Wiseguy Hearing

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

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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
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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

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

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

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

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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

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.

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

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

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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

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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

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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,

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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

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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.

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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

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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.

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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,

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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

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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

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.

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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

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

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

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

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

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.

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

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.

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

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?

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

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

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

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

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

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.

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

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?
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

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,

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

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

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

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

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,

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

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--

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

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

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

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

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

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,

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

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

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

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

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.

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

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

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

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

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

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

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.

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.

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

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

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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

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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

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

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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

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

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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

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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

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

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

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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

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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

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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

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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

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

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

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.
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.

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.

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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

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.

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.

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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

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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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.
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.

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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

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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.

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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

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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

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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

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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

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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.

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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,

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

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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

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

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.

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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

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

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

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

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1

1 IN THE UNITED STATES DISTRICT COURT

16 K&L GATES LLP

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

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

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

9 NUMBER DESCRIPTION PAGE

10 SEE ATTACHED INDEXING

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

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.

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

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

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

13 forth dialogue with the Court that goes into an oral

15 I should say preliminarily that I appreciate the

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

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

1 haven't gotten to that point.