Ninth Circuit Opinion in Perfect 10 v. CCBill

By Eric Goldman

Perfect 10, Inc. v. CCBill LLC, No. 04-57143, 04-57207 (9th Cir. March 29, 2007)

The Ninth Circuit issued an important but characteristically quirky opinion in Perfect 10 v. CCBill. This omnibus opinion covered a lot of disparate legal points and sent the case back to the district court, making it impossible to characterize cleanly as a win for either side. However, there were a variety of defense-favorable rulings (especially the major expansion of 47 USC 230 to preempt state IP claims) that will help both these defendants and future defendants. However, because there are 2 other Perfect 10 copyright cases pending before the Ninth Circuit, it may be difficult to fully assess the state of Ninth Circuit law until we see the troika of opinions.

Background

Perfect 10 publishes a pornographic magazine and operates a pornography website. It appears that Perfect 10 photos are routinely infringed by others because Perfect 10 has been on a litigation frenzy. They have brought at least four enforcement actions that have produced important Internet law opinions (involving the defendants Cybernet Ventures, Visa and Google in addition to this one). In all of these cases, Perfect 10 is suing some intermediary instead of the direct infringers. In this case, the intermediaries are support providers to websites that allegedly host infringing photos–CCBill provides payment service processing plus links to sites it collects money for, and the other defendant CWIE appears to be a basic hosting service provider.

Perfect 10 has sued both for copyright infringement and various state claims, including the models’ rights of publicity. In this opinion, the Ninth Circuit opines on the defendants’ eligibility for 512 safe harbors (plus a few other copyright matters) and whether the defendants can claim 230 for the right of publicity claim.

Copyright and 512

There were several key points about copyright law in this case, including:

1) Perfect 10 tried to toss the defendants out of the 512 safe harbor by arguing that they didn’t do enough to terminate repeat infringers. The court shut this down, saying that “[t]o identify and terminate repeat infringers, a service provider need not affirmatively police its users for evidence of repeat infringement.”

2) Point #1 takes on even more significance in light of the court’s discussion about 512(c)(3) notices. 512(c)(3) tries to allocate infringement-associated investigatory/remediation costs between copyright owners and service providers. The idea is that copyright owners have to do some homework (and incur some investigation costs) before they can force service providers to incur costs responding to their takedown notices. However, copyright owners constantly are looking for ways to short-circuit that work and reduce their costs by offloading more work to the service provider.

Thus, copyright owners often send notices that don’t comply literally with 512(c)(3)’s technical requirements. For example, in this case, Perfect 10 never sent a complete 512(c)(3) notice; instead, it sent a variety of documents and tried to have the aggregation of those documents qualify as the 512(c)(3) notice. In a few cases, most notably the terrible ALS Scan v. RemarQ case, judges have been very generous about relaxing the technical requirements of 512(c)(3). [Disclosure note: I was counsel for RemarQ during the relevant time period, so I have a personal reason to hate that opinion!]

Here, the Ninth Circuit rejects more flexible standards for 512(c)(3), saying that “substantial compliance means substantial compliance with all of § 512(c)(3)’s clauses, not just some of them.” As a result, the court implicitly rejects the ALS Scan v. RemarQ holding (in FN 3, it acknowledges the conflict obliquely).

As a further result, the court confirms that service providers can ignore deficient notices: “a service provider [does not need] to start potentially invasive proceedings if the complainant is unwilling to state under penalty of perjury that he is an authorized representative of the copyright owner, and that he has a good-faith belief that the material is unlicensed.” The court confirms that it really means what it says by confirming that it seeks to push copyright owners to do more work before burdening service providers to react to notifications:

The DMCA notification procedures place the burden of policing copyright infringement—identifying the potentially infringing material and adequately documenting infringement—squarely on the owners of the copyright. We decline to shift a substantial burden from the copyright owner to the provider

This is a great ruling for defendants. This ruling from the Ninth Circuit should inhibit copyright owners’ attempts to game the 512 cost allocations by sending incomplete notices. Or, from the service providers’ perspectives, this ruling gives them the power to legitimately push back when copyright owners try to play such games.

