Appendix — Perfect 10, Inc. v. CCBill LLC (No. 07-266)

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APPENDIX A — OPINION OF THE UNITED STATES

COURT OF APPEALS FOR THE NINTH CIRCUIT

FILED MARCH 239, 2007

AMENDED MAY 31, 2007

UNITED STATES COURT OF APPEALS

NINTH CIRCUIT

Nos. 04-57143, 04-57207.

PERFECT 10, INC., a California corporation,

Plaintiff-Appellant,

CCBILL LLC, a corporation; Cavecreek Wholesale

Internet Exchange, a corporation d/b/a CWIE LLC,

Defendants-Appellees,

and

Netpass Systems Inc., a corporation,

Defendant.

Perfect 10, Inc., a California corporation,

Plaintiff-Appellee,

Appendix A

CCBill LLC, a corporation; Cavecreek Wholesale Internet

Exchange, a corporation d/b/a CWIE LLC,

Defendants-Appellants,

Netpass Systems Inc., a corporation,

Defendant.

Argued and Submitted Dec. 4, 2006.

Filed March 29, 2007.

Amended May 31, 2007.

Appeal from the United States District Court for the Central

District of California; Lourdes G. Baird, District Judge,

Presiding. D.C. Nos. CV-02-07624-LGB, CV-02-07624-

LGB.

Before: STEPHEN REINHARDT, ALEX KOZINSKI,

MILAN D. SMITH, JR., Circuit Judges.

AMENDED OPINION

MILAN D. SMITH, JR., Circuit Judge.

Perfect 10, the publisher of an adult entertainment

magazine and the owner of the subscription website

perfect!O.com, alleges that CCBill and CWIE violated

advertising and right of publicity laws by providing services

to websites that posted images stolen from Perfect 10's

magazine and website. Perfect 10 appeals the district court's

finding that CCBill and CWIE qualified for certain statutory

safe harbors from copyright infringement liability under the

Appendix A

Digital Millennium Copyright Act (“DMCA”), 17 U.S.C.

§ 512, and that CCBill and CWIE were immune from liability

for state law unfair competition and false advertising claims

based on the Communications Decency Act (“CDA”), 47

U.S.C. § 230(c)(1). CCBill and CWIE cross-appeal, arguing

that the district court erred in holding that the CDA does not

provide immunity against Perfect 10’s right of publicity

claims and in denying their requests for costs and attorney's

fees under the Copyright Act.

We have jurisdiction pursuant to 28 U.S.C. § 1291. We

affirm in part, reverse in part, and remand.

BACKGROUND

Perfect 10 is the publisher of the eponymous adult

entertainment magazine and the owner of the website,

perfectlO.com. Perfect10.com is a subscription site where

consumers pay a membership fee in order to gain access to

content on the website. Perfect 10 has created approximately

5,000 images of models for display in its website and

magazine. Many of the models in these images have signed

releases assigning their rights of publicity to Perfect 10.

Perfect 10 also holds registered U.S. copyrights for these

images and owns several related, registered trademark and

service marks.

CWIE provides webhosting and related Internet

connectivity services to the owners of various websites. For

a fee, CWIE provides “ping, power, and pipe,” services to

their clients by ensuring the “box” or server is On, ensuring

power is provided to the server and connecting the client's

Appendix A

service or website to the Internet via a data center connection.

CCBill allows consumers to use credit cards or checks to

pay for subscriptions or memberships to e-commerce venues.

Beginning August 10, 2001, Perfect 10 sent letters and

emails to CCBill and CWIE stating that CCBill and CWIE

clients were infringing Perfect 10 copyrights. Perfect 10

directed these communications to Thomas A. Fisher, the

designated agent to receive notices of infringement. Fisher

is also the Executive Vice-President of both CCBill and

CWIE. Representatives of celebrities who are not parties to

this lawsuit also sent notices of infringement to CCBill and

CWIE. On September 30, 2002, Perfect 10 filed the present

action alleging copyright and trademark violations, state law

claims of violation of right of publicity, unfair competition,

false and misleading advertising, as well as RICO claims.

