Tag: BOTS Act

FTC Cracks Down on Ticket Scalpers in Major BOTS Act Enforcement

The wheels of justice turn slowly, but they do turn.

In what appears to be a response to NITO’s complaint filed last year with FTC, pressure from Senator Marsha Blackburn and President Trump’s executive order on ticket scalping, Hypebot reports that the Federal Trade Commission is going after large-scale ticket resellers for violating the Better Online Ticket Sales (BOTS) Act (authored by Senators Blackburn and Richard Blumenthal). 

The enforcement action seeks tens of millions of dollars in damages and signals that federal regulators are finally prepared to tackle the systemic abuse of automated tools and deceptive practices in the live event ticketing market.

According to Hypebot, the FTC alleges that the companies used bots and a web of pseudonymous accounts to bypass ticket purchasing limits—snagging prime seats to high-demand concerts and reselling them at inflated prices on platforms like StubHub and SeatGeek. The case represents one of the largest BOTS Act enforcement efforts to date. 

“The FTC is finally doing what artists, managers, and fans have been asking for: holding scalpers accountable,” said Randy Nichols, artist manager for Underoath and advocate for ticketing reform. “This sends a message to bad actors that the days of unchecked resale are numbered.”

As Hypebot reports, this enforcement may just be the beginning. The case is likely to test the limits of the BOTS Act and could set new precedent for what counts as deceptive or unfair conduct in the ticket resale market—even when bots aren’t directly involved.

Read the full story via Hypebot: FTC Goes After Ticket Scalpers, Seeks Tens of Millions in Damages

by Trichordist Editor

Can RICO Be Far Behind?  President Trump and Kid Rock Announce Whole of Government Enforcement of the BOTS Act

By Chris Castle

Yes, the sound you hear echoing from Silicon Valley is the sound of gnashing teeth and rending garments—some freaking guitar player did an end run around Big Tech’s brutal lobbying power and got to the President of the United States.  Don’t you just hate it when that happens?  Maybe not, but trust me, they really hate it because in those dark hours they don’t talk about at parties, they really hate us and think we are beneath them.  Remember that when you deal with YouTube and Spotify.

But to no avail.  President Trump signed an executive order yesterday that can only be described as taking a whole of government approach to enforcement of the BOTS Act.  As readers will recall, I have long said when it comes to StubHub, SeatGeek and their ilk, no bots, no billionaires.  It is hard to imagine a world where StubHub & Co.  are not basing their entire business model on the use of bots and other automated processes to snarf up tickets before the fans can get them.  This was also the subject of our ticketing panel at the 2024 Artist Rights Symposium in Washington, DC.

Remember, the BOTS Act, sponsored by Senator Marsha Blackburn and signed into law by President Obama in 2016, was designed to curb the use of automated software (bots) that purchase large quantities of event tickets, often within seconds of their release, to resell them at inflated prices through market makers like StubHub. It was so under-enforced that until the Executive Order it was entirely possible that StubHub could have sneaked out an IPO to slurp up money from the pubic trough before anyone knows better.

The government’s enforcement of the BOTS Act is so poor that Senator Blackburn found it necessary to introduce even more legislation to try to get the FTC to do their job. The Mitigating Automated Internet Networks for (MAIN) Event Ticketing Act is a bill introduced in 2023 by Senators Blackburn and Ben Ray Luján that aims to give the FTC even fewer excuses not to enforce the BOTS Act. It would further the FTC’s consumer protection mission against IPO-driven ticket scalping.

There are entire business lines built around furthering illegal ticket scalping that are so blatant they actually hold trade shows.  For example, NITO complained to the FTC that their investigators found multiple software platforms on the trade show floor  at a ticket brokers conference that are illegal under the BOTS Act and possibly under other laws such as Treasury Department regulations, financial crimes, wire fraud and the like.

