path of applying this tutorial that was

5 presented at great expense to individual clients to me. And

6 I wouldn't just get one I would get two. Or I would get

7 three, I would get one from each side plus an expert that was

8 jointly chosen. Or I would get one from each side plus that

9 side's expert, plus maybe my expert. And we would go all of

10 this in a day and then we would start talking about the law.

11 You folks are coming in with 67 pages yelling that

12 its too fat for words, when I'm thinking to myself where were

13 they in the last patent presentation or civil fight about

14 whether or not there was an infringement going on or an

15 improper access case going on.

16 So that's really, you know, what I am saying. How

17 can I at this point, assuming that I would be persuaded by

18 your larger article say, that the government has not alleged

19 enough to be permitted, subject to cross examination, subject

20 to brutality on the part of the defendants legally; to

21 attempt to show me that there is hacking going on as well as

22 all the other lying and deceit that you're saying is window

23 dressing.

24 MR. RUSH: Well, your Honor, my answer to that

25 would be, in order to sustain this indictment I would

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


45

1 respectfully suggest that the Court would have to inquire

2 further. Because as it stands now the mere mention of the

3 phrases of the indictment is insufficient.

4 THE COURT: Well, when Mr. Liebermann stands up,

5 because he's a CFAA guy, I am supposed to ask him, I guess,

6 where has the government alleged hacking and how is that

7 hacking, right?

8 MR. RUSH: In specifically what did they do in the

9 purchase of these tickets to hack. What did they do in the

10 purchase of these tickets to circumvent the buy page

11 encryption other than respond to the CAPTCHA. And once

12 again, it's all in the computer automation aspect of this,

13 your Honor.

14 THE COURT: And can he say here, here, here, and

15 win my heart and then I say to him, well, what about this

16 wire fraud stuff? Supposing I throw out all the wire fraud

17 stuff? Would he have still have an indictment going to the

18 jury? Are you saying that his CFAA is absolutely dependent

19 upon the wire fraud?

20 MR. RUSH: I think that the intangible rights

21 alleged in the wire fraud counts, the specific intangible

22 rights in this indictment, not intangible rights generally as

23 everybody's recognition, are insufficient to sustain the wire

24 fraud counts. Because the intangible rights are directly

25 intertwined with the terms of service of the OTVs. That's

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


46

1 what this prosecution sets forth to do. And that is to

2 criminalize breaches of contract set up in a one party

3 contract of adhesion by an on-line ticket vendor. And I

4 can't remember the case and that's why I have Andy who is a

5 lot smarter than I am. But there was one set of terms of

6 service for 134 pages of these on-line vendors. Now what

7 consumer that gets on a website to buy something reads 134

8 pages of terms of service.

9 Yet I agree that some of these sites are set up so

10 by entering the site you agree to these terms of service that

11 you don't even know what's there. But that's boiled down to

12 the essence, that's what the government is setting up to do

13 here. And that is to criminalize the computerized purchase

14 of tickets that were prohibited by a contract drafted by

15 these on-line ticket vendors and not by Congress.

16 THE COURT: Okay. I'm going to be asking you, Mr.

17 Liebermann, where the hack, hack, hacking is alleged and how

18 it works. But we'll take a break at this time 10 or 15

19 minute break at this time.

20 (RECESS TAKEN).

21 THE COURT: Thank you. Back on the record.

22 Mr. Rush, when you were arguing in front of me you

23 indicated CFAA was historically designed to concern itself

24 with official information on computers. And, I believe, if

25 you look at the language in identifying the harm proscribed,

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


47

1 whoever, paragraph 2, "intentionally accesses a computer

2 without authorization or exceeds authorized access and

3 thereby obtains... information from any protected computer."

4 And then protected computer is defined later on, "as a

5 computer exclusively for the use of a financial institution

6 or B, which is used in or affecting interstate or foreign

7 commerce from communication, including a computer located

8 outside the United States that is used in a manner that

9 affects interstate or foreign commerce or communication of

10 the United States."

11 So wouldn't you say that we're beyond the narrow

12 scope of just official bank computers and agency computers?

13 Or is that not the defense's position.

14 MR. RUSH: May I defer to Mr. Stanton?

15 THE COURT: Okay. Come up to the podium, Mr.

16 Stanton. Thank you.

17 How is your side reading 1030?

18 MR. STANTON: Yes, your Honor. The scope of, this

19 is not a question of the scope of the term protected

20 computer, your Honor is right. The scope of what constitutes

21 a protected computer under the CFAA is exceedingly broad. In

22 fact, it would cover any computer at all anywhere in the

23 world of any kind that's used in interstate commerce. And

24 essentially it makes any hand held device, laptop, desk top,

25 server, any anything that can store data on it and that falls

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


48

1 within the scope of commerce clause with respect to what's in

2 or affecting interstate commerce is a protected computer;

3 that's not really the issue.

4 The issue is whether the CFAA in terms of exceeds

5 authorized access or acts without authorization can be

6 interpreted to cover breaches of contract. And whether a

7 breach of a contract can establish that someone has acted

8 without authorization or exceeded authorized access.

9 Indeed, one of our points is, if that term is

10 interpreted broadly the statute's reach is limitless because

11 even is a protected computer. So that's one of the essential

12 points that we raised in our papers.

13 THE COURT: Okay. Thank you very much, Mr.

14 Stanton. I understand better. Okay.

15 Mr. Liebermann, talk to me about the position that

16 apparently the government takes, which is there is case law

17 supporting criminal prosecutions for essentially breach of

18 terms of service, or breach of contractual restrictions as

19 opposed to code-based restrictions.

20 Come up to the podium when do you that.

21 MR. LIEBERMANN: Sure, your Honor, I am happy to

22 address that.

23 I can't stress enough, but I can't stress enough

24 how I would suggest that our indictment does not charge that.

25 But putting that aside--

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


49

1 THE COURT: We will get to the code-based

2 restrictions, yes.

3 MR. LIEBERMANN: Sure, your Honor. United States

4 versus John was a case in which a bank employee was allowed

5 to access bank accounts, like every bank teller-- I was a

6 bank teller, you're allowed to access bank accounts. And

7 then the defendant accessed bank accounts that he was not

8 allowed to access. It was not part of his role.

9 The court said that that is a violation of 1030.

10 That's the operative term in 1030, is authorized access.

11 They said, you're authorized to access bank accounts within

12 the role of your job. You're not authorized to access bank

13 accounts that are not as part of your job.

14 And Salum is very much the same thing. Police

15 officers allowed to do criminal history backgrounds checks.

16 The FBI does it. All police officers do it. He was allowed

17 to do in the course of their job. And in Salum just like in

18 John, unlike the course of his job the police officer in

19 question accessed in the NCIC, the criminal background

20 records of individuals that he wasn't doing as part of his

21 job. And it is all about that access.

22 In both cases, frankly, they didn't even put in a

23 password. They didn't do anything. They were already on the

24 system. They were accessing part of the system that they

25 were not allowed to access. Simply unauthorized. And so

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


50

1 because there's no password, there's no patch, there's no IP

2 blocks, there's nothing. They simply violated the

3 contractual terms, in this case it was within the confines of

4 their employment, contractual terms and therefore had

5 unauthorized access.

6 THE COURT: Was there conduct Salum and John's the

7 focus of the prosecution or were they acting so that they

8 could commit other crimes? I think in one there was an

9 obstruction of justice that was at the core of it and in

10 other it was using the information obtained by the bank

11 employee in order to take money out of peoples' accounts or

12 whatever.

13 So my point is that, if courts upheld certain

14 counts of the indictment, is that as persuasive a piece of

15 jurisprudence so as to really be a stand-alone proposition

16 here, as opposed to in the course of upholding a conviction

17 the reviewing court or the district court didn't toss out one

18 of the counts?

19 MR. LIEBERMANN: In the government's view it

20 certainly is, your Honor. They have to look at the same

21 elements and ask whether those elements were met. They look

22 at those elements, I don't have John in front of me but I

23 have Salum in front of me, they are specifically looking at

24 whether it was an unauthorized access. And of course they

25 have to look through that in reviewing whether the elements

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


51

1 are met. And in each count within the indictment, the

2 elements need to be met independently of anything else. And

3 so they did look at that with respect to that.

4 THE COURT: So I think that now we're talking about

5 the end use of the information as opposed to how the

6 information was obtained. And you're saying that those two

7 cases stand for the fact that courts have upheld prosecutions

8 for unauthorized use as opposed or conflated unauthorized use

9 with being on the site?

10 MR. LIEBERMANN: Your Honor, there are certainly

11 courts that talk about unauthorized access is both-- they

12 include unauthorized use saying, you're not allowed to access

13 this system for that use. And, therefore, because you

14 weren't allowed to access the system for X or Y use, it is

15 also unauthorized access. Just like I may be allowed to come

16 into the court room and I have no access--

17 THE COURT: Supposing you have judge so and so who

18 has upheld a case where the person was permitted to look,

19 your agent, your police officer, who is I think attempting to

20 intimidate the DEA agent or whatever is going on; uses

21 something he has got the right to use. Or uses information

22 by means that he's authorized to employ. And the judge goes,

23 that's unauthorized access, look at what he did. And then

24 another judge sits there and says, no, he was permitted to be

25 on that site. He's a police officer, he's there, it's on his

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


52

1 computer and he goes and sits down and it is there. I don't

2 think that-- that's authorized access unauthorized use of the

3 end product. And they are both there and screaming at each

4 other. They are apprapletic and each one is convinced that

5 he or she is right.

6 How is that a comfortable way on which to mount a

7 criminal indictment?

8 MR. LIEBERMANN: We didn't do that, your Honor.

9 Our operation, our indictment doesn't charge you accessed it

10 and then your use was incorrect. The issue here is actually

11 the access itself. I would say that John and Salum are

12 beyond where we are. Certainly not disagreeing with those

13 cases but they are beyond that. We're not suggesting, your

14 Honor, that only because they used their access to purchase

15 tickets and resell tickets and scalp tickets and this is a

16 case about scalping tickets, was their access unauthorized.

17 We could see there are cases-- there are states in which

18 scalping is legal.

19 We're suggesting the actual access by these

20 individuals was blocked, was not permitted. That they

21 couldn't do it with computer means. The actual access to

22 even get to the buying--

23 THE COURT: All right, fine. Now, we're into the

24 hacking issue. They are saying, they being the defendants,

25 are saying you have not charged anywhere in this indictment

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


53

1 that we hacked. And so now is your time to say, oh, yes we

2 are and show me where.

3 MR. LIEBERMANN: Well, let start, your Honor, if I

4 may, by saying that I'm going to prove what the statute

5 requires. And the statute has no term hacking anywhere in

6 it. And there's a reason for that. Because the statute's

7 operative elements are unauthorized access. It is not a

8 question of hacking versus not hacking.

