On July 3, the U.S. Court of Appeals for the Ninth Circuit issued a sharply divided opinion in Perfect 10, Inc. v. Visa International Service Assoc., 1 the latest in a long series of cases addressing the potential liability of third parties for on-line copyright infringements by their users.
Unlike several other recent high-profile decisions including Napster, 2 Grokster 3 and Perfect 10 v. Amazon.com, 4 which have provided a framework for imposing secondary liability in the on-line context, the majority opinion in Visa declared that the defendants in that case could have no liability for their users’ infringements under any circumstances, and affirmed the dismissal of the plaintiff’s claims under Rule 12(b)(6).
Also unlike those earlier cases, however, the defendants in Visa were not Internet service providers or peer-to-peer services that helped users locate infringements, but credit card companies who simply allowed customers to use their cards to purchase infringing content. This distinction was more than enough for the majority, which categorically held that payment processing “does not constitute a ‘material contribution’ under the test for contributory infringement.” Judge Alex Kozinski was not persuaded, and said in a characteristically colorful dissent that “the credit cards are easily liable for indirect copyright infringement. They knowingly provide a financial bridge between buyers and sellers of pirated works, enabling them to consummate infringing transactions, while making a profit on every sale. If such active participation in infringing conduct does not amount to indirect infringement, it’s hard to imagine what would. By straining to absolve defendants of liability, the majority leaves our law in disarray.” 5 The debate within the Ninth Circuit may just be beginning, as plaintiff is seeking a rehearing en banc.
Perfect 10 publishes an adult magazine and operates a subscription-only Web site featuring “tasteful copyrighted images of the world’s most beautiful natural models.” As early as 2003, rogue Web sites based in various countries began offering copyrighted Perfect 10 images for sale without authorization. Defendants Visa International, MasterCard International and others process credit card transactions for some of these Web sites. Perfect 10 sent repeated notices to the credit card defendants, specifically identifying infringing Web sites and informing defendants that their customers were using the defendants’ cards to purchase infringing images. The defendants admitted receiving the notices, but took no action.
In January 2004, Perfect 10 brought an action in the U.S. District Court for the Northern District of California alleging inter alia that the defendants were liable for vicarious and/or contributory copyright infringement. The district court granted a motion to dismiss all claims under Rule 12(b)(6). Perfect 10 appealed.
The Ninth Circuit majority affirmed. In an opinion by Judge Miland D. Smith Jr., the court began its analysis by acknowledging “an awareness that credit cards serve as the primary engine of electronic commerce” and noting that Congress has expressly stated a policy to facilitate and promote the development of the Internet and other interactive media. The court then turned to the substance of the claims for contributory infringement and vicarious liability.
Contributory infringement requires a showing that defendant had actual or constructive knowledge of the infringing activity and made some “material contribution” to it; because the majority found no material contribution it did not address the knowledge element. The majority’s reasoning on the second element basically ran as follows:
� First, the credit cards do not make a “material contribution” to the users’ infringements because they do not help users locate infringements, as did the services in Napster et al., but rather they merely help users pay for the infringements they find. Unlike Google, which was faced with potential liability under Perfect 10 v. Amazon.com, the defendants here do not themselves materially assist in the distribution of infringing content to Internet users: “[H]elping users to locate an image might substantially assist users to download infringing images, but processing payments does not.” 6 The primary distinction offered by the majority is that with the credit cards, there is “an additional step in the causal chain” which renders the credit cards less material to users’ infringements than location aids such as Napster and Google: “Because location services lead Internet users directly to infringing images, and often display them on the Web site of the service itself, we find that location services are more important and more essential – indeed, more ‘material’ – to infringement than payment services are.” 7
� Second, the majority noted that
In the alternative, the majority observed that even without any payment mechanism at all, infringement would not disappear.
� Third, the majority declined to embrace a rule that might “include a number of peripherally involved third parties, such as computer display companies, storage device companies, and software companies that make the software necessary to alter and view the pictures and even utility companies that provide electricity to the Internet.” 9
� Fourth, the majority took pains to distinguish the credit card defendants from the defendant in Fonovisa v. Cherry Auction, 10 a leading pre-Internet decision on secondary liability in the Ninth Circuit. In Fonovisa, the court found contributory infringement by a company that operated flea markets at which infringing tapes and CDs were sold, on the theory that its “site and facilities” (such as parking, utilities, sanitation, and advertising) created a commercial environment in which “massive quantities” of infringement could occur. For the majority, the credit card defendants in Visa “do no such thing,” and their payment systems are in no way analogous to the “site and facilities” in Fonovisa.
The majority also found no basis for imposing vicarious liability, which requires a showing of financial benefit coupled with a right and ability to supervise or control the infringing conduct. Here, the majority found that no possible set of facts could support a finding as to the “control” element, because the defendants
Plaintiff argued that sufficient control could be established because the defendants’ own contracts with the infringing sites allow them to discontinue processing payments if the sites engage in illegal activity. The majority did not agree:
Judge Kozinski’s Dissent
Judge Alex Kozinski dissented strenuously, in the trenchant prose for which he is well-known and to which paraphrase cannot do justice. We therefore set forth some of the central points of his dissent, in his own heavily abridged words (many footnotes and citations omitted):
On the distinction between location services and payment services:
On the relative materiality of location services and payment services:
. . . .
If it mattered whether search engines or credit cards are more important to peddling infringing content on the Internet, the cards would win hands down. But it doesn’t matter. 16
On the availability of other payment mechanisms:
On the majority’s reading of Fonovisa:
On the slippery slope:
On vicarious liability:
On public policy:
As Judge Kozinski’s forceful dissent makes clear, the majority’s decision could mark a significant shift in the Ninth Circuit’s law of secondary copyright liability. Whether such a step should be taken on a 12(b)(6) motion without an evidentiary record is a question which could well draw the scrutiny of an en banc panel. Much more is at stake than “some saucy pictures.”
Robert W. Clarida is a partner at Cowan, Liebowitz & Latman and is the coauthor of “Recent Developments in Copyright,” a review of decisions delivered at the annual meeting of the Copyright Society of the U.S.A. Robert J. Bernstein practices law in The Law Office of Robert J. Bernstein and is a past president of the Copyright Society of the U.S.A. (c) 2007 Cowan, Liebowitz & Latman and Robert Jay Bernstein.
1. No. 05-15170, 2007 WL 1892885 (9th Cir. July 3, 2007).
2. A&M Records, Inc. v. Napster, Inc., 239 F3d 1004 (9th Cir. 2001).
3. Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Inc., 545 US 913 (2005).
4. 2007 WL 1428632 (9th Cir. May 16, 2007) (pet. for en banc review pending).
5. Visa at *16.
6. Id. at *5.
7. Id. at n.8.
8. Id. at *5.
9. Id. at *7.
10. 76 F3d 259 (9th Cir. 1996).
11. Visa at *11.
13. Id. at *16.
14. Id. at *16-*17.
15. Id. at *17 n.6.
16. Id. at *19.
17. Id. at *18.
18. Id. at *19-*20.
19. Id. at *20-*21.
20. Id. at *21-*22.
21. Id. at *26.
22. Id. at *27.