3) Providing services to sites with domain names like “illegal.net” and “stolencelebritypics.com” does not constitute a “red flag” under the statute because such names may just be marketing hype. The court says that the service provider doesn’t have the burden to determine whether photos at such sites are actually illegal. This is another nice ruling for the defense because it means website names can’t trigger inquiry duties.

Similarly, the court rejected that a password-hacking website didn’t create the red flags because “[t]here is simply no way for a service provider to conclude that the passwords enabled infringement without trying the passwords, and verifying that they enabled illegal access to copyrighted material. We impose no such investigative duties on service providers.”

4) The court says that a service provider can be eligible for the more robust 512(a) harbor even if it doesn’t transmit the allegedly infringing bits. This is a potentially major expansion of 512(a). The paradigmatic example of a 512(a) entity is a passive data carrier. However, the court says that 512(a) can apply to anyone transmitting digital online communications, so 512(a) may be available to any vendor who provides any types of services to an alleged infringer.

5) The 512(c) safe harbor does not apply if the service provider receives a “direct financial benefit” attributable to the infringement. The Ninth Circuit confirms that this phrase should be interpreted using the common law for vicarious copyright infringement. Unfortunately, this leaves open one of the basic questions raised by the Viacom-YouTube lawsuit–does 512(c) preempt all types (direct, contributory and vicarious) of copyright infringement based on user activities, or is vicarious infringement unaffected by 512(c)? The court doesn’t answer this, but one might infer that the court’s discussion was irrelevant if 512(c) preempted vicarious infringement. Either way, the court says CWIE lacked a direct financial benefit, so we won’t get an answer to this in this case.

47 USC 230

HUGE ruling here! By its terms, 47 USC 230 doesn’t preempt “IP claims.” This has left open questions like whether 230 preempts right of publicity claims. See, e.g., the 11th Circuit Almeida case. In one brief yet bold stroke, the 9th Circuit ends that debate, saying simply that where Congress said “IP,” they meant “federal IP.” This means Perfect 10′s publicity rights claim against the defendants are preempted by 230.

But this ruling appears to do far more than strike out publicity rights claims. Per the express terms of this ruling, defendants can now claim 230 for any state-based IP claims, including state trademark laws and state trade secret claims. I’m trying to think about how this plays out, but it seems like a plaintiff cannot seek a TRO or injunction against a website hosting user-posted material that misappropriates the plaintiff’s trade secrets.

It also means that to the extent plaintiffs bring a state trademark claim predicated on user or third party behavior, the defendant can simply crunch the state claim per 230. This is only somewhat helpful to defendants when the state and federal TM laws are the same because the federal claim won’t be touched. On the other hand, if a plaintiff only has state trademark rights because they don’t engage in interstate commerce and tries to sue an intermediary for contributory infringement (or direct infringement) attributable to a user’s or vendor’s infringing activity, it seems like the intermediary instantly wins on 230. This could also apply to any state TM claims in the keyword-triggering cases if the ad vendor can show that the customer-supplied keyword/ads were the basis of the TM claim.

As regular readers know, I almost never meet a defense-side 230 ruling I don’t like, but I must confess that I think the Ninth Circuit is out-of-bounds here. Just based on straight statutory interpretation, I don’t see how the Ninth Circuit can conclude that the word “federal” is imported into the words “intellectual property.”

More importantly, I’m worried that this ruling may be so disconcerting to IP owners that they prompt Congress to take a closer look at 230. The ruling practically invites Congress to consider doing so. But, given the already expansive sweep of 230, I can’t imagine Congressional revisiting of 230 would lead to any improvements in the statute. If anything, that would be the opportunity for all of the aggrieved tort lawyers–such as those seeking to hold MySpace liable for sexual predators–to “clean up” a problematic statute. So the statutory blowback from this ruling could be severe and dangerous.

Conclusion

This Ninth Circuit panel clearly understood the dangers that copyright and publicity rights lawsuits pose to Internet intermediaries, and they took a number of useful steps to push back on a very aggressive plaintiff’s novel but expansive theories. Kudos to them. But with two other Perfect 10 cases pending with the Ninth Circuit, I strongly suspect that the most interesting and powerful aspects of this ruling soon will be reshaped by the subsequent opinions.

Other Opinions on the Case

* Jason Schultz