9 THE COURT: But you say hacking.

10 MR. LIEBERMANN: We certainly do, your Honor.

11 THE COURT: I think the third line you say

12 hacking. The first word on the third line. " Wiseguys used

13 fraudulent misrepresentations and computer hacking to

14 purchase tickets surreptitiously over the internet to

15 concerts, sporting events and other forms of live entertain

16 throughout the United States. To achieve this goal Wiseguys

17 deployed a nationwide computer network that opened thousands

18 of simultaneous internet connections from across the United

19 States, impersonated thousands of individual tickets buyers

20 and defeated on-line ticket vendors, security mechanisms.

21 When on-line ticket vendors tried to stop Wiseguys from

22 engaging in this conduct, Wiseguys adapted its methods and

23 continued. Through these fraudulent unauthorized steps among

24 others, Wiseguys and its owners made more than $25 million in

25 profits, while purchasing more than one million tickets to

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


54

1 events nationwide.".

2 MR. LIEBERMANN: Your Honor, the first sentence is

3 pointing out to me that the word hack and we use it

4 repeatedly in the examples and the overt act, is a word that

5 the defendants use as they describe their activities

6 themselves. How do we hack this, how do we hack that, how do

7 we hack this. It is not a word in the statute and so we're

8 going to talk about unauthorized access and that's what we

9 deal with here.

10 With respect to hacking though, your Honor, hacking

11 is a work-around. It is the used computer work-around in

12 order to do something. That's why hackers and-- white hat

13 hackers, their good guy hackers and the bad guy hackers, they

14 talk about can we hack around this. Because it is a way of

15 working around the system. And working around when it comes

16 to 1030 is achieving unauthorized access. If I may give you

17 an example.

18 THE COURT: All right, is it fair to say that the

19 government's theory that the 1030 statute prohibits achieving

20 unauthorized access?

21 MR. LIEBERMANN: Of course.

22 THE COURT: Okay. By whatever means?

23 MR. LIEBERMANN: Well, we lay out the means. Not

24 whatever means, but what was laid out in the indictment.

25 THE COURT: Well, if I were teaching, you know,

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


55

1 computer the law, federal, criminal computer law; could I say

2 that 1030-- the reach of 1030 is that unauthorized access by

3 whatever means is prohibited?

4 MR. LIEBERMANN: Correct.

5 THE COURT: Okay. And in this case, the means are

6 laid out so we don't have to worry ourselves about how-- how

7 they did it. They punched through, correct?

8 MR. LIEBERMANN: That's right, your Honor.

9 THE COURT: Okay. And we're forced back into what

10 unauthorized access is, right?

11 MR. LIEBERMANN: We have to prove it certainly,

12 yes.

13 THE COURT: Yes. But then we've got to say who-- I

14 think at one point may be in the amicus brief. Nowhere is it

15 defined what authorized access is. Presumably here the

16 definition of authorized access is given by Ticketmaster,

17 correct?

18 MR. LIEBERMANN: Sure.

19 THE COURT: Okay.

20 MR. LIEBERMANN: And the other websites, your

21 Honor.

22 THE COURT: And aren't we back to the argument that

23 the defendants are making. That we are now turning into

24 almost a regulatory mandate a contractual term.

25 MR. LIEBERMANN: Your Honor, if I may that would be

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


56

1 the same if we have a bank account and a bank website. So if

2 we have a bank website and the bank website says, everybody

3 could come to our bank as a matter of fact please come look

4 at our website, Chase.com, we would love for you to use our

5 products. Here, click on this link and this link and this

6 link. Please come use our products. That's what they want.

7 But then bank customers, if you used your user name

8 and your password you will get to also see your actual bank

9 account. Chase, in that scenario is defining the authorized

10 general time and what they've limited, the restricted access

11 to you, the actual user's website.

12 So we have many instances like that and others in

13 which the actual entity, the civil non-government entity

14 defines what is allowed and what's not allowed. It's very

15 similar to real property trust acts, right. The entity says,

16 you are allowed to come on to our premises between 9 and 5

17 and between 5 and the next morning at 9, it is not allowed.

18 You can't come in here. And we looked to that authorization,

19 for example, if that's a bank 9 to 5 and we say, okay, they

20 allowed 9 to 5. The fact that you, Mr. Burglar, are in the

21 bank-- indeed maybe in the vault at 6:05, demonstrates that

22 you are committing breaking and entering and you are not

23 authorized to be there.

24 So in many instances the law has to look to the

25 non-government entity to determine what was authorized and

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


57

1 what was not authorized in the criminal sense.

2 THE COURT: Okay. Now, Mr. Rush makes much of the

3 fact that the purchase of these tickets is after all we're

4 getting down to the scenario here. The purchase of these

5 tickets by a computer is what is being forbidden by

6 Ticketmaster. And the government is putting its weight

7 behind that restriction. Why?

8 MR. LIEBERMANN: Why is the government using its--

9 THE COURT: Why does the government care?

10 MR. LIEBERMANN: Your Honor, the government cares

11 for a number of reasons, if you get back to just this

12 prosecution team. First of all, there is a fraud here and

13 it's a large fraud. And it's affected a lot of individuals

14 and we've had complaints.

15 Beyond that, CAPTCHA as one acknowledging is a

16 gatekeeping restrictive technology that's used in many

17 different realms. It is one of E-Commerce's most popular

18 things. I was on trial just this last week and somebody was

19 trying to look some thing up and he said, oh, I hate

20 CAPTCHA. I hate having to enter this. And when he got it

21 wrong he didn't get in, because it is restricting his access

22 into that the website and he had to enter it again. That

23 element is very important for E-Commerce to be able to

24 regulate itself. And there was indeed a problem with ticket

25 sales prior to the introduction of CAPTCHA, proof of work and

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


58

1 the other restrictions that were on there.

2 This is not, as they concede, a small industry with

3 nothing at stake. There are millions of dollars at stake.

4 And it prevents people from being able to access websites and

5 to limit websites and it prevents businesses from functioning

6 in the E-Commerce realm.

7 THE COURT: Shouldn't Congress be the one to tell

8 me that as opposed to an individual prosecutor in an

9 individual case?

10 MR. LIEBERMANN: Your Honor, Congress did tell us.

11 They told us when you can and can't access a computer. And

12 gave us a statute which gives you what is and is not allowed

13 to be done to a computer.

14 THE COURT: But then why do we have genuine fights

15 between among courts whether as to an unauthorized access is

16 use after being authorized, or can't prosecute under CFAA

17 because the access, the being there, the having information

18 in hand is authorized?

19 MR. LIEBERMANN: Your Honor, I submit again with

20 respect to these types of charges and this one in which the

21 access itself is discussed, there has not been one case, not

22 one case that has said that a code based restriction beating

23 that doesn't fall under 1030. Not one case has held that

24 that's vague. That there is a Rule of Lenity that needs to

25 be applied there. Not one case. That fight is all with

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


59

1 respect to something that is not before this Court. I know

2 it's a wonderful academic debate and I love engaging in

3 academic debates on 1030, that makes me a dork. I do. But

4 that's not what we charged in this indictment, your Honor.

5 That access is use and use is access was absolutely

6 not charged here.

7 THE COURT: All right. Tell me what is charged

8 here.

9 MR. LIEBERMANN: Your Honor, this charges the

10 actual access itself. If I may, your Honor, there's two

11 things that I did want to correct, misstatements by Mr. Rush,

12 and I know they're not intentional.

13 But in paragraph 9-C we did allege that there was

14 the use of OCR. So he says, it's not alleged. I'm sorry.

15 It's paragraph 9-A on page 16. It says right there,

16 employing OCR and other mechanisms to defeat CAPTCHA

17 challenges.

18 So there's no question that that's alleged

19 explicitly in black and white.

20 THE COURT: Now, I'm assuming that the government

21 will have proofs that OCR was part of the technology that is

22 complained of, whereby the tickets were bought in bulk by

23 bots created by the defendants or employed by the defendants,

24 correct?

25 MR. LIEBERMANN: Yes.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


60

1 THE COURT: Okay.

2 MR. LIEBERMANN: The other thing I wanted to talk

3 about and I agree that this goes only to the conspiracy

4 count, but in paragraph 9-C. 9-A was OCR. Paragraph 9-C,

5 there's the old school traditional hack through the side

6 ways. Hack through the side of the bot. And they absolutely

7 tried to do this. And we will have witnesses get up here and

8 explain that Lowson was constantly looking for this

9 solution. There's no question that they conspired to get

10 into-- to drill through the side of that vault. Ultimately,

11 your Honor, they gained unauthorized access by circumventing

12 the security measures. And that goes to both the conspiracy

13 and to the substantive counts. But they learned that there's

14 an easier way than drilling through the side vault. Trick

15 them into letting us in. Circumvent it through other

16 mechanisms. Through OCR, through bots to defeat CAPTCHA with

17 their rainbow tables and fill in the answers, using 100,000

18 IP addresses, to avoid the IP blocks.

19 THE COURT: Well, how about this. Let's say that

20 you present a history of Lowson, Kirsch and Stevenson's

21 efforts to drill through the side of the vault. You've got

22 all kinds of witnesses explaining.

23 You're charging what they did vis-a-vis the

24 concerts, the Springstein concerts, Myle Cyrus, whatever

25 specific counts are in the indictment. If they didn't use

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


61

1 those kinds of offensive clearly code breaking types of

2 implementation, are you allowed still to proceed on your

3 indictment, on the theory that they finally came up with one

4 that was really, really effective and discarded all these

5 other clear violations of the CFAA?

6 MR. LIEBERMANN: Your Honor, I would certainly

7 suggest that a clear violation of the CFAA also exists with

8 other code-based restrictions, such as their CAPTCHA beating

9 mechanisms, the OCRs and their 100,000 bots and the IP

10 address blocks.

11 If I may, your Honor, going back to our bank

12 example. When that bank puts up a user name and password

13 there is two ways-- some of the agents in the back probably

14 would tell me that there is a billion ways. But let's talk

15 about two ways which you can get around. You can figure out

16 how to beat the true hard code-base encryption that Chase--

17 and I'm not picking on Chase because they have bad

18 mechanisms, it just came to mind. But Chase uses to protect

19 its systems. The true kind of zeros and ones and you're

20 trying to figure out how they do it, reverse engineering and

21 get through. Or you can put in the user name and you know

22 that somebody usually uses, Eli, that's a user name that I

23 like that user name, your Honor. And then you start guessing

24 my password. You guess. You start guessing, this is how we

25 break codes-- the government does. We start guessing one

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


62

1 word and then another word. Maybe he uses his Dad's name or

2 his Mom's name or his dog's name and you just guess. And

3 then you gain access to my bank account. There's no

4 question, your Honor, that that is unauthorized access.

5 You want to call it hacking, smacking, whatever the

6 term we use for that and I would certainly call that

7 hacking. It's called brute force hacking, which is none

8 other than guessing. That's hacking. And that's what they

9 do with CAPTCHA. There is a clear stop, you can not get in

10 without answering this question correctly. And so they--

11 either OCR which is figuring out, guessing-- very educating

12 guessing. So they either do that or they set up a rainbow

13 table of passwords and they use that. So there's no-- we

14 would certainly not agree that just because they didn't drill

15 in through the side of the vault but they guess the vault

16 combination that there's no old school traditional 1030

17 violation.