The NITO FTC complaint details how multiple technology companies, many of whom exhibited at World Ticket Conference hosted by The National Association of Ticket Brokers in Nashville on July 24-26, 2024, provide tools that enable scalpers to circumvent ticket purchasing limits. These tools include sophisticated browser extensions, proxy services, and virtual credit card platforms designed to bypass security measures implemented by primary ticket sellers.

As is mentioned in the Executive Order, the sad truth is that the FTC didn’t take its first action to enforce the 2016 law until 2021. And that’s the only action it has ever taken.   Which is why President Trump’s executive order is so critical in stopping these scoundrels.

Kid Rock apparently had a chance to present these issues to President Trump and was present at the signing ceremony for the Executive Order. He said:

First off thank you Mr. President because this has happened at lightning speed.  I want to make sure Alina Habba gets her credit too because I know she worked very hard in this but thank you for making this happen so quick.

Anyone who’s bought a concert ticket in the last decade, maybe 20 years, no matter what your politics are knows it is a conundrum.  You buy a ticket for $100 but by the time you check out it’s $170.  You don’t know what you were charged for, but more importantly these bots come in and get all the good tickets to your favorite shows you want to go to.  Then they’re relisted immediately for sometimes a four or five hundred percent markup—the artists don’t get that money!

Ultimately I think this is a great first step. I would love down the road if there be some legislation that we could actually put a cap on the resale of tickets.

Yes, folks, we may be onto something here.

The reason I say that the EO establishes a “whole of government” approach is because of what else is in the order.  The actual EO was published, and the press release on the White House site says this:

  • The Order directs the Federal Trade Commission (FTC) to:
    • Work with the Attorney General to ensure that competition laws are appropriately enforced in the concert and entertainment industry.
    • Rigorously enforce the Better Online Ticket Sales (BOTS) Act and promote its enforcement by state consumer protection authorities.
    • Ensure price transparency at all stages of the ticket-purchase process, including the secondary ticketing market.
    • Evaluate and, if appropriate, take enforcement action to prevent unfair, deceptive, and anti-competitive conduct in the secondary ticketing market.
  • The Order directs the Secretary of the Treasury and Attorney General to ensure that ticket scalpers are operating in full compliance with the Internal Revenue Code and other applicable law.
  • Treasury, the Department of Justice, and the FTC will also deliver a report within 180 days summarizing actions taken to address the issue of unfair practices in the live concert and entertainment industry and recommend additional regulations or legislation needed to protect consumers in this industry.

In other words, the EO directs other Executive Branch agencies at the DOJ, FTC, Treasury to take enforcement seriously.  If the Department of Justice is involved, that could very well lead to enforcement of the BOTS Act’s criminal penalties.  And it’s kind of hard to have a StubHub IPO from prison although President Trump may want to add the Securities and Exchange Commission to the list of agencies he is calling into action.

In addition to fines, individuals convicted under the BOTS Act could face imprisonment for up to 1 year for a first offense. Repeat offenders may face longer prison sentences, depending on the nature of the violation and if there are aggravating factors involved (such as fraud or large-scale operations).  And remember, wire fraud is a common RICO predicate under the racketeering laws which is where I personally think this whole situation needs to go and go quickly. Remember, StubHub narrowly escaped a claim for civil RICO already.

So we shall see who is serious and who isn’t.  But I will say I’m hopeful. If you wanted to seriously go after actually solving the problem on the law enforcement side, this is how you would do it.

If you wanted to go after it on the property rights side, Kid Rock’s line about establishing a cap is how you would start.  The guy has clearly thought this through and we’re lucky that he has.  We’ll get around to speculative ticketing and taking out some of the other trash down the road if that’s even a problem after getting after bots.  But on property rights, let’s start with respecting the artist’s rights to set their own prices and have them followed instead of the current catastrophe.

The other take away from this is that Marsha was right—BOTS Act is probably enough law to handle the problem.  You just need to enforce it.

I always say you can’t get Silicon Valley to behave with fines alone because they print money due to the income transfer.  Prison, though, prison is the key that picks the lock.

