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Perfect 10, Inc. v. Giganews, Inc.

Ninth Circuit affirms ruling that owners and operators of Usenet servers are not directly or secondarily liable for infringing copyrights in Perfect 10’s adult images, many of which were illegally distributed over servers, finding that Perfect 10 had failed to establish requisite “volitional conduct” on defendants’ part.

Usenet is an “international collection of organizations and individuals (known as ‘peers’) whose computers connect to one another and exchange messages posted by USENET users.” Ellison v. Robertson, 357 F.3d 1072, 1074, n.1 (9th Cir. 2004). Giganews Inc. owns and operates several Usenet servers, and provides its subscribers with fee-based access to content that Giganews stores on its own servers as well as content stored on the servers of other Usenet providers. Livewire Services Inc. does not own any Usenet servers, but instead provides its subscribers with access to the Usenet content stored on Giganews’ servers.

Usenet content offered through the Giganews servers is almost entirely user driven, in that Usenet users upload the majority of the content stored on a Usenet provider’s server. Users post content via text-based articles to online bulletin boards, with each article associated with a unique Message-ID. Other types of files, such as images, songs and movies, may be encoded into the bodies of these text-based articles; through the Giganews browser application, known as “Mimo,” or the “Mimo Reader,” users can open the binary files, which are then decoded and displayed in their original format.

Perfect 10 Inc. owns the exclusive copyrights to tens of thousands of adult images, many of which have been illegally distributed over Giganews’ servers. Upon locating infringing materials on those servers, Perfect 10 sent Giganews numerous letters fashioned as takedown notices pursuant to the Digital Millennium Copyright Act (DMCA). Some notices instructed Giganews to “locate all of the infringing messages and images . . . by doing [a] mimo search” for a particular term using the Mimo application. Other notices attached screen shots of the Mimo application that displayed posts in which Perfect 10’s copyrighted images were distributed. When Perfect 10 sent Giganews machine-readable Message-IDs, Giganews quickly removed those messages from its servers. When Perfect 10 faxed Giganews notices containing illegible Message-IDs, Giganews responded via letter asking Perfect 10 to provide the Message-IDs in a legible, machine-readable format. Perfect 10 failed to do so.

In 2011, Perfect 10 sued Giganews and Livewire for direct, contributory and vicarious copyright infringement. The district court decided in favor of the defendants on all copyright infringement claims, either at the dismissal or summary judgment stages, and awarded approximately $5.6 million in attorney’s fees and costs to the defendants. The district court denied the defendants’ requests to award higher attorney’s fees and to add the founder and sole shareholder of Perfect 10, Norman Zada, as a judgment debtor under an alter ego theory. The parties appealed their respective adverse rulings, and the Ninth Circuit affirmed.

With respect to Perfect 10’s direct infringement claim, the Ninth Circuit held that direct infringement requires causation, also referred to as “volitional conduct,” on the part of the defendant. The court discussed its 2013 decision in Fox Broadcasting Co. v. Dish Network L.L.C., which held that infringement of a plaintiff’s reproduction right “requires copying by the defendant, which comprises a requirement that the defendant cause the copying.” The court also analyzed the Supreme Court’s 2014 decision in American Broadcasting Companies v. Aereo, Inc., determining that Aereo did not disturb the rule in Fox Broadcasting.

Turning to the specifics of Perfect 10’s direct infringement claim, the Ninth Circuit held that Perfect 10 had failed to adequately plead infringement of its display rights by defendants, because the fact “that users may use Giganews’s reader to display infringing images does not constitute volitional conduct by Giganews.” Rather, the Ninth Circuit found that the Mimo Reader was simply a tool for users to view the images, and to the extent that the reader is used to view infringing images, this is done by the user. The Ninth Circuit also distinguished its earlier decision in Perfect 10, Inc. v., Inc. from 2007, in which the court found a prima facie case of direct infringement by Google where it “control[led] the storage and communication” of thumbnails of copyrighted Perfect 10 images. In contrast, Giganews filled more of a passive role, simply providing the means by which users posted and shared the infringing images.

The Ninth Circuit similarly rejected Perfect 10’s claims of direct infringement of its distribution and reproduction rights under the Copyright Act, finding that any distribution or reproduction occurred automatically, as a result of the acts of Giganews’ users, and that defendants did not engage in any volitional conduct by which they caused the distribution or reproduction.

The Ninth Circuit also affirmed the district court’s ruling that Giganews did not contributorily infringe Perfect 10’s copyrights, albeit on different grounds than the district court. While the district court held that Giganews did not have sufficient knowledge of the infringing conduct, the Ninth Circuit did not reach this issue, instead finding that Perfect 10 failed to establish that Giganews “materially contributed to or induced infringement” of the copyrights. In the online context, the Ninth Circuit has held that a “computer system operator” is liable under a material contribution theory of infringement “if it has actual knowledge that specific infringing material is available using its system, and can take simple measures to prevent further damage to copyrighted works, yet continues to provide access to infringing works.” The Ninth Circuit found that there were no “simple measures” available that Giganews failed to take, because it would have been difficult to locate Perfect 10’s images using the descriptions provided by Perfect 10. It further found that Giganews did not “induce” infringement because, based on the evidence, no reasonable juror could conclude that Giganews distributed its product “with the object of promoting its use to infringe copyright.”

The court also held that Perfect 10 failed to establish vicarious copyright infringement. Citing its 2004 decision in Ellison v. Robertson, the Ninth Circuit said that a finding of vicarious infringement requires that the defendant receive a “direct financial benefit” from the infringing activity, and that this, in turn, requires that the defendant receive a financial benefit from the specific act of infringement at issue in the case, and not just from infringement of copyrighted works generally. The appellate court determined that Perfect 10 did not establish a direct financial benefit to Giganews because it did not show that “Giganews attracted subscriptions because of the infringing Perfect 10 material.”

The Ninth Circuit affirmed the district court’s award of approximately $5.6 million in attorney’s fees and costs to the defendants, rejecting Perfect 10’s arguments that the district court gave undue weight to the degree of success the defendants obtained and that the district court abused its discretion in finding that Perfect 10 had an “improper motivation.” The court also held that the district court made no clear error in denying the defendants’ request to add Zada, Perfect 10’s sole shareholder, as a judgment debtor. The defendants did not establish liability for Zada under an alter ego theory because there was “no evidence of bad faith” or evidence that Perfect 10 was not capitalized enough to pay its debts.

Summary prepared by Jonathan Neil Strauss and Joel Ernst