18 I think, your Honor, it would be different if we

19 were talking about and don't quote me on the date. But if we

20 were talking about 2001, when Ticketmaster and Telecharge

21 first go from the phone-based system to the computer system.

22 And they don't have any code-based. And it's only, you know,

23 come in on and buy whatever tickets. And the terms of

24 service say, please don't buy more than four. I think then

25 we are in the realm of contract-based. I don't think that

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


63

1 this case disappears because in this case we would have a

2 clear cease and desist letters. We would have calls by

3 Ticketmaster and other kinds of things that would inform even

4 the opinion in Drew, but that 2001 construct would be where

5 it may be something that we could have more academic debate

6 about.

7 In today's construct and what's laid out in the

8 indictment that's not what's going on. There were already,

9 they realized Ticketmaster, Telecharge and others, that

10 simply putting up terms doesn't do anything. So they put up

11 restrictions that if you don't get those correctly, if you

12 don't live by them you're not getting through. And it is

13 hacking to get through those, just like it's hacking to guess

14 the password for a system.

15 THE COURT: Now, when you talked about code-based,

16 I'm assuming you're not talking about source code. You are

17 talking about the CAPTCHA effort to make you break a code or

18 that kind of thing?

19 MR. LIEBERMANN: Right. That's exactly right. It

20 is a user name and password. It is something that is in the

21 system that restricts your access without you having to read

22 the contract.

23 In Drew there wasn't anything. The individual was

24 able to go on-line and there was nothing that actually you

25 know made you put in your DNA to check your age or put in a

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


64

1 lie detector test checking whether you were telling the truth

2 and you weren't going to harass people. It was simply

3 terms. Here in the bank example there's a code, it is a

4 computer code that's in there and it blocks you. You don't

5 need to read the terms of use to not be able to get through.

6 You get CAPTCHA wrong you are done. If your IP address is

7 blocked that IP address is blocked. You're not getting

8 through with that IP address. So it's a hard code-based in

9 there. And I think that recent courts have focused on that

10 and like that is because it eliminates any kind of a notice

11 question which is what Drew focused on.

12 Again, your Honor, we would submit that here that

13 notice question is also eliminated through cease and desist

14 and through other mechanisms alleged in the indictment, but

15 we don't have rely on that.

16 THE COURT: Okay. Explain to me just for my open

17 general edification, the relevance of the proof of work

18 references both by quotes from the defendants and the way in

19 which it's alleged earlier.

20 MR. LIEBERMANN: Your Honor, the proof of work, is

21 just another computer code protection mechanism that they're

22 trying to put in, Ticketmaster in particular, tried to put in

23 to stop computers from being able to be effective on this.

24 What happened was individuals were using computers

25 and they were still able to beat algorithms. They were

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


65

1 trying to barrel through. And so they instituted computer

2 programers that made the computers slow down to the point of

3 being ineffective. And that's what-- it was just another

4 thing designed. If you or I were trying to purchase tickets,

5 it's one computer trying to purchase one set of tickets it

6 does not slow us down. But one computer trying to purchase

7 hundreds of sets of tickets and each time needing to answer

8 this computer program that that computer is taken out of

9 commission. So it restricts access to that computer to be

10 able to get into the system and to be able to use this

11 further. It is again another code-based restriction to limit

12 the computer from being able to do what they want to do with

13 that computer.

14 THE COURT: In paragraph 20 and paragraph 31, I

15 sense some kind of a linkage, but I'm not sure. Paragraph 20

16 talks about the defendants requiring brokers to provide as

17 many as 150 credit card numbers and corresponding account

18 holder names and addresses across the United States, for use

19 by the CAPTCHA bots in purchasing event tickets. And then in

20 paragraph 31--

21 MR. LIEBERMANN: I'm sorry, 31, your Honor.

22 THE COURT: Yes. There's a reference that, it is

23 further part of the conspiracy the defendants Lowson and

24 Wiseguys established a secure broker website through which

25 ticket brokers, including brokers in New Jersey, could order

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


66

1 tickets, negotiated offers and provide credit cards for use.

2 Is 20 talking about what 31 is talking about? Because I was

3 curious as to the language, that they required brokers to

4 provide credit card numbers, I mean, that sounds in another

5 context as if they are coercing people, brokers, to disgorge

6 confidential information harming consumers. Was that what

7 you were alleging?

8 MR. LIEBERMANN: Your Honor, I could turn it over

9 to Seth or I could just with this focus. I could tell you

10 that we're not alleging-- this is not an identity theft

11 case. So that's not the allegations in this indictment that

12 they committed identity theft.

13 THE COURT: Okay. Well, then let's hear what the

14 gravamen of that paragraph is.

15 MR. KOSTO: Your Honor, I don't think that the

16 parties would dispute that part of the ticket purchasing

17 software required the provision of a large number of credit

18 cards to be used to provide to the online ticket vendors,

19 actual credit cards. There's no allegation that these were

20 fake cards or that the bills on these cards weren't paid.

21 But the cards in certain cases were required to be provided

22 by the ticket brokers, to fuel this engine that could

23 purchase multiple hundreds of sets of tickets over a given

24 short period of time, so there's communications and that's

25 what's alleged here.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


67

1 Part of the conspiracy is getting the cards from

2 broker customers to use them. The allegations in the

3 indictment are that there's no correlation between the cards

4 they were provided and an individual customer who would be

5 headed to a concert. In fact, the evidence is expected to

6 show that the defendants took out several credit cards in

7 their own names in various spellings in their own names on

8 which purchases were also made.

9 Again, it's not a question of who ultimately got to

10 go to the concert and this is not a central deception on

11 which the fraud counts are premised. And Mr. Liebermann is

12 correct, there's no allegation that these were coerced out of

13 the brokers except insofar as that Wiseguys didn't deal with

14 just anyone. You had to meet Wiseguys as it were on a

15 recommendation through a referral.

16 THE COURT: You being the broker?

17 MR. KOSTO: A broker had to be referred to Wiseguys

18 they didn't have a website and a store front. As alleged in

19 the indictment that they held their property in the name of

20 Smog (ph), you couldn't walk into a Wiseguys retail location

21 or a wholesale location and say, hi, I would like to do

22 business with you-- you had to know somebody. And in order

23 to know someone and in order to participate with Wiseguys,

24 one of the requirements that they instituted was the

25 provision of these credit cards.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


68

1 Because the credit cards were the fuel that the

2 computer buying programs chewed up. They needed lots and

3 lots of cards because of the restrictions that online ticket

4 vendors put in place. Computer restrictions as it turned

5 out. That you can't use the same card, for example, more than

6 a certain number of times. Or you can't use a card with the

7 same residential address. Or two cards with the same last

8 name at the residential address. All technological measures,

9 not in the code-based sense that Mr. Liebermann was talking

10 about, all measures designed to protect that goodwill

11 interests, that exclusivity right and the right to dictate

12 who they are selling to and who they are not selling to that

13 we were discussing earlier this morning.

14 THE COURT: Now, when the brokers supplied all of

15 this information, I'm assuming that they had this cache of

16 information from regular customers that they dealt with,

17 correct?

18 MR. KOSTO: Regular broker customers.

19 THE COURT: Regular broker customers. Yes. So I'm a

20 broker and your a company that regularly is dealing with me

21 to get good tickets to sporting events, right? And I have

22 your billing information, right?

23 MR. KOSTO: Yes.

24 THE COURT: I provided in bulk with you and many,

25 many, many other businesses to Wiseguys. Why isn't there a

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


69

1 corrupt connection between the brokers and Wiseguys? Why

2 isn't this aiding and abetting? I mean, aren't the broker

3 complicit?

4 MR. KOSTO: It would be-- no, because the crime

5 charged is the deception and the access. The access and the

6 deception in reverse 1030 and 1343.

7 THE COURT: The brokers are a necessary part of

8 this, right?

9 MR. KOSTO: I provide my credit card to a broker,

10 because I like to go see a particular sporting event and the

11 broker provides that card to Wiseguys; is the broker aware

12 how of Wiseguys purchases its tickets? Is it aware--

13 THE COURT: Well, the broker knows that it isn't

14 getting into this inner circle without providing lots of

15 credit cards, right?

16 MR. KOSTO: Correct.

17 THE COURT: So why do they think they are providing

18 the credit cards?

19 MR. KOSTO: To fuel the engine-- to be able to get

20 tickets. Wiseguys needs credit cards. The brokers are fully

21 aware that the online vendors restrict the number of tickets

22 to given cards.

23 THE COURT: But isn't this engine fueled by more

24 than just Wiseguys? I'm not trying to do anything more than

25 just get down and understand the scope of this. And to the

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


70

1 extent that we're biting off one piece of it--

2 MR. KOSTO: I would imagine that on the wire fraud

3 side of things, you could go through efforts to articulate

4 knowledge of the deception that was used to gain access to

5 the tickets that the brokers were aware of.

6 THE COURT: So are the brokers in the hallway now

7 trembling that this indictment is sustained and that they're

8 next? I mean, how far do we go?

9 MR. KOSTO: The wire fraud allegations, your Honor,

10 address Wiseguys in particular and the other shell companies

11 that they set up. Because these are the ones who set up the

12 technology and attacks and business model that Drew

13 directed.

14 You could go down the stream I suppose, all the way

15 to the customer who wondered how their good fortune was.

16 That's not what the wire statute is addressing in this case.

17 THE COURT: But your amicus brief is saying there's

18 no way to stop this, I mean, the reach of this statute. If

19 you say that the way that the secondary market operates in

20 the United States, which is unregulated and legal is fueled

21 by a criminal combination of Wiseguys-type folks who were

22 able to get beyond the code-based restrictions and brokers

23 who are essential to the secondary market--

24 MR. KOSTO: Your Honor--

25 THE COURT: -- Then aren't we now creating through a

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


71

1 criminal statute regulations where there are none?

2 MR. KOSTO: That's not alleged here, your Honor.

3 THE COURT: I know that it's not alleged, but I'm

4 talking about practical effect of criminalizing Wiseguys'

5 activities.

6 MR. KOSTO: Mules do not have sufficient knowledge

7 at times to be charged with bank fraud, but we would not

8 simply say, well, we can't charge the fraudsters who use the

9 mules. Because the fraudsters can be charged and so the

10 willing mule accomplice with aiding and abetting. The

11 beneficiary of the crime is still--

12 THE COURT: But it's illegal to steal money. My

13 problem is and one of the points made by the defense is,

14 you've got this huge secondary market, scalping is not

15 illegal. And we're kind of muscling in to clearly deceptive

16 conduct, in order to get around the gatekeeping that keeps

17 the almost vacuuming out of all of the these good tickets

18 going. But it's bigger than just Wiseguys, it's the market

19 isn't it?