STANDARDS OF REVIEW

We review a district court’s grant of summary judgment

de novo. Rossi v. Motion Picture Ass'n of Am. Inc., 391 F.3d

1000, 1002 (9th Cir. 2004). “Viewing the evidence in the

light most favorable to the nonmoving party, we must

determine whether there are any genuine issues of material

fact and whether the district court correctly applied the

relevant substantive law.” Leever v. Carson City, 360 F.3d

1014, 1017 (9th Cir. 2004). The district court's interpretations

of the Copyright Act are also reviewed de novo. Ellison v.

Robertson, 357 F.3d 1072, 1076 (9th Cir. 2004).

We review a district court’s decision to grant or deny

attorney's fees under the Copyright Act for abuse of

Appendix A

discretion. Columbia Pictures Television, Inc. vy. Krypton

Broad. of Birmingham, Inc., 259 F.3d 1186, 1197 (9th Cir.

2001).

DISCUSSION

I. SECTION 512 SAFE HARBORS

The DMCA established certain safe harbors to “provide

protection from liability for: (1) transitory digital network

communications; (2) system caching; (3) information

residing On systems or networks at the direction of users;

and (4) information location tools.” Ellison, 357 F.3d at 1076-

77 (citing 17 U.S.C. §§ 512(a)-(d)) (footnotes omitted). These

safe harbors limit liability but “do not affect the question of

ultimate liability under the various doctrines of direct,

vicarious, and contributory liability,” Perfect /0, Inc. v.

Cybernet Ventures, Inc., 213 F.Supp.2d 1146, 1174

(C.D.Cal.2002) (citing H.R. Rep. 105-551(11), at 50 (1998)

(“H.R. Rep.”)),' and “nothing in the language of § 512

indicates that the limitation on liability described therein is

exclusive.” CoStar Group, Inc. v. LoopNet, Inc., 373 F.3d

544, 552 (4th Cir. 2004).

A. Reasonably Implemented Policy: § 512(i)(1)(A)

To be eligible for any of the four safe harbors at

$$ 512(a)-(d), a service provider must first meet the threshold

1. The relevant portions of H.R. Rep. 105-55!(11) (1998) and

S. Rep. 105 190 (1998) are largely identical. We cite to H.R. Rep.

for purposes of consistency.

Appendix A

conditions set out in § 512(i), including the requirement that

the service provider:

[H]as adopted and reasonably implemented, and

informs subscribers and account holders of the

service provider’s system or network of, a policy

that provides for the termination in appropriate

circumstances of subscribers and account holders

of the service provider’s system or network who

are repeat infringers.

Section 512(1)(1)(A); Ellison, 357 F.3d at 1080.

The statute does not define “reasonably implemented.”

We hold that a service provider “implements” a policy if it

has a working notification system, a procedure for dealing

with DMCA-compliant notifications, and if it does not

actively prevent copyright owners from collecting

information needed to issue such notifications. Ellison, 357

F.3d at 1080 (working notification system required); Corbis

Corp. v. Amazon.com, Inc., 351 F.Supp.2d 1090, 1102-03

(W.D.Wash.2004) (must adopt procedure for dealing with

notifications); /n re Aimster Copyright Litig., 252 F.Supp.2d

634, 659 (N.D.111.2002) (policy not implemented if service

provider actively blocks collection of information). The

Statute permits service providers to implement a variety of

procedures, but an implementation is reasonable if, under

“appropriate circumstances,” the service provider terminates

users who repeatedly or blatantly infringe copyright. See 17

U.S.C. § 512(i); Corbis, 351 F.Supp.2d at 1102.

Appendix A

1. “Implementation”

Perfect 10 argues that there is a genuine issue of material

fact whether CCBiil and CWIE prevented the implementation

of their policies by failing to keep track of repeatedly

infringing webmasters. The district court found that there

was not, and we agree.