[Editor Charlie sez: This post first appeared on MusicTechPolicy]

by Trichordist Editor

The Attack of the StubHub Future Bots: @davidclowery asks the Georgia Legislature when is a Georgia concert ticket a “security”?

By Chris Castle

Silicon Valley’s answer to Charles Ponzi may be called StubHub or its parent company Viagogo. I’m sure you’ve run into the StubHub grift. A band releases tickets for a show, the bots descend and having grabbed the best seats turns to StubHub and its ilk to resell the ill-gotten tickets at ever higher prices. Everyone denies they did anything wrong, they had no idea where their tickets were coming from. Instead of being prosecuted for wire fraud and other bad juju, these ticket scalpers allow reselling of botted tickets on a grand scale. All the while decrying bots as an illegal practice while leaving out the “but we make money together” part. See Better Online Ticket Sales Act (“the BOTS Act”), 15 U.S.C. § 45c.

However vile is this grift, it’s kind of an old story. The only thing that’s breaking news about a Ponzi scheme is not the ghost of Charles Ponzi. Rather, its when smart people–you know, your betters–fall for it yet again. But StubHub revealed yesterday in the Georgia Legislature that they actually thought they would put one over on a wiley old committee chairman who just didn’t buy the huge helping of Smarm by the Bay when the Silicon Valley lobbyists oiled their way into the Georgia House of Representatives Regulated Industries Committee. You have to get up pretty early in the morning to fool and old fox and Valley Boys are not early risers.

The Chairman caught onto the con very quickly, and David Lowery helped to highlight the scalper scam. But the thing you always have to remember about our brilliant friend David is that he’s been known to pick up his pen and write the song that struggled to be written or the song that was not well received, but five years later be promoted as his best work. That’s why he’s got so many loyal fans. David takes know your customer to a whole new level, so was the perfect subject matter witness for the committee. 

So here’s the new twist. What if you didn’t have a ticket but thought that you could get one, no problem once they went on sale–thanks to your friendly neighborhood ticket bot farmer. But what if StubHub made a market for people to buy the opportunity to buy a ticket at some point in the future. That’s right–selling the botted ticket itself isn’t enough for these people. 

Now they want to sell bot futures.

The seller could not sell the ticket yet because there was no ticket available. But why leave money on the table? 

The seller of these future contracts was confident enough to make a contract with someone of unknown business acumen or sophistication who they convince that the seller would have a ticket available by the time the underlying tickets went on sale. As a market maker, StubHub would bring buyers and sellers together in a supposedly arms length transaction–I guess, I mean how would you really know how arms length it was–and the seller sold the buyer a contract to deliver a future ticket. Let’s call these contracts “futures” or “naked call options”. Or perhaps we should call them “securities.”

So just like short sellers have to cover their shorts, when the tickets get released somebody has to come up with the real tickets. Somebody would have to be confident they could get the very ticket described in the option contract–like you would be if you were the beneficiary of botting. Which, as StubHub will tell you, is illegal. So I’m probably just being cynical.

Technically, “botting” is circumventing “a security measure, access control system, or other technological control or measure on an Internet website or online service that is used by the ticket issuer to enforce posted event ticket purchasing limits or to maintain the integrity of posted online ticket purchasing order rules.”

Personally I think it’s worth asking if the act of selling the futures contract is itself a violation of the BOTS Act as a circumvention of various elements. StubHub may have a legal opinion telling them this is outside the BOTS Act, but let’s ask the FTC, shall we?

On the other hand, if StubHub is selling securities, there’s a whole different regulatory agency that should be examining their business, or it could just be Silicon Valley’s answer to hawala.

So when is a ticket a security? One way we can determine this is through a U.S. Supreme Court case that gives us a pretty clear test. One way—and it’s just one way–that an option on a ticket might be regulated as a security is if it is determined to be an “investment contract” under the test in SEC v. W.J. Howey Co.[1]   

The Howey test asks if:

1. there is an investment of money or some other consideration,  [Yes]

2. in a common enterprise, [yes]

3. with a reasonable expectation of profits, [oh, yes]

4. to be derived from the efforts of others. [Mos Def]

So that’s pretty inclusive criteria.  Before anyone brushes aside the possibility that the SEC could determine a futures contract to buy tickets to be a security, take a close look at those criteria because how the basic question is answered is one to discuss thoroughly with your securities litigation lawyer (or engage one). That advice may be a good idea whether you are either an issuer or an endorser of at the ticket or ticketing platform..