20 MR. KOSTO: Wiseguys put to use technological

21 measures and deception that-- I think it's alleged in the

22 indictment and the evidence would show that it was the

23 foremost practitioner of this kind of technological taking.

24 But the idea that Wiseguys goes on takes something that, in

25 the government's view has value, it's intangible, it's a

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


72

1 recognized property right and it can be sued upon and it was

2 taken through theft; any defendant who participates in that

3 taking with knowledge of what they were doing, yes.

4 THE COURT: So the brokers are on the line here

5 too, right? You've chosen not to charge them.

6 MR. KOSTO: The indictment is not criminalizing the

7 secondary ticket market. The indictment is criminalizing

8 lies to obtain some things that the online tickets vendors

9 didn't sell, didn't want to sell, and invested millions of

10 dollars in not selling.

11 THE COURT: So what we're doing then is using this

12 prosecution as it were to protect the primary market?

13 MR. KOSTO: If the defendants had an issue with the

14 primary market and the way its structured as we've pointed

15 out, the appropriate way to handle that and it happens and

16 there's plenty of lawsuits, is go see the Department of

17 Justice Antitrust Division to bring an antitrust suit, it's

18 not to just simply lie and take your way through the

19 problem. There are appropriated ways to deal with the

20 regulations of the market and self-help is not one of them.

21 And it's clearly what Wiseguys engaged in-- in this process.

22 It is not a criminalization--

23 THE COURT: For profit. They weren't just doing it

24 to be--

25 MR. KOSTO: Yes, $25 million over the course of

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


73

1 five years.

2 THE COURT: Yes.

3 MR. KOSTO: But that does not in and of itself

4 criminalize the secondary market. There are plenty of valid

5 reasons for somebody not to want to go to a show and hand

6 over a ticket or sell a ticket, as Mr. Rush points. There's

7 several states in which scalping is legal. There is several

8 states in which scalping is illegal. The evidence at trial

9 will show that defendants did not conform their conduct to

10 the state requirements of what scalping was or wasn't.

11 Vermont has scalping. I don't think that they specifically

12 avoided making purchases for shows in Vermont and then

13 reselling them. But the case is not directed to the

14 secondary market itself. It's the access to the primary

15 market that is purchased, maintained and protected.

16 It could be true of any other protection

17 mechanisms. Mr. Liebermann talked about CAPTCHA and where

18 and it's used. The internet service providers, the Goggle

19 and Yahoos of the world, Face Books of the world they use

20 CAPTCHA, to make sure that there is a real human being

21 signing up to use their services.

22 One of the principal concerns of computers signing

23 up for multiple-- one of the purposes for which computers are

24 used to sign up for thousands of emails at a time is to

25 distribute its Spam and Malware, and viruses that pose a

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


74

1 threat to the E-Commerce in and of itself. So bringing a

2 prosecution to protect the infrastructure, CAPTCHA, IP, these

3 technical measures that are designed to exclude access and

4 exclude authorized access to a system is the direction of the

5 prosecution. It happens to be applied in this industry,

6 because that's what the industry that these defendants chose

7 to put this to use in.

8 THE COURT: Okay. I understand better. It's a

9 quarter of one. Let's take our lunch break. And I will take

10 argument on the suppression motion in the afternoon as well

11 as using lunch hour to think of any other questions. And Mr.

12 Rush of course will want to leap to his feet right now.

13 MR. RUSH: Just one point.

14 THE COURT: So I could chew on this, right?

15 MR. RUSH: Just one point, your Honor.

16 THE COURT: Yes.

17 MR. RUSH: Your Honor, the only point that I want

18 to make and directly relevant to the government's position,

19 is CAPTCHA is not a password protect devise. We heard about

20 Chase Bank. And when you get on Chase's website and you

21 click on the accounts and you want to hack in, Chase doesn't

22 give you the password. CAPTCHA gives you the password.

23 Assuming that you can read it you just type it in. So it's

24 not a bank account. I mean, that is not what CAPTCHA is. It

25 is not a password protect devise to prohibit access. It is a

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


75

1 devise--

2 THE COURT: It's a gatekeeper.

3 MR. RUSH: It's a gatekeeper to prohibit a

4 computer. But my whole point was that they give you the

5 password and it's not like a bank.

6 THE COURT: All right.

7 MR. LIEBERMANN: A counterpoint on that, your

8 Honor.

9 THE COURT: All right, let's hear it.

10 MR. LIEBERMANN: Real quick, your Honor. First,

11 the way in which they obtained and we allege this and we talk

12 about this was through trickery and sneakery they got that.

13 Second, your Honor, to the extent that-- he's now

14 started to talk about how good are these protections. They

15 are not as good as a true password and we've addressed it.

16 You don't have to the NSA protection mechanisms to limit. If

17 he wants to talk about the fact that these aren't strong

18 enough passwords etc., that's what the jury is for, your

19 Honor.

20 THE COURT: Okay. Thank you.

21 (RECESS TAKEN).

22 THE COURT: Good afternoon. Everybody may be

23 seated.

24 Mr. Stanton.

25 MR. STANTON: Good afternoon, your Honor. What

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


76

1 we're dealing with in the suppression motion are a series of

2 warrants that are as a general as a warrant can be. In terms

3 of how they're framed, the way in which they describe the

4 property that is going to be seized, which in this case is

5 electronic data, associated with accounts that were stored on

6 third-party servers.

7 The warrants attempted to make reference to the

8 criminal activity that was suspected and that was at issue

9 and failed to do so. The warrants were over-broad, they

10 specified categories of data that were sweeping and general

11 in nature and not tethered to the probable cause affidavits.

12 And on this issue of probable cause, we heard a lot this

13 morning about what the government's indictment is. What their

14 theory of prosecution is. And they went to great lengths to

15 explain that this is not a term of service case. This is a

16 code-based restriction case. That's what the indictment

17 says. That is not what the probable cause affidavits say.

18 Particularly the early probable cause affidavits. The

19 probable cause affidavits say that there's probable cause to

20 believe that Wiseguys is engaged in a scheme to subvert

21 Ticketmasters terms of use.

22 So one of the first thing, one of the first points

23 that I want to make to the Court is, the question of whether

24 violating terms of use can be a crime has to be decided.

25 Even if the government is correct about what their indictment

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


77

1 says. The crime that is alleged in the probable cause

2 affidavit, the criminal activity for which there was

3 supposedly probable cause to conduct searches and seizures

4 was a scheme to violate terms of use.

5 Now, the government's raised a number of issues in

6 their response papers with respect to the adequacy of the

7 warrants and the seizures that took place here in this case.

8 And that was basically three. Three issues are standing.

9 Whether the defendants here a reasonable expectation of

10 privacy such that they can actually assert a Fourth Amendment

11 claim. The second is what's the standard. The government's

12 brief has a description of the Stored Communications Act. It

13 talks about compulsory process for electronic files under the

14 Stored Communications Act. And suggests with citations to

15 four cases that there is somehow maybe a different standard

16 that's in play here, other than what you would typically get

17 in a sort of what I'll call bread and butter Fourth Amendment

18 search and seizure warrant case.

19 And then the final issue is, okay, if we figure

20 whether there's standing and we figure out what the standard

21 is, when we apply that standard do we have to suppress the

22 evidence or not. So those are the three issues. And I want

23 to talk about those with reference to the government's

24 response in the case law that they cite, because here I think

25 in case law is critical briefly, and then I'll be happy to

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


78

1 take questions from the Court whatever that is convenient.

2 The first issue is standing. Okay. And the

3 government's main point with respect to the standing issue

4 is, these are individual defendants and the accounts that

5 were seized are corporate. So it's a Wiseguys accounts,

6 Seats of San Francisco accounts and, therefore, Ken Lowson

7 can't assert the rights of Wiseguys. And in a sense what the

8 government says is true. It's true that when you make a

9 challenge to a Fourth Amendment search you have to assert

10 personal rights. You have to have a reasonable expectation

11 of privacy such that you are aggrieved or else you don't have

12 a claim. But the law is clear that corporate officers and

13 even corporate employees can, depending on the circumstances

14 have standing to challenge corporate searches and seizures.

15 Many of the cases the government cites in fact affirm that

16 proposition.

17 The government's brief starts off by citing a case

18 from the Ninth Circuit. That's the case United States v SDI

19 Future Health. Okay, what the government says in their

20 brief, this is what the government says on page 5 of their

21 brief. "Where Wiseguys and Seats of San Francisco subscribed

22 to and paid for business domain accounts, defendants may not

23 stand in those corporations' shoes to raise Fourth Amendment

24 challenges to the seizure of those accounts, directors owners

25 and employees of a corporation can not," and here's the key

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


79

1 word, "necessarily assert the Fourth Amendment rights of that

2 corporation." And then they cite this case SDI.

3 Well, the SDI court actually set forth a test, in

4 order to determine whether corporate officers and employees

5 can assert such rights. The government's brief doesn't tell

6 the Court what the test is or even apply it. But there is a

7 test. And the test is multi-factored and it's based on

8 factual inquiry. And it includes such things as what was the

9 employee's relationship with the item that was seized.

10 Whether the employee exercised control. Whether the employee

11 took steps to maintain privacy. And any other relevant

12 considerations.

13 Now, the thing that's so striking here, your Honor,

14 about the government's standing position is, what did you

15 hear all morning. What did we all hear all morning. We

16 heard Wiseguys did this, Wiseguys did that, Wiseguys did

17 that. The first paragraph of the indictment says, on the

18 very first page, Wiseguys, Tickets Inc., a Nevada corporation

19 used fraudulent misrepresentations and computer fraud.

20 Now, the government's position is, well, now we can

21 put Ken Lowson in jail for what Wiseguys did. But Ken

22 Lowson, he has no personal expectation of privacy in

23 Wiseguys' accounts. Even though the indictment itself

24 alleges that Ken Lowson controlled all of Wiseguys'

25 operations, oversaw them in detail, was closely involved in

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


80

1 the day-to-day operations of the business. Set all of this

2 up, was the mastermind who supposedly put it all in motion.

3 And when you get into the case law and you look at how courts

4 apply this analysis, what you'll find is that factors like

5 small size of the company. Here Wiseguys was alleged to be

6 very small, 15 or so employees, one floor of an office

7 building.

8 There's the Gonzalez case, which was cited in SDI

9 by the Ninth Circuit. Where the propriety of the

10 family-owned business was found to have standing to assert a

11 Fourth Amendment claim based upon the search of that

12 business. The government's cites United States v Roberts,

13 Eastern District of Tennessee. The government's says on

14 their brief at page 6, "Where the documents seized were

15 normal corporate records, not personally prepared by the

16 defendant and not taken from his personal office desk or

17 files, the defendant can not challenge a search as he would

18 not have a reasonable expectation of privacy in such

19 materials." That's what the government says. What Roberts

20 actually says is, the defendants in that case were not

21 officers or directors or principals they were corporate

22 employees. The court in Roberts recognized, "in some

23 circumstances an officer of a corporation may be a person

24 aggrieved by a corporate search and seizure and thus have

25 standing to challenge the search." The courts holding in

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


81

1 Roberts was the defendants had an expectation of privacy in

2 the contents of his own laptop, and any password protected

3 files of his that were stored on the company's server, even

4 though it was the company's server that was searched. And

5 again, in Roberts, the court applied a multifactor test.

