9th Circuit's Refusal to Hold Credit Card Companies Liable for Contributory Infringement
The Ninth Circuit federal court of appeals decided a case July 3 that has discouraging implications for brand owners who had hoped that courts would hold credit card companies liable for contributory or vicarious infringers for continuing to process credit card charges incurred by customers purchasing pirated and counterfeit goods on the Internet. Over a vehement dissent by Judge Kozinski, a majority of the panel hearing the case ruled that credit card companies that had been given actual notice that specified websites were selling pirated images could not be held secondarily or vicariously liable for copyright or trademark infringement for continuing to process charges made by purchasers of the pirated photos.
The case, Perfect 10, Inc. v. Visa Intern. Service Ass’n, 2007 WL 1892885 (9th Cir. 2007), involved infringements of what the plaintiff referred to as “tasteful copyrighted images of the world's most beautiful natural models” that were owned and published by the plaintiff, Perfect 10. Perfect 10 alleged that numerous websites stole its images, altered them, and illegally offered them for sale online. Instead of suing these direct infringers, however, Perfect 10 sued Visa, MasterCard and other entities that processed credit card payments to the allegedly infringing websites after being notified that some of the sites’ consumers were using their credit cards to purchase infringing images.
To read more click below The Ninth Circuit’s test for contributory infringement of copyright requires a showing that the defendant (1) has knowledge of another's infringement and (2) either (a) materially contributes to or (b) induces that infringement. The majority in Perfect 10 held that credit card companies do not materially contribute to copyright infringement because, “if users couldn't pay for images with credit cards, infringement could continue on a large scale because other viable funding mechanisms are available.” In this way, the court felt, credit card companies are different from swap meet owners who can be held contributorily liable for counterfeiting and infringement: “it would be difficult for the infringing activity to take place in the massive quantities alleged without the support services provided by the swap meet.” The court felt that, wile a swap meet makes it easier for buyers to locate counterfeit goods, providing a physical marketplace for them, credit card companies credit card “companies merely provide a method of payment, not a ‘site’ or ‘facility’ of infringement.” In the majority’s view, to “find that Defendants' activities fall within the scope of [the contributory infringement tests] would require a radical and inappropriate expansion of existing principles of secondary liability and would violate the public policy of the United States” that seeks to preserve the vibrant and competitive free market that exists for the Internet.
The majority in Perfect 10 also concluded that the credit card companies do not induce copyright infringement. Inducement requires a showing that the defendant actively encouraged infringement through specific acts; e.g., by providing a good or service with the object of promoting its use to infringe copyright. The court did not feel that the kinds of activities the credit card companies engaged in could fairly be characterized as intended to encourage or induce infringement.
The Court also refused to impose vicarious liability for copyright infringement on the credit card companies. Vicarious liability results when a party has the right and ability to control infringing activity and profits from it. The Ninth Circuit held that the credit card companies’ contractual right to stop processing merchants’ payments did not translate into a right to control and halt the merchants’ infringing activities. While the court acknowledged that cutting off credit card processing might indirectly affect a merchant’s sales of infringing works, it focused on the companies’ lack of power to actually supervise and control the infringement, not just affect it. Unlike a swap meet operator who can evict an infringer, all a credit card company can do is withdraw payment-processing services. For this reason, the court held, vicarious liability could not be asserted.
In sharp contrast with the majority holding in Perfect 10, the dissent by Judge Kozinski, argued that “the credit cards are easily liable for indirect copyright infringement: 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.” Judge Kozinski argued that, just as a search engine may be held liable for helping consumers locate infringing content, as the Ninth Circuit recently held in a case that Perfect 10 brought against Google, credit card companies also materially contribute to an infringing sale, asking “why is locating infringing images more central to infringement than paying for them?” Whether other courts will side with the majority or Judge Kozinski remains to be seen.
Written By:Forrest Jefferson
On November 28, 2007 1:53 AM
The case, Perfect 10, Inc. v. Visa Intern. Service Ass’n, 2007 WL 1892885 (9th Cir. 2007), involved infringements of what the plaintiff referred to as “tasteful copyrighted images of the world's most beautiful natural models” that were owned and published by the plaintiff, Perfect 10. Perfect 10 alleged that numerous websites stole its images, altered them, and illegally offered them for sale online. Instead of suing these direct infringers, however, Perfect 10 sued Visa, MasterCard and other entities that processed credit card payments to the allegedly infringing websites after being notified that some of the sites’ consumers were using their credit cards to purchase infringing images.
To read more click below The Ninth Circuit’s test for contributory infringement of copyright requires a showing that the defendant (1) has knowledge of another's infringement and (2) either (a) materially contributes to or (b) induces that infringement. The majority in Perfect 10 held that credit card companies do not materially contribute to copyright infringement because, “if users couldn't pay for images with credit cards, infringement could continue on a large scale because other viable funding mechanisms are available.” In this way, the court felt, credit card companies are different from swap meet owners who can be held contributorily liable for counterfeiting and infringement: “it would be difficult for the infringing activity to take place in the massive quantities alleged without the support services provided by the swap meet.” The court felt that, wile a swap meet makes it easier for buyers to locate counterfeit goods, providing a physical marketplace for them, credit card companies credit card “companies merely provide a method of payment, not a ‘site’ or ‘facility’ of infringement.” In the majority’s view, to “find that Defendants' activities fall within the scope of [the contributory infringement tests] would require a radical and inappropriate expansion of existing principles of secondary liability and would violate the public policy of the United States” that seeks to preserve the vibrant and competitive free market that exists for the Internet.
The majority in Perfect 10 also concluded that the credit card companies do not induce copyright infringement. Inducement requires a showing that the defendant actively encouraged infringement through specific acts; e.g., by providing a good or service with the object of promoting its use to infringe copyright. The court did not feel that the kinds of activities the credit card companies engaged in could fairly be characterized as intended to encourage or induce infringement.
The Court also refused to impose vicarious liability for copyright infringement on the credit card companies. Vicarious liability results when a party has the right and ability to control infringing activity and profits from it. The Ninth Circuit held that the credit card companies’ contractual right to stop processing merchants’ payments did not translate into a right to control and halt the merchants’ infringing activities. While the court acknowledged that cutting off credit card processing might indirectly affect a merchant’s sales of infringing works, it focused on the companies’ lack of power to actually supervise and control the infringement, not just affect it. Unlike a swap meet operator who can evict an infringer, all a credit card company can do is withdraw payment-processing services. For this reason, the court held, vicarious liability could not be asserted.
In sharp contrast with the majority holding in Perfect 10, the dissent by Judge Kozinski, argued that “the credit cards are easily liable for indirect copyright infringement: 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.” Judge Kozinski argued that, just as a search engine may be held liable for helping consumers locate infringing content, as the Ninth Circuit recently held in a case that Perfect 10 brought against Google, credit card companies also materially contribute to an infringing sale, asking “why is locating infringing images more central to infringement than paying for them?” Whether other courts will side with the majority or Judge Kozinski remains to be seen.
Very interesting. Thank you for the article.