In Ellison, Stephen Robertson posted copies of Harlan

Ellison’s copyrighted short stories on Internet newsgroups

available through USENET servers. 357 F.3d at 1075. Ellison

asserted that America Online, Inc. (“AOL”) had infringed

his copyright by providing access to the USENET servers.

Id. Based on evidence that AOL changed its contact email

address for copyright infringement notices from copyright @

aol. com to aolcopyright@ aol. com in the fall of 1999, but

neglected to register the change with the U.S. Copyright

Office until April 2000, we held that the district court erred

in concluding on summary judgment that AOL satisfied the

requirements of § 512(i). /d. at 1077, Even though Ellison

did not learn of the infringing activity until after AOL had

notified the U.S. Copyright Office of the correct email

address, we found that “AOL allowed notices of potential

unheeded; that fact is sufficient for a reasonable jury to

conclude that AOL had not reasonably implemented tts policy

against repeat infringers.” /d. at 1080.

Similarly, the Aimster cases hold that a repeat infringer

policy is not implemented under § 512(i)(1)(A) if the service

provider prevents copyright holders from providing DMCA-

compliant notifications. In Aimster, the district court held

Appendix A

that Aimster did not reasonably implement its stated repeat

infringer policy because “the encryption on Aimster renders

it impossible to ascertain which users are transferring which

files.” 252 F.Supp.2d at 659. The court found that “[a]dopting

a repeat infringer policy and then purposely eviscerating any

hope that such a policy could ever be carried out is not an

‘implementation’ as required by § 512(i).” Jd. The Seventh

Circuit affirmed, finding that Aimster did not meet the

requirement of § 512(i)(1)(A) because, in part, “by teaching

its users how to encrypt their unlawful distribution of

copyrighted materials [Aimster] disabled itself from doing

anything to prevent infringement.” /n re Aimster Copyright

Litig., 334 F.3d 643, 655 (7th Cir. 2003).

Based on Ellison and the Aimster cases, a substantial

failure to record webmasters associated with allegedly

infringing websites may raise a genuine issue of material

fact as to the implementation of the service provider’s repeat

infringer policy. In this case, however, the record does not

reflect such a failure. Perfect 10 references a single page from

CCBill and CWIE’s “DMCA Log.” Although this page shows

some empty fields in the spreadsheet column labeled

“Webmasters [sic] Name,” Perfect 10°s conclusion that the

DMCA Log thus “does not reflect any effort to track notices

of infringements received by webmaster identity” is not

supported by evidence in the record. The remainder of the

DMCA Log indicates that the email address and/or name of

the webmaster is routinely recorded in CCBill and CWIE’s

DMCA Log. CCBill’s interrogatory responses dated

December | 1, 2003 also contain a chart indicating that CCBill

and CWIE largely kept track of the webmaster for each

website.

Appendix A

Unlike Ellison and Aimster, where the changed email

address and the encryption system ensured that no

information about the repeat infringer was collected, it is

undisputed that CCBill and CWIE recorded most

webmasters. The district court properly concluded that the

DMCA Log does not raise a triable issue of fact that CCBill

and CWIE did not implement a repeat infringer policy.

2. Reasonableness

A service provider reasonably implements its repeat

infringer policy if it terminates users when “appropriate.”

See Corbis, 351 F.Supp.2d at 1104. Section 512(i) itself does

not clarify when it is “appropriate” for service providers to

act. It only requires that a service provider terminate users

who are “repeat infringers.”

To identify and terminate repeat infringers, a service

provider need not affirmatively police its users for evidence

of repeat infringement. Section 512(c) states that ““[a] service

provider shall! not be liable for monetary relief” if it does not

know of infringement. A service provider is also not liable

under § 51 2(c) if it acts “expeditiously to remove, or disable

access to, the material” when it (1) has actual knowledge,

(2) is aware of facts or circumstances from which infringing

activily is apparent, or (3) has received notification of claimed

infringement meeting the requirements of § 512(c)(3). Were

we to require service providers to terminate users under

circumstances other than those specified in § 512(c),

§ S12(c)’s grant of immunity would be meaningless. This

interpretation of the statute is supported by legislative history.

