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I don't understand why Arco Media Group never responded to the lawsuit. Did they think it so ridiculous that it wasn't worth the time?
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Doubtful. Almost certainly Arco Media Group is judgment proof so they just don't care. Most likely they set up the corporation in such a way that it never has any assets the courts can get to. Shell corporations, shady proxy owners, bank accounts in the Channel Islands, it's not that tough if you are paranoid.
Watch E! -- the next such video will be sold by "Bayshore Media Group" and the commercial will be done in the same style and by the same announcer. It's MUCH easier to avoid liability by vanishing with your goodies than it is to avoid it by showing up for the fight -- even when, as here, the claim is LAME and the legal risk would appear slight.