A secondary consideration

Court rejects third-party liability for copyright, trademark infringement

Cases of infringement seem to have multiplied with the growth of the Internet. Copyright and trademark holders are casting a wider net to ensnare liable third parties. In Perfect 10 v. Visa Int'l, however, the Ninth Circuit Court of Appeals shot down a publisher's assertion of secondary liability against credit card companies that process payments for infringing merchants.

The charges

Perfect 10 publishes a magazine and operates a subscription Web site, both of which feature copyrighted images. It claims copyrights in the photos, as well as federal registration of its trademark.

The company alleged that numerous Web sites have stolen its proprietary images, altered them, and illegally offered them for sale online. Instead of suing the direct infringers, Perfect 10 pursued the financial institutions that process credit card payments to the allegedly infringing sites. It alleged that it had sent the defendants repeated notices identifying the infringing sites and informing the defendants that consumers used their credit cards to purchase infringing images; the companies took no action.

Perfect 10 sued the defendants, claiming contributory and vicarious copyright and trademark infringement. The district court dismissed the action and Perfect 10 appealed.

Contributory copyright infringement: Denied

To formulate an updated test for contributory copyright infringement, the Ninth Circuit synthesized several earlier tests. It concluded that a defendant must 1) have knowledge of another's infringement, and 2) either materially contribute to or induce that infringement. In the present case, the court found it unnecessary to consider the knowledge element because Perfect 10 couldn't satisfy the second element.

Perfect 10 argued that the defendants induced and contributed to the infringement by continuing to process credit payments despite having knowledge of the infringement. But the court pointed out that the companies had no direct connection to the infringement. The infringement involved the reproduction, alteration, display and distribution of Perfect 10's images on the Internet. Although the defendants may have made it easier for infringers to profit, the infringement would occur even if the payments weren't made using the defendant's credit cards.

The court distinguished the current situation from that in an earlier case Perfect 10 had brought against Google. There, the court ruled that Google could be held contributorily liable. The distinction was that Google's search engine itself assisted in the distribution of infringing content to Internet users, while the defendants' payment systems didn't. The defendants didn't assist or enable Internet users to locate infringing material and they didn't distribute it.

Perfect 10 cited other cases finding contributory liability where the defendants provided the "site and facilities" for the infringing activity. The Ninth Circuit held that the infringing Web sites - not the defendants' payment networks - represent the site of infringement. No infringing material ever resided on or passed through the defendants' networks or computers.

As to inducement, Perfect 10 argued that the defendants induced customers to use their credit cards to purchase infringing images. The court disagreed. It explained that inducement requires "purposeful, culpable expression and conduct," in addition to communication of an inducing message to their users. Perfect 10 didn't establish "clear expression" or "affirmative acts" with the specific intent to foster infringement.

Vicarious copyright infringement: Denied

Unlike contributory liability, vicarious liability is based on agency principles. A plaintiff must allege that the defendant had the right and ability to supervise the infringing conduct and a direct financial interest in the conduct.

Perfect 10 contended that the credit card companies' rules and regulations for member banks and merchants - which prohibit the provision of services to merchants engaging in certain illegal activities - constituted the right and ability to control the infringing Web sites. But, while the defendants could take steps that might indirectly reduce infringing activity, they lacked the ability to directly control or stop that activity. According to the court, the ability to withdraw a financial "carrot" doesn't create the "stick" of right and ability to control.

Contributory trademark infringement: Denied

Turning to trademark issues, the court observed that the tests for contributory trademark infringement were even more difficult than those for copyright. Contributory trademark infringement requires the defendant to 1) intentionally induce the primary infringer to infringe, or 2) continue to supply an infringing product to an infringer with knowledge that the infringer is mislabeling the particular product supplied. Where service is involved, rather than a product, the court must weigh the extent of control the defendant exercised over the third party's means of infringement.

Perfect 10 cited no affirmative acts by the credit card companies that suggested third parties infringe its mark or induced them to do so. The court also found that Perfect 10 failed to allege facts showing direct control and monitoring of the instrumentality used to infringe its mark. Contrary to the company's claim, the credit card payment network wasn't such an instrumentality. The court said the infringement occurred without any involvement by the credit card companies or their payment systems.

Vicarious trademark infringement: Denied

Vicarious trademark infringement liability requires that the defendant and the direct infringer have an apparent or actual partnership, and authority to bind each other in transactions with third parties or exercise joint ownership or control over the infringing product.

Perfect 10 claimed that the defendants maintained a "symbiotic financial partnership" with the infringing Web sites because the sites operated their businesses under the credit card companies' rules and regulations. As further proof of the relationship, it argued that the companies shared the profits on a transaction-by-transaction basis.

The court found that the relationship between the defendants and the sites didn't establish joint ownership or control for trademark purposes. Rather, the defendants processed payments and collected their usual fees, nothing more.

Evolving credit

For now, third parties in the Ninth Circuit retain some protection from liability for infringement, but copyright and trademark holders likely will continue trying to push the boundaries. Potentially vulnerable third parties need to keep their hands clean.