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Appendix A

See H.R. Rep., at 61 (Section 512(i) is not intended “to

undermine the .. . knowledge standard of [§ 512](c).”).

Perfect 10 claims that CCBill and CWIE unreasonably

implemented their repeat infringer policies by tolerating

flagrant and blatant copyright infringement by its users

despite notice of infringement from Perfect 10, notice of

infringement from copyright holders not a party to this

litigation and “red flags” of copyright infringement.

a. Perfect 10's Claimed Notice of Infringement

Perfect 10 argues that CCBill and CWIE implemented

their repeat infringer policy in an unreasonable manner

because CCBill and CWIE received notices of infringement

from Perfect 10, and yet the infringement identified in these

notices continued. The district court found that Perfect 10

did not provide notice that substantially complied with the

requirements of § 512(c)(3),? and thus did not raise a genuine

2. Section 512(c)(3) reads:

(A) To be effective under this subsection, a notification

of claimed infringement must be a_ written

communication provided to the designated agent of a

service provider that includes substantially the

following:

(1) A physical or electronic signature of a person

authorized to act on behalf of the owner of an exclusive

righi that is allegedly infringed.

(ii) Identification of the copyrighted work claimed to

have been infringed, or, if multiple copyrighted works

(Cont'd)

lla

Appendix A

issue of material fact as to whether CCBill and CWIE

reasonably implemented their repeat infringer policy. We

agree.

Compliance is not “substantial” if the notice provided

complies with only some of the requirements of

§ 512(c)(3)(A). Section 512(c)(3)(B)(ii) explains that a

service provider will not be deemed to have notice of

infringement when “the notification that is provided to the

service provider’s designated agent fails to comply

(Cont'd)

at a single online site are covered by a single notification,

a representative list of such works at that site.

(iii) Identification of the material that is claimed to be

infringing or to be the subject of infringing activity and

that is to be removed or access to which is to be disabled,

and information reasonably sufficient to permit the

service provider to locate the material.

(iv) Information reasonably sufficient to permit the

service provider to contact the complaining party, such

as an address, telephone number, and, if available, an

electronic mail address at which the complaining party

may be contacted.

(v) A statement thai the complaining party has a good

faith belief that use of the material in the manner

complained of is not authorized by the copyright owner,

its agent, or the law.

(vi) A statement that the information in the notification

is accurate, and under penalty of perjury, that the

complaining party is authorized to act on behalf of the

owner of an exclusive right that is allegedly infringed.

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Appendix A

substantially with all the provisions of subparagraph (A) but

substantially complies with clauses (ii), (iii), and (iv) of

subparagraph (A)” so long as the service provider responds

to the inadequate notice and explains the requirements for

substantial compliance. The statute thus signals that

substantial compliance means substantial compliance with

all of § 512(c)(3)’ s clauses, not just some of them. See H.R.

Rep., at 56 (A communication substantially complies even

if it contains technical errors such as misspellings or outdated

information.). See also Recording Indus. Ass'n of Am., Inc.

v. Verizon Internet Servs., Inc., 351 F.3d 1229, 1236 (D.C.Cir.

2003) (citing H.R. Rep., at 56).

Perfect 10 claims that it met the requirements of

§ 512(c)(3) through a combination of three sets of documents.

The first set of documents is a 22,185 page bates-stamped

production on October 16, 2002 that includes pictures with

URLs of Perfect 10 models allegedly posted on CCBill or

CWIE client websites. The October 16, 2002 production did

not contain a statement under penalty of perjury that the

complaining party was authorized to act, as required by

§ 512(c)( 3 Aj(vi1). Phe second set of documents was also

not sworn to, and consisted of a spreadsheet emailed to Fisher

on July 14, 2003 identifying the Perfect 10 models in the

October 16, 2002 production by bates number. On December

2, 2003, Perfect 10 completed interrogatory responses which

were signed under penalty of perjury. These responses

incorporated the July 14, 2003 spreadsheet by reference.