6 And there's a number of cases like this, your

7 Honor, that the government's cites that reveal, if you read

8 them, that the inquiry turns on the nature of the

9 relationship between the individual defendant and the

10 company. And that its perfectly acceptable for individuals

11 to have standing to challenge corporate searches and seizures

12 depending on the circumstances.

13 Now, we were a little surprised to see that the

14 government challenged standing on the basis that they did

15 given what the indictment says. But what the case law makes

16 clear and we believe based on what the indictment says, it's

17 clear that there's standing. But if the Court's inclined to

18 disagree, the government's own case law makes it very clear

19 that inquiry is extremely fact intensive. And most of the

20 courts that go through this multifactor analysis did so after

21 holding evidentiary hearings, about the very issues that we

22 just discussed. If the government doesn't want to stand by

23 what its own indictment says about Ken Lowson's involvement

24 and the other defendants involvement in control over and

25 supervision of all aspects of Wiseguys business, then we will

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


82

1 have to have a hearing and assess their relationship to these

2 accounts on an evidentiary basis, not just on the basis that

3 the government's says so, through a hearing. That's what

4 these cases do when they run through these factors.

5 With respect to the standing. The standard is

6 clear, because it's in the Fourth Amendment. The Fourth

7 Amendment says, warrants may not issue unless they

8 particularly describe the places to be searched and the

9 things to be seized on a showing of probable cause. The

10 Stored Communications Act does not purport to modify the

11 Fourth Amendment and it couldn't if it did.

12 The government's brief, while it details the

13 history of the Stored Communications Act it simply fails to

14 recognize a very simple proposition. Under the Act, if you

15 serve a subpoena and a warrant is not required then the

16 inquiry is different. If you elect to issue a warrant, the

17 Fourth Amendment's full force applies, the analysis is a

18 Fourth Amendment analysis. And, again, the government's case

19 law reflects this.

20 The government cites in re Application of the

21 United States, a District of Oregon case. And the government

22 quotes this case somewhat cryptic saying, "no property is

23 actually taken or seized as that term is used in the Fourth

24 Amendment context when you have a FCA warrant." The court in

25 in Re Application also stated quote "it is clear that

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


83

1 Congress wished to apply Fourth Amendment protection

2 associated with search warrants, a search is authorized under

3 the Stored Communications Act. So there's really no

4 dispute. And the case law doesn't say that there is. It's a

5 full Fourth Amendment analysis.

6 So then we get to the question of, well, what is

7 the analysis and what does it yield. And we're basically

8 dealing with three issues, two issues. The first issue is,

9 the government sort of implies that when you're dealing with

10 target accounts like email accounts, there's a different

11 standard. And they make a big deal in their brief about the

12 fact that, well, these district court cases that hold that

13 warrants that specify nothing more than all data for a

14 particular account they are fine. And they present that as

15 if that's a holding related to the Stored Communications Act

16 and that type of warrant when it isn't.

17 McDara, Boeing (ph) those two cases both apply the

18 all records exception. And what those courts specifically

19 say is, in this case the affidavit establishes probable cause

20 to seize the whole account. And the Fourth Amendment

21 particularity requirement is not triggered by the language of

22 these warrants because there was probable cause to seize all

23 records. It's the all records exception, both cases clearly

24 hold that. Neither case holds that irrespective of whether

25 the all records exception applies, you can simply seize

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


84

1 entire accounts because you got the warrant under the FCA.

2 No case has held that. There simply is no case that has held

3 that.

4 The Cioffi case, which the defendants have cited,

5 that case applies. The government suggests that it has been

6 called into question. Here's the difference, Boeing and

7 McDara say the all records exception applies in this case and

8 Cioffi it doesn't. That's the only difference. And the

9 Cioffi case holds very clearly that warrants that fail to

10 specify any criminal activity at all are invalid on their

11 face. Which leads to the next point.

12 What is the result of a warrant that's not

13 sufficiently particular and that's over-broad. And those are

14 two distinct issues, your Honor. Insufficient particularity

15 is present in this case, because the warrants failed to

16 specify any criminal activity. The executive branch isn't

17 vested with authority to just go out and take accounts. They

18 actually have to tether it to some suspected criminal

19 activity.

20 THE COURT: Now, are you going to do with what Mr.

21 Liebermann will do when he jumps up-- sorry. Mr. Kosto will

22 do it-- no, Mr. Liebermann will do it. And he says, no, no,

23 no, don't worry about it. We've got this affidavit and it's

24 very clear and it's specific that's enough?

25 MR. STANTON: Under Grow v Ramirez (ph) which is

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


85

1 Supreme Court precedent and under Third Circuit precedent as

2 well, warrants that are facially invalid can not be saved by

3 an unincorporated affidavits. Period, end of story and it's

4 a hard and fast rule. If a application in support of a

5 search warrant, if the affidavit is not attached to and

6 incorporated with the warrant, it does not save it. If the

7 warrant is facially not--

8 THE COURT: Now, didn't the government provide last

9 week cases and attachments in fact the warrants at issue,

10 showing a disjunctive affidavit and search warrant and the

11 search warrant was still upheld; isn't that what you provide

12 told the Court, Mr. Liebermann?

13 MR. LIEBERMANN: Your Honor, the affidavits and the

14 search warrants are with respect to Bowen and McDarragh.

15 THE COURT: Right.

16 MR. STANTON: Yes, and I would be happy to address

17 that, your Honor.

18 THE COURT: Yes.

19 MR. STANTON: Here's the deal with that. The

20 government, in addition to their brief they had a couple of

21 letter submissions and in the most recent one they provided

22 what purported to be and we have no reason to question this,

23 search warrants and supporting affidavits that were at issue

24 in the Bowen decision and the McDarragh decision. And first

25 let's be clear.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


86

1 The holding of Boeing and the holding of McDara is

2 that the all records exception to the particularly

3 requirement of the Fourth Amendment applies.

4 THE COURT: So that disposes of a lot of the

5 particularity requirements?

6 MR. STANTON: It disposes of it completely, your

7 Honor. Because as one court has said, it's not really so much

8 an exception as it is a recognition that if the scope of

9 probable cause covers the entire account, then a warrant that

10 specifies the entire account is sufficiently particular. If

11 that makes sense.

12 THE COURT: Yes.

13 MR. STANTON: So two things. The government's

14 suggested in their letter that the only point of distinction

15 with Bowen and McDarragh, is that the affidavits were

16 incorporated and attached. And they say no they weren't. We

17 have the warrant and the affidavit from those two cases. The

18 affidavits weren't incorporated and attached.

19 A couple of things. Both courts in their opinion

20 treat the duty analysis as if the affidavits are incorporated

21 and attached. And here's a perfect example. The good faith

22 exception to an invalid warrant does not apply, if the-- for

23 the cases where the affidavit is unincorporated. It

24 doesn't. But both courts says in an alternative holding the

25 good faith exception would apply here.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


87

1 The McDarragh court extensively cites the warrant

2 as saying, well, the warrant detailed that the target was

3 enticing a minor. And the warrant detailed that he was

4 sending this email and that email. Well, what the government

5 says is right. And it may be, but if what the government

6 says is right, the warrant didn't detail any of that. The

7 application did.

8 Now, if the application really wasn't incorporated

9 and attached to the warrant then the court's analysis is

10 wrong. Because the warrant doesn't detail anything. It is

11 the affidavit. But at the end of the day the rule is that if

12 a warrant is generated, if it is insufficiently particular

13 and over-broad such that it is a general warrant an

14 unincorporated affidavit can not save it. That's a Supreme

15 Court holding from Groh v Ramirez. The Cioffi case discusses

16 that ruling at length. Calls into question prior Second

17 Circuit case law that it said that in some circumstances it

18 can. And to be clear, we have both an insufficient

19 particularity problem here and an overbreadth problem.

20 Insufficient particularity, arises out of the failure to

21 tether the targeted information to any suspected criminal

22 activity. And overbreadth is triggered by the fact that the

23 scope of what was sought is much, much greater than the scope

24 of the probable cause that was established.

25 THE COURT: What would you want to have had

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


88

1 presented to the magistrate judge? How could these have been

2 cured? Are you saying that when they made their application,

3 they didn't have a theory of a prosecution so they were just

4 rummaging around? Or are you saying technically they blew it

5 and therefore they can't go forward?

6 MR. STANTON: Well, your Honor, both. Maybe not

7 surprisingly. But, if you talk about what they took to the

8 magistrate, you know, we've said that there's no probable

9 cause here. Because the theory of the criminal activity that

10 was suspected in the affidavit is simply a breach of

11 contract. If you look at the first affidavit in support of

12 the first search warrant here, it's 16 times and 14 pages the

13 government's applicant references terms of use, and the

14 suspected violation of law. It's just a 1030, your Honor.

15 So there's no probable cause.

16 THE COURT: So erroneously they're, at that point

17 they're united into thinking that they have cause of action

18 that your motion, if you are successful will show was a

19 mistake. But there is nothing really wrong facially with the

20 warrant, right? It's assuming that the criminal statute

21 covers the activity.

22 MR. STANTON: It does do that.

23 THE COURT: But it's not like there's an omission

24 and there's just a complete lack of, you know, I want it

25 because I want it.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


89

1 MR. STANTON: No, there is.

2 THE COURT: All right, how?

3 MR. STANTON: Because the warrant has no reference

4 at all to any criminal activity. It purports to. It says,

5 we're going to seize all evidence instrumentalities of the

6 criminal statute listed on the face of the warrant. And when

7 you go to the face of the warrant there's no statute.

8 In addition to the fact that what the warrants

9 basically say is, we want all data and anything that's

10 associated with this account. But the probable cause

11 affidavit says, essentially, Wiseguys is engaging in a scheme

12 to subvert and breach Ticketmasters terms of use. It doesn't

13 say, everything that Ticketmaster does-- excuse me.

14 Everything that Wiseguys does, every piece of data that they

15 have under www.Wiseguys accounts or other accounts, is

16 related to breaching terms of service. Which is the only

17 allegation that's made in the probable cause affidavit.

18 And to prove that, your Honor, if you look at page

19 24 of the government's response they have a heading into the

20 argument, the warrants were supported by probable cause. Do

21 they cite the affidavit? No. They cite their response to

22 for a motion to dismiss. And say quote, "defendants evaded a

23 combination of code and contract-based restrictions. Well,

24 that's not in the affidavit-- it just isn't. And if it were

25 they would have cited it.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


90

1 When they argue that the all records exception

2 applies, which it doesn't, the same thing. They say the all

3 records exception applies, that's a question of what the

4 affidavit establishes and they don't cite it. They don't

5 cite the affidavit anywhere in their response. Because the

6 affidavits doesn't establish anything. Not probably cause,

7 not the applicability of the all records exception, nothing.

