Court Issues Ruling in Perfect 10 Case

Q Boyer
SAN FRANCISCO — In a 2-1 decision, a panel of judges from the 9th U.S. Circuit Court of Appeals this week ruled that a federal judge was correct in dismissing a copyright infringement lawsuit brought by adult entertainment publisher Perfect 10 against VISA, MasterCard and other credit card firms.

In its lawsuit, Perfect 10 sued the credit card companies, as well as several affiliated banks and data processing firms, asserting that the companies were liable for copyright and trademark infringement because the companies continued to process credit card payments for websites that were infringing on Perfect 10’s intellectual property rights, even though Perfect 10 had notified them of the infringement.

A U.S. district judge dismissed Perfect 10’s case on procedural grounds, holding that Perfect 10 had failed to “state a claim upon which relief can be granted.” The 9th Circuit ruling affirmed the decision of the lower court to dismiss the case.

The majority opinion authored by 9th Circuit Judge Milan D. Smith stated that the credit card companies “cannot be said to materially contribute to the infringement in this case because they have no direct connection to that infringement.”

“Here, the infringement rests on the reproduction, alteration, display and distribution of Perfect 10’s images over the Internet,” the court stated in its ruling. “Perfect 10 has not alleged that any infringing material passes over defendants’ payment networks or through their payment processing systems, or that defendants’ systems are used to alter or display the infringing images.”

Among the court’s main concerns appears to have been the that a ruling favoring Perfect 10 could open the floodgates of contributory copyright infringement claims. The court reasoned that if the credit card companies were held liable, then any number of other entities that provide a product or service that potentially aids copyright infringers could likewise be targeted.

“Any conception of ‘site and facilities’ that encompasses defendants would also 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,” the majority argued in its decision.

Norm Zada, president of Perfect 10, told XBIZ he found the court’s decision “outrageous.”

“I’ve been subject to some bad legal decisions in my time, but this one takes the cake,” Zada said.

Zada said that while he believes that the judges who made up the majority of the panel, the 9th Circuit's Smith and Judge Stephen Reinhardt, “think they are doing the right thing,” their decision will only create greater confusion and frustration for copyright owners who want to protect themselves from online piracy.

“The majority has basically given banks and credit card companies blanket immunity to the point where a guy could have a site called ‘ISellStolenMovies.com’ and the bank could tell that merchant, ‘Sure we’ll process for you,’ and still be in the clear,” Zada said. “We’re having a lot of trouble getting the courts to understand how desperate copyright holders are right now.”

In his dissenting opinion, 9th Circuit Judge Alex Kozinski took strong exception to the reasoning of the majority, and asserted that by “straining to absolve defendants of liability, the majority leaves our law in disarray.”

“Accepting the truth of plaintiff’s allegations, as we must on a motion to dismiss, the credit cards [companies] are easily liable for indirect copyright infringement,” Kozinski wrote. “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.”

According to Kozinski’s dissent, the majority created “some very new — and very bad — law” with its ruling.

“This is an easy case, squarely controlled by our precedent in all material respects,” Kozinski wrote in the conclusion of his dissent, adding that a fair application of the facts alleged by Perfect 10 should have resulted in the Perfect 10 being given an opportunity to prove its case at trial.

“In straining to escape the strictures of our case law, the majority draws a series of ephemeral distinctions that are neither required nor permitted,” Kozinski wrote. “The opinion will prove to be no end of trouble.”

Zada concurred with Kozinski, calling the judge’s dissent “brilliant.”

“The majority’s decision is a horrific attack on the rights of copyright holders,” Zada said. “This decision will do more damage to movie studios and other copyright holders than any other decision in recent years.”

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