3. We do not read the Fourth Circuit's holding in ALS Scan,

Inc. v. RemarQ Communities, Inc., 239 F.3d 619, 625 (4th Cir. 2001),

as holding that only locatica information is required tor substantial

compliance with the terms of § 512(c)(3).

I3a

Appendix A

Taken individually, Perfect 10’s communications do not

substantially comply with the requirements of § 512(c)(3).

Each communication contains more than mere technical

errors; often one or more of the required elements are entirely

absent. See Perfect 10, Inc. v. CCBill, LLC, 340 F.Supp.2d

1077, 1100-01 (C.D.Cal.2004) (“Order”). In order to

substantially comply with § 512(c)(3)’s requirements, a

notification must do more than identify infringing files. The

DMCA requires a complainant to declare, under penalty of

perjury, that he is authorized to represent the copyright holder,

and that he has a good-faith belief that the use is infringing.

This requirement is not superfluous. Accusations of alleged

infringement have drastic consequences: A user could have

content removed, or may have his access terminated entirely.

If the content infringes, justice has been done. But if it does

not, speech protected under the First Amendment could be

removed. We therefore do not require a service provider 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.’

Permitting a copyright holder to cobble together adequate

notice from separately defective notices also unduly burdens

service providers. Indeed, the text of § 512(c)(3) requires

4. Perfect 10's argument that its initial notice substantially

complied with the DMCA’s notice requirements because Fisher, the

recipient of that notice, admitted that he could have found the

infringing photographs on the basis of the October 16, 2002, bates-

stamped production, is thus beside the point. Without the predicate

ceriification under penalty of perjury, Fisher would have had no

reason to go looking for the photographs.

l4a

Appendix A

that the notice be “a written communication.” (Emphasis

added). Again, this requirement is not a mere technicality.

It would have taken Fisher substantial time to piece together

the relevant information for each instance of claimed

infringement. To do so, Fisher would have to first find the

relevant line in the spreadsheet indicating ownership

information, then comb the 22,185 pages provided by Perfect

10 in order to find the appropriate image, and finally copy

into a browser the location printed at the top of the page-a

location which was, in some instances, truncated. 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; Perfect

10°s separate communications are inadequate.

Since Perfect 10 did not provide effective notice,

knowledge of infringement may not be imputed to CCBill

or CWIE based on Perfect 10°s communications. Perfect 10’s

attempted notice does not raise a genuine issue of material

fact that CCBill and CWIE failed to reasonably implement a

repeat infringer policy within the meaning of § 512(i)(1)(A).

b. Non-Party Notices

Perfect 10 also cites to notices of infringement by other

reasonably implement their repeat infringer policies because

they continued to provide services for websites that infringed

non-party copyrights. The district court expressly declined

to consider evidence of notices provided by any party other

1Sa

Appendix A

than Perfect 10 on the basis that these notices were irrelevant

to Perfect 10’s claims. We disagree.

CCBill and CWIE’s actions towards copyright holders

who are not a party to the litigation are relevant in

determining whether CCBill and CWIE reasonably

implemented their repeat infringer policy. Section

512(1)(1)(A) requires an assessment of the service provider's

“policy,” not how the service provider treated a particular

infringer policy was not reasonably implemented because

to notify AOL during the time that AOL’s email address was

incorrectly listed.). Thus, CCBill and CWIE’s response to

adequate non-party notifications is relevant in determining

whether they reasonably implemented their policy against

repeat infringers.

A policy is unreasonable only if the service provider

failed to respond when it had knowledge of the infringement.