8 That's it.

9 So with that, I'm prepared to turn it over to Mr.

10 Liebermann and I'll be happy to respond to points he may

11 raise and answer the Court's questions.

12 THE COURT: Thank you very much, Mr. Stanton.

13 MR. STANTON: Thank you.

14 MR. LIEBERMANN: Your Honor, if I may, I will start

15 with standing, the first point that we deal with. And we

16 certainly agree that there is a possibility for corporate

17 officers to develop standing. These corporate officers, to

18 the extent that we're dealing with them, did not have

19 standing. And perhaps the easiest way to go through this is

20 talk about some of the email accounts that were seized. For

21 example, an email account in the name of Daye. An email

22 account in name of BC or Bennett Cordon.

23 The suggestion that these corporate officers had a

24 personal, a personal, independent of the corporation's, a

25 personal reasonable expectation of privacy in somebody's

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


91

1 elses email account is outside what any case law says.

2 Additionally, your Honor, to the extent that we're

3 even talking about whether an officer can develop a personal

4 or reasonable expectation of privacy with respect to email

5 accounts, I would suggest that Mr. Stevenson, one of the

6 three defendants, isn't even in that realm. And certainly

7 Mr. Lowson and Mr. Kirsch had some of that, but Mr. Stevenson

8 did not.

9 I do want to talk a little bit more about

10 standing. First and foremost, the burden here, as much as

11 they wanted to talk about our burden and what we've set

12 forth, there is no burden on the government to establish a

13 reasonable expectation of privacy.

14 The Third Circuit has been very, very clear on

15 this. The Supreme Court has been clear on this. The

16 defendants had every opportunity by the time these pleadings

17 were to be filed, to submit an affidavit, which is commonly

18 filed in this district, in which they lay forth some of the

19 reasons that they may have a reasonable expectation of

20 privacy.

21 Not only did they not, but I would suggest that the

22 main reason that they didn't is because that expectation of

23 privacy simply doesn't exist. And especially it doesn't

24 exist, your Honor, with respect to email accounts in the name

25 of Jordan, emails accounts in name of Day and Rick and other

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


92

1 individuals which are not even the defendants.

2 So they've certainly not set forth a personalized

3 expectation of privacy with respect to each and every one of

4 these accounts. They haven't set it out with respect to

5 any. But they haven't set it out with respect to any of

6 these in terms of providing an affidavit setting forth why it

7 is.

8 Perhaps the easiest example, even better than the

9 Bennett example is, the fact that they sought to suppress an

10 e-mail account of a CW, a Mr. Loshinski (ph). And he's not

11 only not is them, but he even consented, there's no question

12 we had a right to search that and they sought to suppress

13 that. It goes to show that the standing analysis clearly

14 wasn't contemplated. That even when they asked them to

15 contemplate it there wasn't a reply affidavit saying, here's

16 why with respect to any of these individual accounts we have

17 a standing.

18 So we wholeheartedly agree, your Honor, it is

19 possible for any individuals especially or perhaps or as well

20 as a corporate officer to develop standing and to develop a

21 reasonable expectation of privacy. But you have to

22 demonstrate that that happened. And we would submit that in

23 these scenarios that didn't happen. And there is certainly

24 nothing in the record to demonstrate that it did.

25 They cited to us just now, they talked about, you

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


93

1 know, one of the examples and I think it was in discussing

2 the Roberts case, was with respect to password protected

3 files and directories in the Roberts case and they talked

4 about that. Even here, your Honor, with respect to the

5 non-e-mails, clearly, emails in the name of Bennett, Bob and

6 Brian, people who are not defendants here. But they're also

7 servers at issue here. And these are not servers that have

8 independent password protection that only the defendants

9 developed a reasonable expectation of privacy for. These were

10 not those type of server. There were servers that were

11 available to the individuals. Here there were servers that

12 were available to individuals who were helping them. Not even

13 necessarily part of the company, some independent contractors

14 out of Bulgaria.

15 So there isn't that type of individual type of

16 reasonable expectation of privacy that can be developed. It

17 simply wasn't developed here. There is no personal,

18 reasonable expectation of privacy, with respect to the

19 material that was seized in these cases.

20 In addition, your Honor, to the extent and of

21 course we dispute it, just because you're as a corporation

22 you get individuals that are officers of that corporation

23 have a reasonable expectation of privacy. Here they were

24 playing games with the corporation. That's why the switched

25 the corporation from Wiseguys to Seeds of San Francisco and

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


94

1 transferred everything to Faisal Nahdi.

2 So now to the extent that there is even a closely

3 held corporation at end of the day, that's not the

4 defendants' closely held corporation. That's Faisal Nahdi's

5 closely held corporation. In theory he would be a defendant

6 here but he saw it fit to never come back or has not come

7 back to the United States. He fled. And so that expectation

8 that he may be able to raise, I would submit that he would

9 not have in these accounts an expectation. He's not here

10 and--

11 THE COURT: Well, just let me back you up again

12 what you're saying before. You're saying for years the

13 defendants have been aware of these subpoenas since they were

14 first served on them. And they have not raised the issue of

15 standing until now. And that they did have-- when at the

16 time of the subpoenas? You seized the records pursuant to

17 subpoenas, right?

18 MR. LIEBERMANN: We seized some records pursuant to

19 subpoenas and we receive some records pursuant to subpoenas

20 and that is after the search warrants, your Honor.

21 THE COURT; Right.

22 MR. LIEBERMANN: But after the search warrants, they

23 certainly knew about it and after the indictment they knew

24 about it. Coming into the filing deadline, everybody knows

25 that you have to raise standing in order to raise a Fourth

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


95

1 Amendment issue. And we don't have anything in the record by

2 the defendants who bear the burden, to demonstrate why them

3 individually that would have standing to assert these claims.

4 THE COURT: Okay. And you're saying now what?

5 That they are failing and its late to be raising them? Or I

6 should be aware of it? Well, in advance of this they could

7 have requested a hearing to put forth the factors such as Mr.

8 Stanton was talking about?

9 MR. LIEBERMANN: Absolutely, your Honor. They

10 could have raised it. Your Honor, we suggest that one of the

11 reasons that they didn't raise it, is just like with respect

12 to the AOL search warrant, Loshinski (ph), they simply didn't

13 have and don't have the facts to demonstrate a reasonable

14 expectation of privacy. They didn't provide affidavits trying

15 to fenagle those facts into the record. They simply don't.

16 These are not the types of files in which there was a

17 reasonable expectation of privacy developed, independent of

18 the corporation's potential reasonable expectation of

19 privacy.

20 If I may move now to the next issue your Honor,

21 though, even if they were to have standing, we would argue

22 that here that that wouldn't save this. Because these search

23 warrants were particular enough. And I want to talk about

24 what the search warrants did. And we'll get to probable

25 cause if you would like. But with respect to the

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


96

1 particularity as the crux of their argument.

2 We told, your Honor, in the filings that we changed

3 it. After Cioffi we now saw that this is be coming the

4 flavor of the day challenge. We changed our search warrants.

5 And let's talk about what the old system has and what the new

6 system has. Under the old system, which was used in this

7 case, we would set forth probable cause as to why an account

8 may have material. There is probable cause to believe that

9 they have material relevant to an investigation and then we

10 would get all of it. Under this system, we set forth

11 material, we say why there's probable cause to believe that

12 that's going to have all this new material. And then we get

13 all of it. And we do lay it out and then we look at it for

14 X, Y and Z, but the Fourth Amendment interests that are at

15 stake here, in terms of us getting all of that material are

16 exactly the same. Nothing is changed. The practical

17 ramification of our new search warrant and it is the national

18 go by, which is what we used then and it is what we use now.

19 The practical ramification is that we still get all of the

20 email account.

21 THE COURT: Okay. Roll me back again. The old way

22 was?

23 MR. LIEBERMANN: The old way was these warrants.

24 The old way, I want Ezea Liebermann at Yahoo.com, there's

25 problem cause to believe that Ezea Liebermann engages in

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


97

1 hacking. He uses this account to do that. I want to get

2 Yahoo to-- we fax over search warrant to Yahoo, we get all of

3 that.

4 The new way. The search warrants now under the new

5 system says, give me all of Ezea Liebermann.com and I will

6 look through those results for evidence of hacking, evidence

7 of communications with Seth, my coconspirator. Evidence of

8 talking to my other coconspirators. Evidence of logs of

9 victims that I have hacked and more individualized things.

10 But the effect, your Honor, the Fourth Amendment

11 effect is exactly the same. We have to get the whole email

12 account. That's how it works under the practical

13 ramifications. So maybe it looks better and we do it because

14 we want to make sure it kind of bootstraps and protect

15 ourselves even more. But the practical ramification are the

16 same. And there's the reason for that. And this goes to why

17 these warrants themselves are very much particularized.

18 We can only particularize in our warrants by the

19 smallest units of measure of what it is we can seize. I

20 can't send an email or a search warrant to Yahoo and say, I

21 want Ezea Liebermann.com, hacking emails. Please, Yahoo, go

22 look at Ezea Liebermann at Yahoo.com and give me the hacking

23 emails. I will admit, your Honor, I wish I could.

24 Not that I don't love our agents to have gone

25 through it. It would be faster, it would be easier. I

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


98

1 wouldn't have to deal with anything else. But I can't do

2 it. I can only particularize to the smallest unit of what it

3 is I can seize. And that smallest unit of what I can seize

4 is the email account. I can't tell them, give me only

5 documents relating to hacking from the email account. I can

6 tell them, give me the Yahoo email account so that can I

7 search for it. And of course I've got to lay forth the

8 probable cause.

9 THE COURT: Don't we fly into the whole problem

10 with rummaging and, you know, that whole evil that

11 particularity requirement is meant to provide against?

12 Supposing you find out that they were committing a

13 crime with Hayden that you never knew about and you stumbled

14 on it while you were rummaging through your wholescale, you

15 know, warrant?

16 MR. LIEBERMANN: Your Honor, we've run into that

17 when we go into a house looking for the diamonds that are

18 part of the search. You rummage through the house looking

19 for the diamonds-- there's always that. And to some extent

20 that's what the agents are supposed to go by and that's why--

21 there is the Third Circuit that is now becoming to grips

22 with-- not to grips, but has been adding the doctrine that

23 other circuits have said which is, even unincorporated

24 affidavits. If the search is actually restricted to what the

25 unincorporated affidavit did that's going to act with

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


99

1 particularity and we can accept that. But beyond that, your

2 Honor, I'll give you an example.

3 The Ninth Circuit obviously came out with CDT. And

4 that's the opinion in which they put together teams and

5 reviewing materials from computer to prevent rummaging and

6 they just en banc reversed that theme. And said the Fourth

7 Amendment doesn't require this. They said magistrates can

8 still order this, but not required and we don't order

9 magistrates to require this. But they said we can. Even

10 though it's a certain, this is not an order that is set forth

11 under the Fourth Amendment and then reverse that opinion.