One might say that a one-off sale of a unique product—which is truly “nonfungible” in the sense that there is only one of the product in existence—may be less likely to be determined a “security” under the Howey test. But while any one ticket is a one-off, there are many tickets available to many shows as a general rule, so tickets probably are pretty fungible.

You really do have to get up early in the morning to put one over on a wiley old Georgia committee chairman. You can tell just by looking at the body language that he believes what another wise old bird told me as a youngster. If something feels illegal, it probably is.

[1] SEC v. W.J. Howey Co., 328 U.S. 293 (1946).

by Trichordist

@davidclowery: Written Testimony to Georgia Legislature Against StubHub’s Bill

GEORGIA HOUSE OF REPRESENTATIVES

COMMITTEE ON REGULATED INDUSTRIES

ADAM POWELL, CHAIRMAN

WRITTEN TESTIMONY OF DR. DAVID C. LOWERY ON HB 398

My name is David Lowery and I thank the Committee for allowing me to testify today on the StubHub legislation. By way of introduction, I am the founder of the musical groups Cracker and Camper Van Beethoven and a lecturer at the University of Georgia at Athens Terry College of Business.  I have filed amicus briefs in the U.S. Supreme Court in the cases of Google v. Oracle and Frank v. Gaos, testified before Congress on the topic of fair use policy[1] and I am a frequent commentator on copyright policy at the U.S. Copyright Office.  I advocate on artist rights in a variety of outlets, including founding and hosting the Artist Rights Symposium at the Terry College of Business (in its fourth year), my blog at TheTrichordist.com as well as Politico, the New York Times, Hypebot and other publications. Most notably I led the successful songwriter class action lawsuit against Spotify for failing to properly license and compensate self-published writers. Finally, I am a recipient of the National Music Council’s prestigious American Eagle Award “in recognition of his longstanding dedication to protecting the rights of music creators.” With this award I am in the company of such American music luminaries as Quincy Jones, Dizzy Gillespie and Stephen Sondheim.

In the interests of full disclosure, my wife has been a talent buyer at the iconic 40 Watt Club in Athens for many years and now works for LiveNation in a senior capacity.  My testimony today is my own based on my own experiences over many decades in the music business with my bands and my own research into ticketing.  My testimony today will focus on the effects of automated ticket scalping on Georgia’s many artists and resilient music ecosystem, but much of my concerns apply to all ticketed events from sporting events at taxpayer funded venues, to nonprofit fundraisers or even pledge drives for public broadcasting stations.

The Artist-Fan Social Contract Suffers When Bots Attack:  Artists and their fans enjoy a kind of social contract.  The vast majority of fans are small-dollar contributors that sustain their favorite artists.  Artist do not price their tickets at a face value that captures the present value of all revenue the artist will make on a single show.  Tickets are priced with the idea that the costs of sustaining the artist, paying the road crew, gasoline, sound, lights and vehicle equipment rental, housing, and promotion and marketing for an entire tour is amortized over an entire tour or leg of a tour. 

Pricing tickets must be decided so as to allow current and potentially new fans to see the band live which is the railhead of the artist-fan relationship and is one of the most delicate touch points of that relationship.  We do not want to price out loyal fans or new fans.

Ticket scalping has long been a problem that interfered with that social contract.  Like many other areas of our lives, when bots attack, humans suffer.  Companies like StubHub appear to allow or even welcome bot swarms as part of their business model and for all their Silicon Valley know-how, this Big Tech company seems to be unable to control their platform to avoid inflicting this suffering on fans and artists. 

