In a split decision, a panel of the U.S. Court of Appeals for the Ninth Circuit affirmed a district court’s holding that companies that process credit card payments, even for internet pirates, are not liable for contributory copyright infringement or for inducement. Perfect 10, Inc. v. Visa International Service Association, Case No. 05-15170 (9th Cir., July 3, 2007) (D. Smith Jr., J.; Kozinski, J., dissenting).
Perfect 10, publisher of "adult" material including photographs of "natural" models, sent defendants notices specifically identifying websites selling pirated photographs and informed defendants that their cards were used to purchase infringing images. The defendants took no action in response to the notices. Perfect 10 filed suit alleging contributory and vicarious copyright infringement, as well as inducement. The defendants moved to dismiss under FRCP 12(b)(6). The district court granted the motion. Perfect 10 appealed.
Citing to its own decision in Perfect 10 v. Amazon.com (IP Update, Vol. 10, No. 6), the Ninth Circuit noted that a defendant is a contributory infringer if it has knowledge of a third party’s infringing activity and "induces, causes, or materially contributes to the infringing conduct." In an internet context, the Ninth Circuit—citing to Grokster (2005), (IP Update Vol. 8, No. 6)—noted that a defendant who "engages in personal conduct that encourages or assists the infringement" may be liable for contributory infringement. Analogizing to the patent law concept of "inducement," the Court (citing to its Amazon.com decision), noted that "[o]ne infringes contributorily by intentionally inducing or encouraging direct infringement." It continued by stating that "an actor may be contributorily liable [under Grokster] for intentionally encouraging direct infringement if the actor knowingly takes steps that are substantially certain to result in such direct infringement."
The panel noted "to find that Defendants’ activities fall within the scope of the test for contributory infringement would require a radical and inappropriate expansion of exiting principles of secondary liability and would violate the public policy of the United States." The Court dismissed Perfect 10’s argument that by continuing to process credit card payments to the infringing websites despite having knowledge of ongoing infringement, the defendants induce, enable and contribute to the infringing activity in the same way the defendants did in Napster and Grokster. The Ninth Circuit reasoned that the credit card companies cannot be said to materially contribute to the infringement because "they have no direct connection to that infringement," i.e., to the reproduction, alteration, display and distribution of Perfect 10’s images over the internet. The panel further noted that unlike the Amazon.com and Grokster cases, none of the defendants’ systems were used to locate or obtain the infringing images. (Responding to Judge Kozinski’s dissent, the majority noted that search engines such as Google and payment systems such as Visa are not equivalents for purposes of preventing further infringement upon notice, since in the former case, it is the search engine itself that assists in the distribution of infringing content.
In Grokster, the Supreme Court applied the patent law concept of "inducement" to a claim of contributory infringement against a file-sharing program. The court found that "one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties."
The Court noted that the Supreme Court in Grokster announced that the standard for inducement liability is providing a service "with the object of promoting its use to infringe copying," but that "[m]ere knowledge of infringing potential or actual infringing uses would not be enough … to subject [a defendant] to liability." Rather, the Court opined that inducement "premises liability on purposeful, culpable expression and conduct, and thus does nothing to compromise legitimate commerce or discourage innovation having a lawful promise." Moreover, to establish inducement liability, it is crucial to establish that the distributors "communicated an inducing message to their … users," the classic example of which is an "advertisement or solicitation that broadcasts a message designed to stimulate others to commit violations." Absent factual allegations to support such elements, the Ninth Circuit found dismissal of the inducement claim to be proper.
Vicarious Liability
"Vicarious" infringement is a concept related to contributory infringement, but based on the agency principles of respondeat superior. To state a claim for vicarious copyright infringement, a plaintiff must allege that the defendant has the right and ability to supervise the infringing conduct, as well as a direct financial interest in the infringing activity. The Court, analogizing the conduct here to that of Google in the Amazon.com case, concluded that Perfect 10 failed to state a claim for vicarious copyright infringement.
In Amazon.com, the Ninth Circuit found that Google had the ability to control its own index, search results and web pages, but not the right to control the infringing acts of third parties. Moreover (noted the majority), "the Amazon.com court rejected a vicarious liability claim based on Google’s policies with sponsored advertisers, which state that it reserves the right to monitor and terminate partnerships with entities that violate others’ copyright[s]."
Here, the majority found that even though the defendants "could likely take certain steps that may have the indirect effect of reducing infringing activity," the defendants could not control that activity, and the "mere ability to withdraw a financial ‘carrot’ does not create the ‘stick’ of right and ability to control that vicarious infringement requires."
Dissent
In dissent, Judge Kozinski disagreed with the majority on the issue of contributory infringement, concluding the Amazon.com decision requires such a finding for Perfect 10 since the defendants transaction processing "is not just an economic incentive an essential step in the infringement process." The dissent also takes issue with a majority’s justification that "infringement could continue on a large scale [without the aid of the defendant] because other viable … mechanisms are available," noting that the same justification, if applied in Amazon.com should have absolved Google of liability because of the obvious availability of alternatives." (In the Amazon.com case, that issue was remanded to the district court.)
Rather, in the view of the dissent, the "material assistance" issue (for contributory infringement) turns on whether the activity in question "substantially assists" infringement.
The dissent also takes on the majority on the issue of vicarious liability, noting that the defendants "have a right to stop or limit the infringing activity, a right they have refused to exercise."
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