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Perfect 10 Sues Visa/MasterCard

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Wednesday, Jan 28, 2004    Text size: 
BEVERLY HILLS, Calif. – After taking a loss of more than $29 million to copyright infringement over the past six years and $8 million in legal fees, the owner of Perfect 10, Inc., Norman Zada, is waging a war against the two largest and most successful credit card companies in the world.

Zada filed papers in the U.S. District Court for Northern California this week against Visa International, First Data Corp., Cardservice International, MasterCard International, and Humboldt Bank.

Perfect 10 gained industry notoriety for its 2002 preliminary injunction against Cybernet Ventures, Inc., the owners of Adult Verification Service Adult Check, for featuring more than 10,000 copyrighted Perfect 10 images in the Adult Check family of websites. And while Perfect 10 won the suit for an undisclosed amount of money, admittedly, it was only the tip of the iceberg.

Zada's complaint against the two credit card behemoths and the banks that process their transactions is that they are facilitating and profiting from the illegal use of copyrighted material on adult entertainment websites. The complaint states that Visa and MasterCard have made large sums of money from the sale of pirated adult content and should be held liable for any related copyright violation.

Out of an estimated 6,500 hundred images, Zada claims that his content has been infringed upon more than 20,000 times, which at a penalty of $1,000 per image, could result in a settlement of $20 million.

A former money manager and Stanford University and Columbia University professor, Zada entered the online adult entertainment space in 1997 when very few companies were doing anything similar. Perfect 10 holds copyrighted images of nude and topless women who have not been surgically enhanced and makes that content available on a subscription basis through the Perfect 10 website and a quarterly magazine.

However, according to Zada, Perfect 10 has sustained significant operating losses since its inception due to the continuous theft of its content. After pumping most of his capital into producing quality content, Zada says he didn't realize webmasters were going to steal his images faster than he could produce them.

Zada's beef is that his stolen content, combined with the hoards of unauthorized celebrity content on the web, makes it impossible for the legitimate players to compete.

"It's not just the theft of our images that have killed us, it's the theft of other people's images," said Zada. "We can't possibly compete when we are paying for our content and our competition is not."

Zada and his lawyers started filing lawsuits against individual websites, which proved instantly difficult because of the concealed identities of many webmasters.

Then Zada went after Cybernet, won the case based on contributory and vicarious copyright infringement, and managed to deliver a stern warning to many other AVS sites guilty of the same type of indirect infringement.

But according to Zada, many of the webmasters who had been dealing in Perfect 10 and stolen celebrity content moved their sites to certain processors or third party billing companies like iBill, CCBill, and Paycom that indirectly, and often unknowingly, make a percentage profit off websites that feature unauthorized material.

Zada's lawsuit against Paycom was dismissed in 2002 and his litigation against the two remaining processors continues, but according to Zada, even if his company prevails, there are still other billing companies out there profiting in the same way.

"At that point we had to go to the top," Zada told XBiz. "We had been complaining to Visa/MasterCard for a long time. We've given them lists of adult sites that are using stolen content and committing fraud. We've informed them of many things, but to the best of what we can tell, they just changed their rules and basically said no more new celebrity websites, but you can keep working with the ones you have."

According to Zada, Visa and MasterCard also process billing for password hacking sites that advertise stolen passwords, some belonging to Perfect 10, that have been hacked off other computers.

"It would be a monstrous gamble for them [Visa/MasterCard] to actually allow this case to go to trial," Zada told XBiz. "They will either try to dismiss the case or dismiss it on a summary judgment."

But either way, Zada believes that the case will set a precedent for many other copyright holders to sue the two credit card companies on similar grounds.

"It's a very strong case," he told XBiz. "Massive damages, very unfair competition; it is definitely not a good case for them. I am more interested in seeing them stop processing payments for sites that don't own their content than anything else."

Additionally, Zada says that the lawsuit could have an adverse affect on search engines and paid search results that often link to sites that feature stolen content.

"The ramifications of this suit go beyond Visa and MasterCard to Google, Yahoo, and to all the sites that have been advertising stolen content," he told XBiz. "Paid search results create liability that is much more extensive for the search engines than people realize."

The Perfect 10 lawsuit was filed on Wednesday of this week in San Francisco, where Visa is headquartered.

Visa and MasterCard were not available for comment at the time of this printing.

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