Unlike the careful decision-making that goes into setting ticket prices for a tour in the pre-StubHub era, ticket prices set by these online market makers seem to play an arbitrage game that attempts to extract the maximum price that ticket traders are willing to pay for that one essential artist with the best seating and a well-heeled clientele, rather than the small dollar donor to the artist’s sustenance.  This arbitrage (some would say illegal market cornering) allows StubHub to free-ride on the artists reputation, marketing and other investments in their brand as well as the particular concert.

Ticket scalping has largely become another Silicon Valley racket in my view.  It is virtually impossible for artists to compete and it is impossible for all but the richest fans to get the tickets they want to see the artists they love at a price they can afford. I have come to the realization that it is impossible for artists and fans to fix the problem because it has become a free-rider problem. StubHub isn’t operating because of “fan freedom” or other feel-good bromides. They are drawn to the business for one reason.

StubHub wants to take a skim off the artist’s value and the fan’s love and enthusiasm by commoditizing this exchange at scale. StubHub’s platform is not that different than a commodities exchange; the good could be a Cracker show, a Bulldog’s football game, or a pork belly.  StubHub doesn’t seem to care; they do it for the money and just for the money.

Is StubHub Selling Securities as an Unlicensed Broker Dealer in Violation of the General Solicitation Rule?  I call the Committee’s attention to a phenomenon I discovered in my research for today’s hearing: StubHub appears to be making a market in selling opportunities to buy tickets, i.e., a commodity, that have yet to go on sale. In other words, StubHub appears to be selling an option to buy a ticket in the future that does not yet exist and that the seller doesn’t own. The careful wording of their boilerplate disclaimers is a little too clever, and suggests they are aware of this practice. (Please see Exhibit A that details the author’s purchase of what appears to be the promised delivery of a ticket in the future, rather than the purchase of an already existing ticket).

This practice appears to be selling an option to buy a commodity in the future by an unlicensed broker dealer in a general solicitation to the public without complying with applicable federal or state securities laws.

Paying it Forward: Resale Royalties for Scalpers:  StubHub may refuse to police itself but the State of Georgia can recover some of the value of StubHub’s free riding by establishing a resale royalty to be distributed to artists and venues for transactions occurring in Georgia. California already has a similar law on the resale of fine art. This is a very intriguing idea that would essentially force scalpers to return some of the value they have extracted from the artist’s brand to the state in which the transaction took place. I speak of the resale royalty as returned to artists and venues, but I am program-agnostic. The payment should also be returned to the performers, universities, or taxpayer funded venues around the state.

The resale royalty could be a way to continue to support communities that were hard hit by COVID and venues that survived based on the Save Our Stages funding.  It would be better to fund this support from parasitic free riders than from hard working Georgia taxpayers.

Anticorruption Protections:  When observing the amount of money and the number of high value transactions fixed by StubHub and other online marketplaces—effectively in cash—I am struck by the potential for bad actors to use the platform to hide cash transfers.  I see no reason why StubHub should be treated differently than a bank in reporting these transactions to authorities such as the Georgia Bureau of Investigation or the Department of Revenue.

I would encourage the Committee to work with these agencies to determine the need for more detailed reporting of the origin and destination of higher dollar transactions, such as $10,000 in a single deal or series of deals closed by StubHub and its progeny. It is also apparent that the Georgia Department of Revenue is not likely receiving proper short term capital gains reporting from StubHub.

Conclusion:  If this seems that these recommendations seem to advance the heavy hand of government, I will dispute that—these recommendations allow StubHub an opportunity to fix its own wagon.  As Judge Patel told Napster in 2001, you created this monster, now you fix it. Further as StubHub has come before this august body to urge legislation that would regulate the practices of its market competitors, artists and venues it’s only fair that StubHub receive the same treatment.

[1] See The Scope of Fair Use: Hearing before the Subcomm. on the Courts, Intellectual Property and the Internet of the H. Comm. on the Judiciary, 113th Cong. (Jan. 28, 2014) (statement of David Lowery) [hereinafter Scope of Fair Use].

by Trichordist Editor