The district court in this case did not consider any evidence

relating to copyright holders other than Perfect 10. We

remand for determination of whether CCBill and/or CWIE

implemented its repeat infringer policy in an unreasonable

manner with respect to any copyright holder other than

Perfect 10.

c. Apparent Infringing Activity

In importing the knowledge siandards of § 512(c) to the

analysis of whether a service provider reasonably

implemented its $ 512(i) repeat infringer policy, Congress

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Appendix A

also imported the “red flag” test of § 512(c){1)(A)(ii). Under

this section, a service provider may iose immunity if it fails

to take action with regard to infringing material when it is

“aware of facts or circumstances from which infringing

activity is apparent.” § 512(c)(1)(A)(ii). Notice that fails to

substantially comply with § 512(c)(3), however, cannot be

deemed to impart such awareness. §§ 512(c)(3)(B)(i) & (ii).

Perfect 10 alleges that CCBill and CWIE were aware of

a number of “red flags” that signaled apparent infringement.

Because CWIE and CCBill provided services to “illegal.net”

and “stolencelebritypics.com,” Perfect 10 argues that they

must have been aware of apparent infringing activity. We

disagree. When a website traffics in pictures that are titillating

by nature, describing photographs as “illegal” or “stolen”

may be an attempt to increase their salacious appeal, rather

than an admission that the photographs are actually illegal

or stolen. We do not place the burden of determining whether

photographs are actually illegal on a service provider.

Perfect 10 also argues that a disclaimer posted on

illegal.net made it apparent that infringing activity had taken

place. Perfect 10 alleges no facts showing that CWIE and

CCBill were aware of that disclaimer, and, in any event, we

disagree that the disclaimer made infringement apparent. The

disclaimer in question stated: “The copyrights of these files

remain the creator’s. I do not claim any rights to these files,

other than the right to post them.” Contrary to Perfect 10’s

assertion, this disclaimer is not a “red flag” of infringement.

The disclaimer specifically states that the webmaster has the

right to post the files.

17a

Appendix A

In addition, Perfect 10 argues that password-hacking

websites, hosted by CWIE, also obviously infringe. While

such sites may not directly infringe on anyone’s copyright,

they may well contribute to such infringement. The software

provided by Grokster in Metro-Goldwyn-Mayer Studios Inc.

v. Grokster, Ltd., 545 U.S. 913, 125 S.Ct. 2764, 162 L.Ed.2d

781 (2005), also did not itself infringe, but did enable users

to swap infringing files. Grokster held that “instructing

[users] how to engage in an infringing use” could constitute

contributory infringement. /d. at 936, 125 S.Ct. 2764.

Similarly, providing passwords that enable users to illegally

access websites with copyrighted content may well amount

to contributory infringement.

However, in order for a website to qualify as a “red flag”

of infringement, it would need to be apparent that the website

instructed or enabled users to infringe another’s copyright.

See A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004,

1013 n. 2 (9th Cir. 2001). We find that the burden of

determining whether passwords on a website enabled

infringement is not on the service provider. The website could

be a hoax, or out of date. The owner of the protected content

may have supplied the passwords as a short-term promotion,

or as an attempt to collect information from unsuspecting

users. The passwords might be provided to help users

Maintain anonymity without infringing on copyright. There

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. Password-hacking websites are thus

not per se “red flags” of infringement.

18a

Appendix A

Perfect 10 also alleges that “red flags” raised by third

parties identified repeat infringers who were not terminated.

Because the district court did not consider potential red flags

raised by third parties, we remand to the district court to

determine whether third-party notices made CCBill and

CWIE aware that it provided services to repeat infringers,

and if so, whether they responded appropriately.

B. Standard Technical Measures: § 512(i)(1)(B)

Under § 512(i)(1)(B), a service provider that interferes

with “standard technical measures” is not entitled to the safe

harbors at §§ 512(a)-(d). “Standard technical measures” refers

to a narrow group of technology-based solutions to online

[T]he term “standard technical measures” means

technical measures that are used by copyright

owners to identify or protect copyrighted works

and—

(A) have been developed pursuant to a broad

consensus of copyright owners and service

providers in an open, fair, voluntary, multi-

industry standards process;

(B) are available to any person on reasonable and

nondiscriminatory terms; and

providers or substantial burdens on their systems

or networks.

