There have been similar cases actually get before judges, and the judges have not been favorable to this sort of mass suit with 1000 or more defendants. Still, they can probably prove that someone at your IP address did do such a download, and that is probably copr. infringement. I say probably because I do not believe there is yet a precedent one way or the other.
In your shoes, with no job, you cannot afford lawyer to walk you thru a negotiation. Whether you should depends on whether you have assets that could be seized and sold to satisfy a judgment. (Please do not answer here!).
So, if you have nothing worth selling I would contact these folks and offer a stipulation to judgment of a few hundred, stating you are unemployed and have no salable assets. Point out, if it is true, that someone borrowed your WiFi because you were stupid enough to leave it without password protection. They might take the deal.
Otherwise, wait for suit to come. And take your chances the judge will throw it out on general principles or enter a judgment for minimal damages.
Right now, make sure your router is password protected, so no one can do stuff like this again.
Information here is general, does not create a lawyer-client relationship, nor a substitute for consulting with an experienced attorney on the specifics of your situation.
The facts that matter are:
(1) you, or someone using your computer or wi-fi connection, unlawfully downloaded a pornographic movie in October 2011,
(2) Vivid Entertainment owns the copyright in that movie and was not compensated for the download,
(3) Vivid Entertainment filed a copyright infringement lawsuit against you in federal court identifying you as a "John Doe" defendant,
(4) Vivid Entertainment sent your internet service provider a subpoena demanding that it reveal your name and other contact information,
(5) your internet service may, or may not, have sent you a letter explaining that it would disclose your name and contact information unless you took some legal action,
(6) you took no legal action to prevent the disclosure of your name and contact information,
(7) your internet service provider disclosed your name and contact information to Vivid Entertainment, and
(8) Vivid Entertainment has sent you a letter demanding that you pay it some amount of money in exchange for it withdrawing its copyright infringement claim against you.
YOU are the bad guy in this scenario. Vivid Entertainment has already spent a not-insignificant amount of money to take you to task for your unlawful conduct. What should you do? Ignore the letter and hope Vivid Entertainment gives up its claim against you [in which case you get away with your unlawful conduct]? Or respond to the point of contact listed in the letter and try to negotiate a mutually agreeable settlement? What would Grandma tell you to do?
The above is general information ONLY and is not legal advice, does not form an attorney-client relationship, and should NOT be relied upon to take or refrain from taking any action. I am not your attorney. You should seek the advice of competent counsel before taking any action related to your inquiry.
If you or someone in your household did download the movie, you should fess up and compromise the penalty by agreeing on a payment between the $750 minimum for willful infringement and triple that - according to some trial courts $2150 is the Constitutional maximum for individuals' infringement of a copyright (at least in music download cases). If you or someone in your household did not download the movie to a computer that you own, either your wireless router was unprotected or a (weak?) password on it was hacked by someone else and no part of the movie is on any computer in your household. You should not be responsible for illegal acts of others, even if you were so ... to allow such use of your IP address. In this case, if true, (1) image your hard drive to an external hard drive (not clone (except on a Mac) and do not merely back it up) and put that drive aside in case you cannot settle the matter, and simultaneously (2) try to settle the matter with the movie producer's counsel. - email or call such counsel yourself if you cannot afford your own counsel. If you can stand the uncertainty of being sued, and can afford a lawyer to defend you in any suit that is filed, or get a pro bono attorney to do so, you can present the imaged drive to the investigator to show your innocence of any downloading. Attorney fees may be recoverable based on your notice to the movie producer counsel as confirmed by the forensic investigator's report. Best wishes.
The above is not legal advice as you have not stated all the facts and circumstances, but general observation based on what is stated. No attorney-client relation is established by this post between me and you or any other reader.
I do not believe that you can receive a generic answer that will be very useful to you. I suggest you try to obtain a free consultation from an attorney and then make a decision on whether to pay or fight.
The answer provided is only for general information purposes and does not constitute legal advice.
As several other answers indicate, you have already been sued as a John Doe, the owner of your IP address. You immediately need to find out where. If it is in a court that has jurisdiction over you (presumably Northern District of New York) AND they serve you with a complaint and a summons, you will have a lawsuit to defend. Otherwise, they are just using the threat of filing a lawsuit in your jurisdiction to get you to settle.
In my experience, they will ask you for about $3,000 and settle for quite a bit less. That same deal should be there if they actually file in your jurisdiction. It does not hurt to find out what they want and see if they would take what you can pay. However, you really should be careful to determine the status of the existing lawsuit and where it was filed.
You can find additional information and resources about this topic and similar lawsuits at eff.org