12 THE COURT: And the reason behind the rule then or

13 why did you change your warrant?

14 MR. LIEBERMANN: We don't want to stand here. I'm

15 just being honest.

16 THE COURT: Yes.

17 MR. LIEBERMANN: We don't want to have challenges.

18 If superficially, we admit that it looks different, it looks

19 nicer to have all of them. And after Cioffi came out, it

20 raised-- obviously that will be the flavor of the day. And I

21 wish, your Honor, that that was something that fixes

22 everything.

23 Your Honor, I think it's actually works for the

24 privacy. When we sent the warrants-- this is why I never

25 liked having warrants that said that the search warrant sent

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


100

1 to the internet service, the provider, what it is I'm looking

2 for. It's none of their business. Yahoo shouldn't know that

3 I think that Seth is a hacker. And that I want Seth's email

4 account. Because they're just giving me the email account

5 whether they knew that or not.

6 THE COURT: Let me ask you something that flew into

7 my mind. When go to get a search warrant for a wire, okay,

8 an application for a wire. You set up a wire. You give the

9 judge all kinds of information about why you need to surveil

10 their phones and so on. Based upon, you know, excruciating

11 detail about why this is the only way out. And then you get

12 it and then you minimize and you do whatever you want to.

13 But the whole thing is available to you, correct? You made

14 some kind of a showing that you could do this kind of an

15 intrusion.

16 How does that lineup against grabbing the whole

17 email account and looking through it?

18 MR. LIEBERMANN: Your Honor, there is no such

19 minimization requirement for search warrants.

20 THE COURT; right.

21 MR. LIEBERMANN: It's a lower intrusion. I would

22 suggest that that's what CDT tried to accomplish. And the

23 Ninth Circuit was completely alone. Other circuits and

24 districts completely rejected the Ninth Circuit's opinion in

25 CDT. Then en banc rejected the Ninth Circuit's opinion.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


101

1 They essentially tried to put in minimization

2 requirements on search warrants, now those were physical

3 computers search warrants not CDT, SCA type of a

4 performance. But they tried to put that in and then they

5 reversed it and said, that's not a requirement. They said

6 magistrates can still now add that, but it is not a

7 requirement under the Fourth Amendment.

8 THE COURT: And the thinking is that under the

9 Fourth Amendment what only counts is what you're going to

10 use? That you're looking at the whole thing and deciding

11 what you're going to use is okay or what? You're saying the

12 Fourth Amendment is protected the old way and the new way--

13 how?

14 MR. LIEBERMANN: Well, my point is that the Fourth

15 Amendment is protected because when we do the search warrant

16 on an email account, we're asking for the particular email

17 account, but we have probable cause to believe that it

18 contains this information.

19 THE COURT: Right.

20 MR. LIEBERMANN: For example, we didn't say to all

21 the internet servers providers, we want every single one of

22 Lowson's email accounts. We didn't even say for example to

23 MAC (ph), we want every email account that Kenneth Lowson has

24 with you. We identified the email account that has-- there's

25 probable cause to believe that we will have evidence of that.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


102

1 And that's why it is in and of itself regardless of the SCA

2 context and others, in and of itself that provides the

3 particularity.

4 We said, this email account, which is also an

5 instrumentality in these cases, there was instrumentalities

6 here. But this email account has emails. We have the

7 probability that this email account has evidence and we need

8 to search that email account. And we asked for the smallest

9 possible unit that we could seize the email account.

10 Again, I would love to be able to seize, send me

11 only my hot dogs-- it would be great. We can't do that. And

12 so for the particular requirement to require that we ask for

13 things that-- like we like going into a physical search and

14 saying, we're only going to seize the sentence out of the

15 document in desk draw that is relevant. We won't seize the

16 other sentences on that same document. But we can only seize

17 the whole document. Here, we can only seize the email

18 account. We can't break it down any further.

19 And so that's why it is particularized. Moreover,

20 your Honor, we would certainly argue that here we set forth

21 specific information or sufficient information to give us the

22 all records exception. And if I may your Honor correct, I

23 think it's a misstatement. McDara does not use the all

24 record exceptions.

25 THE COURT: Can I just stop you for a minute. Is

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


103

1 the new way in which these emails accounts are being

2 accessed-- bad word for by the government, uniquely in place

3 because of the intermediary necessary i.e. AOL, Yahoo, the

4 fact that it's on a server and the fact you've got this

5 uninvolved custodian as it were. Who can not be your agent.

6 Who should not be your agent. And yet there's no way to get

7 at the material without getting the whole thing from that

8 agent? So it's kind of embedded in the nature of the

9 information words or etc., etc.?

10 MR. LIEBERMANN: Right, your Honor.

11 THE COURT: I'm trying to get the reason behind

12 this.

13 MR. LIEBERMANN: No, that's one of the problems

14 that we face in getting this. And we don't go there, in

15 theory I could send these agents and they could go to AOL,

16 they could sit at AOL and start rummaging through AOL, for

17 only specific things within AOL's computers. First of all,

18 it will shut down AOL. I think that they get 20, 30, 50

19 email searches from agents every day. So agents sitting

20 there for five days per search warrant, per email account,

21 trying to figure out what the right emails are, would shut

22 down AOL. And that's why the compulsory process was put in

23 place.

24 THE COURT: I'm just trying to line it up with what

25 I know of the nature about the information. Pen registers.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


104

1 You go and you get, without any differentiation skatey-eight

2 gizillion pieces of information, but you don't know what the

3 calls were, right?

4 MR. LIEBERMANN: Correct.

5 THE COURT: Okay. So when Verizon or whomever gives

6 you the information, it's sort of already protected. Because

7 all you know is that I made a call that day, you don't-- to

8 so and so. You don't know what we're talking about. You've

9 got to use that as circumstantial evidence of whatever we

10 said, right?

11 MR. LIEBERMANN: Sure.

12 THE COURT: Here, you're doing the equivalent of Pen

13 Register, but you're opening up and looking at the

14 conversation, right?

15 MR. LIEBERMANN: We're getting the content.

16 THE COURT: So that doesn't offend the Fourth

17 Amendment?

18 MR. LIEBERMANN: Well, Pen Register doesn't require

19 probable cause under the Fourth Amendment.

20 THE COURT: But you can't see it. Here you're

21 saying the probable cause is that-- tell me how you narrow it

22 down. The smallest unit is what? Your whole email account?

23 MR. LIEBERMANN: That's the smallest unit we can

24 seize, your Honor.

25 THE COURT: As opposed to anything that I got and

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


105

1 received during the month of October?

2 MR. LIEBERMANN: Right, if you had eight emails

3 accounts with Yahoo and I said that I want everything that

4 Katharine Hayden has with Yahoo, give me every single email

5 communication and if you have eight email accounts and I've

6 gotten all of that then that's a lot more-- all broader. But

7 we've said no, no, no, there's probable cause to believe that

8 it is the Katharine Hayden-one email account that has the bad

9 stuff. Give me only Katharine Hayden-one at Yahoo.com.

10 So we've limited it to the smallest unit we could

11 limit. If we could limit it and say a smaller unit, say this

12 email, then that would be one thing. But they give us the

13 materials that are relevant to the search.

14 Moreover, as I have said, your Honor, here there is

15 reason to believe that the all records exception applies.

16 These email accounts, and we set forth in the affidavits,

17 were used to perpetrate a fraud. And we don't set forth and

18 we don't use the term, all records in there, and we don't set

19 fourth every single fact. And the courts have been very

20 clear that we have though duty to do that in search

21 warrants. And these email accounts were used for this.

22 One of the ways we know that the search was limited

23 to the scope of the email accounts and that these email

24 accounts were used for this, is because specifically what we

25 charged or what we were saying we were looking for is what

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


106

1 ended up as the charge. There's no charge of child

2 pornography. There's no charge embezzlement in another

3 scheme. There's no charge of a Ponzi Scheme. It is not that

4 we've got this and used it to rummage through and create 18

5 different theories of prosecution not relating to the ticket

6 world and how tickets are wrongfully acquired.

7 We specifically limited the scope to within what

8 was laid out in the affidavits. And in the recent cases of

9 Brody and I believe that it is Tracey or Stern. They lay out

10 that that exception is applied. Other circuits have used it.

11 The Third Circuit has now recognizing it. They didn't find in

12 those particular cases that it was inapplicable. But they

13 said it is applicable, it's a theory that we now accept and

14 can be used if the facts lineup. Here, your Honor, I would

15 submit that they do lineup. I don't think we need to get

16 there because the warrant was particularized and was

17 supported, was limited to what we could seize.

18 And finally, your Honor, I certainly think that

19 good faith applies here. This was a national go by warrant.

20 It was approved. We have no record of any magistrate sending

21 out an email raising an objection to this. We limited it--

22 I'm sorry. The AUSA has reviewed it and they say in their

23 reply brief DAs and AUSAs always review ones. It's not true.

24 In state court practice there is when sometimes

25 rises to a federal case, officers apply straight to the

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


107

1 magistrate, that's not what happened here. And so of course

2 no previous challenges to this type of warrant when these

3 were issued. So to say that these agents couldn't rely on

4 something that every magistrate says is fine. And was used

5 as a national go by. And that no case had come out against

6 by the time that these warrants were issued, would be to

7 completely take a part the good faith doctrine.

8 Additionally, your Honor I think you said just

9 earlier that the good faith can't happen if the affidavit is

10 incorporated-- that's a complete misstatement, your Honor.

11 If the affidavit is incorporated you don't even need to get

12 to good faith because all of the facts of the affidavit are

13 already in the warrant.

14 It is specifically when the affidavit does is

15 incorporated and then you go to good faith. And that here

16 applies, your Honor, especially given the all records

17 exception and the other issue, the good faith to rely on

18 that-- that's the meaning of good faith.

19 THE COURT: Okay. So as to these seven warrants.

20 If I accept the argument working forward. This is the

21 smallest unit that you could obtain and you particularize in

22 terms of your reason for closing choosing these seven email

23 accounts. Run through them. They only span a couple of

24 months it seems to me.

25 MR. LIEBERMANN: I'm sorry? You want me to run

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


108

1 through the probable cause or run through?

2 THE COURT: Just explain to me how each warrant

3 that is being attacked was appropriate under the new method.

4 And how in fact, before you got the material you had

5 attempted to limit it as much as you had to under the law.

6 MR. LIEBERMANN: Sure, your Honor. The first one

7 relates to Wiseguys tickets at email dot.com and the search

8 warrant let's us know that there is a suspension of a 1030

9 violation laid out. We already laid out at that point

10 investigation this investigation into bots and to other means

11 to defeat security mechanisms. And there are facts in those

12 search warrants. This now gets to the probable cause aspect.

13 There are facts relating to, not just to terms

14 abuse, but also fact relating to code-based restrictions set

15 forth there. And it talks about the investigation relating

16 to that. It gives us the fact that for the first warrant, we

17 had CW come in and he explained to us that the Wiseguys

18 tickets uses this. And the domain that they were using for

19 this was the exact domain that we were searching. And that's

20 when we applied to that warrant based on those facts that we

21 already obtained. And we already informed the court that

22 there's other mechanisms and other individuals and companies

23 that do these kind of searches. And we have reason to

24 believe that this is next one using this domain. And so that

25 was our first search.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


109

1 The second search, your Honor, with respect to Go

2 Daddy, all we received there was subscriber information, we

3 didn't get any content at all with respect to this, your

4 Honor. This again was essentially the same set of facts we

5 were able to adduce at this point that the Seeds of San

6 Francisco was another website that they used. Again, no

7 content, no Fourth Amendment protected material was achieved

8 through this warrant. There were no contents and even

9 there's no reasonable expectation of privacy and subscriber

10 information.

11 The third warrant Serve Path, and the evidence

12 received there were websites it was a public facing

13 webserver. Here again and by now we have obtained more

14 information and more analysis. That this search warrant lays

15 out claims with respect to 1029, 1030 and 1343. We have

16 achieved now additional levels of probable cause to

17 demonstrate a much broader scheme than we were

18 investigating. And at this time, your Honor, we laid forth

19 that and we still of course had the additional probably cause

20 laid forth in the original warrants and we supplemented to

21 that.

22 By the time we got, your Honor, to the fourth

23 warrant, which is Exhibit Number 4, this one was provided on

24 Network Solutions. We had understood that they were

25 defeating also the DMCA. We didn't end up charging that,

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


110

1 it's complicated for the jury. But this is the digital under

2 the Copyright Act that talks about types of security

3 mechanisms that are set forth and that are out there and how

4 they were actually defeating these security mechanisms to get

5 to copyright material. Each of the web pages were

6 copyrighted. And so we added that to the analysis. The

7 analysis also talks about a 1029 a 1030 and a 1343. And at

8 this point we've also used an email by PS, by the way, that's

9 Phillip Stove (ph), Mark, in case you didn't know. So we

10 talked about PS and it talks about the hacks versus the

11 academic approach and different ways of a defeating the

12 security mechanisms.

13 The fifth one, your Honor, we had consent. I

14 assume that they're dropping the search warrant with respect

15 to AOL.

16 MR. STANTON: Yes, we'll concede that.

17 MR. LIEBERMANN: And so moving on to the sixth one

18 which is Seeds of San Francisco. Now, we're building on the

19 probable cause. And certainly those same emails from Phillip

20 Stove is in there. The academic approach. The 1030 and 1343

21 and that continues into the final one, in which we laid out

22 individual accounts with respect to MAC.com. This was the

23 search of Apple.

24 So each one of these, your Honor, laid out these

25 accounts that we were looking for, were accounts used as part

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


111

1 of the conspiracy and in fact instrumentalities as well

2 within this conspiracy. And that each of they contained

3 information, that the probable cause necessary was laid forth

4 that these contained information related to an ongoing

5 criminal investigation.

6 THE COURT: Okay. Thank you very much, Mr.

7 Liebermann.

8 MR. LIEBERMANN: Thank you.

9 THE COURT: Mr. Stanton, anything else?

10 MR. STANTON: Yes, your Honor. I think there's--

11 there's a number of points that need to be corrected.

12 The first is that we didn't raise standing. We

13 have a heading in our opening brief entitled "Defendants have

14 a reasonable expectation of privacy."

15 So the idea that we didn't raise standing is wrong.

16 THE COURT: Well, I took the argument to mean that

17 when you first got served with these you were supposed to

18 squawk. Was that the point you were making, Mr. Liebermann?

19 MR. LIEBERMANN: Your Honor, my point with respect

20 to standing is that they in their original brief explained

21 why there can be a reasonable expectation in emails. And

22 we're talking about personal expectation of privacy in these

23 emails.

24 THE COURT: Okay. Got it.

25 MR. STANTON: So let's get to that. Because this

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


112

1 is where is the rubber hits the road. And I find it frankly

2 odd that Mr. Liebermann would have expected us to file an

3 affidavit asserting the facts that the courts say are

4 important in this analysis when the indictment says it. The

5 indictment says it.

6 With respect to Seeds of San Francisco. Ken Lowson

7 is being charged with counts for ticket purchases that

8 happened after the corporate transfer of assets that Mr.

9 Liebermann says deprives him of an interest in the company

10 such that he has standing. How is that possible.

11 Seeds of San Francisco is not a defendant.

12 Wiseguys is not a defendant. The indictment says over and

13 over and over again, that defendants Lowson and the other

14 defendants did X, did Y, did Z. Set up the accounts. Set up

15 the business, instructed the employees not do this. The

16 accounts are corporate. For purposes of this prosecution,

17 the indictment treats Ken Lowson and the other individuals as

18 the corporations. It makes no distinction. In fact, the

19 indictment itself defines Seeds of San Francisco as

20 Wiseguys. And now the government's briefs says Wiseguys and

21 Seeds of San Francisco are totally different. The indictment

22 defines Seeds of San Francisco as Wiseguys.

23 And so in other words we took the government at its

24 word, that their position would be--

25 THE COURT: Move off the standing issue. And the

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


113

1 fact that I'm telling you to move off of it as opposed to the

2 government move off of is a message.

3 Talk to me more about what the government is

4 saying, is this new go by procedure that's based on the

5 common sense proposition that, by narrowing the request down

6 to a specific email account attached to something

7 specifically oriented toward the charged in the indictment,

8 they've done all that they practically can.

9 MR. STANTON: Yes. And, your Honor, that's not

10 true. In fact, their own brief offers examples of things

11 that they've done that they didn't do. And when Mr.

12 Liebermann talks about old way new way and says, these were

13 done under the old way, no, they weren't. These were done in

14 a botched attempt to do it the new way. Now, they may not

15 have tried to do it the new way, the government has contended

16 that it was a typo. But the fact of the matter is that these

17 warrants purport to cite to a criminal statute and failed to

18 do it.

19 Now, the idea that, well it's reasonable because

20 four magistrates reviewed it and these U.S. attorneys

21 reviewed it and the officers reviewed it. Did no one else

22 catch what we caught, which was an attempt to refer to a

23 criminal statute that failed? It was there. An effort was

24 made, whether it was intentional or not. And that would have

25 made them more particular.

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


114

1 Additionally, your Honor, I think that the Court

2 was on to something that is really critically important. And

3 Mr. Liebermann kept referring to the smallest unit we can

4 seize.

5 The Fourth Amendment inquiry is not over when the

6 government gets the account. And Mr. Liebermann himself

7 analogized it to a box and/or a file cabinet with a paper in

8 it. When they get the account they're getting a box. They

9 don't then offer the box into evidence. What they do and

10 what they did here is they crashed searched terms. They get

11 technical agents and they search the account to find the

12 evidence they want. Now, are they looking for. They have

13 search terms. All of the things that they are looking for

14 they are particular. The fact that they tell the service

15 provider to give them the entire account does not mean that

16 the warrant can't be more particular. Because when the

17 agents get the account they search it again. And there's an

18 entire body of the Fourth Amendment law at the Supreme Court

19 level where the court says, if you have probable cause to go

20 into a building, for example, and search for a box and get

21 the box and take it back to your station. If you want to

22 open the box you have to have probable cause to look in the

23 box. And when the government establishes probable cause, if

24 they do, to look at particular records in the account the

25 warrant has to reflect that. Otherwise the practical

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


115

1 implication in what Mr. Liebermann is saying, is that any

2 warrant served for any account that's in the possession of a

3 third-party service provider has to be served in a manner of

4 an all records warrant. And the government has to be trusted

5 to confide in what they do with it later when they get a

6 mirror image copy. They have to be trusted. Because you

7 can't possibly expect us to tell you in a warrant what we

8 will do when we get it. That's ludicrous, of course they

9 can.

10 Additionally, I don't think it is physically

11 impossible for the government to send a group of agents with

12 technically experience to Yahoo, to their servers and plug in

13 and search. It's less convenient. They may not want to do

14 it that way. There may be reasons not to do it that way that

15 are acceptable. But let's not pretend that the only option

16 available to the government here is to have a copy of an

17 entire account sent to them that they can search at their

18 convenience. That is not true.

19 And let's not pretend that the warrants couldn't

20 say anything more than they did-- they tried to. They tried

21 to specify criminal activity and didn't. So that could have

22 been more particular.

23 Additionally with respect to particularity. Mr.

24 Liebermann is sort of-- it was a clever rhetorical devise

25 that he used but it's not really helpful. Because the

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


116

1 inquiry here is both overbreadth and particularity. The unit

2 issue that we're talking about that's a breadth issue.

3 Particularity is this issue of providing in the warrant

4 itself a nexus to criminal activity. Every circuit has held

5 that a warrant must describe the criminal activity. The

6 Third Circuit has held it. We stopped citing cases in our

7 brief and have a footnote that says, we'll cite more if the

8 Court is interested. And in response to that the government

9 weekly asserts that that's not true when it is-- it's Third

10 Circuit law for sure. And then they cite to these FCA cases

11 and suggest that somehow the standard is different when it is

12 not.

13 Mr. Liebermann said, I believe that McDara is not

14 an all records exception case-- it is. If the Court reads

15 McDara, the Court will find that what the judge in McDara

16 said is, the affidavit in this case established probable

17 cause to seize the entire account. The entire account is all

18 of the records.

19 The Bowen case, which subsequently said that the

20 judge in McDarragh applied the all records exception and he

21 was going to do it too.

22 Finally, I the good faith exception. To be clear,

23 when a warrant is general, when it fails the Fourth

24 Amendment's particularity requirement as these do, the good

25 faith exception does not apply. That is absolutely true and

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101


117

1 we have briefed it.

2 THE COURT: Okay. Thank you.

3 MR. STANTON: Thank you.

4 THE COURT: Counsel, I got the return date from

5 your joint conversations to one another. We have you coming

6 back on October 12th at 10:30. And rather than have any more

7 give and take, I think this was a more discrete issue that

8 could be presented by presentations that that you made for

9 me; I will let you go. Thank you for your hard work today.

10 Unless there's anything to add on behalf of the

11 other defendants. Mr. McDonald?

12 MR. MCDONALD: No, your Honor. We rely upon the

13 arguments and the briefs. And of course we join in all the

14 motions.

15 MR. YAUCH: Yes, your Honor.

16 THE COURT: Okay, thank you very much.

17 MR. RUSH: Thank you.

18 MR. LIEBERMANN: Thank you.

19 MR. KOSTO: Thank you.

20

21

22

23

24

25

U.S. DISTRICT COURT, NEWARK, NEW JERSEY 07101