19a

Appendix A

§ 512(i)(2). Perfect 10 argues that CCBill does not qualify

for any safe harbor because it interfered with “standard

technical measures” by blocking Perfect 10’s access to CCBill

affiliated websites in order to prevent Perfect 10 from

discovering whether those websites infringed Perfect 10

copyrights.

There are two disputed facts here.

We are unable to determine on this record whether

accessing websites is a standard technical measure, which

was “developed pursuant to a broad consensus of copyright

owners and service providers in an open, fair, voluntary,

multi-industry standards process.” § 512(1)(2)(A). We thus

remand to the district court to determine whether access to a

website is a “standard technical measure,” and if so, whether

CCBill interfered with that access.

If allowing access 1s a standard technical measure,

CCBill claims it only blocked Perfect 10°s credit card because

Perfect 10 had previously reversed charges for subscriptions;

Perfect 10 insists it did so in order to prevent Perfect 10

from identifying infringing conient. If CCBill is correct,

Perfect 10’s method of identifying infringement-forcing

CCBill to pay the fines and fees associated with chargebacks-

may well impose a substantial cost on CCBill. If not, CCBill

may well have interfered with Perfect 10’s efforts to police

the websites in question for possible infringements. Because

there are disputed issues of material fact, we remand to the

district court for a determination of whether CCBill’s refusal

to process Perfect 10°s transactions interfered with a

“standard technical measure” for identifying infringement.

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Appendix A

C. Transitory Digital Network Communications:

§ 512(a)

Section 512(a) provides safe harbor for service providers

who act as conduits for infringing content. In order to qualify

for the safe harbor of § 512(a), a party must be a service

provider under a more restrictive definition than applicable

to the other safe harbors provided under § 512:

As used in subsection (a), the term “service

provider” means an entity offering the

transmission, routing, or providing of connections

for digital online communications, between or

among points specified by a user, of material of

the user’s choosing, without modification to the

content of the material as sent or received.

Section 512(k)(1)(A). The district court held that CCBill

met the requirements of § 512(k)(1)(A) by “provid[ing] a

connection to the material on its clients’ websites through a

system which it operates in order to provide its clients with

billing services.” Order at 1102. We reject Perfect 10's

argument that CCBill is not eligible for immunity under

§ 512(a) because it does not itself transmit the infringing

material. A service provider is “an entity offering the

transmission, routing, or providing of connections for digital

online communications.” § 512(k)(1)(A). There is no

requirement in the statute that the communications must

themselves be infringing, and we see no reason to import

such a requirement. It would be perverse to hold a service

provider immune for transmitting information that was

infringing on its face, but find it contributorily liable for

transmitting information that did not infringe.

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Appendix A

Section 512(a) provides a broad grant of immunity to

service providers whose connection with the material is

transient. When an individual clicks on an Internet link, his

computer sends a request for the information. The company

receiving that request sends that request on to another

computer, which sends it on to another. After a series of such

transmissions, the request arrives at the computer that stores

the information. The requested information is then returned

in milliseconds, not necessarily along the same path. In

passing the information along, each intervening computer

makes a short-lived copy of the data. A short time later, the

information is displayed on the user’s computer.

Those intervening computers provide transient

connections among users. The Internet as we know it simply

cannot exist if those intervening computers must block

indirectly infringing content. We read § 512(a)’s grant of

immunity exactly as it is written: Service providers are

immune for transmitting all digital online communications,

not just those that directly infringe.

CCBill transmits credit card information and proof of

payment, both of which are “digital online communications.”

However, we have little information as to how CCBill sends

the payment it receives to its account holders. It is unclear

whether such payment is a digital communication,

transmitted without modification to the content of the

material, or transmitted often enough that CCBill is only a

transient holder. On the record before us, we cannot conclude

that CCBill is a service provider under § 5] 2(a). Accordingly,

we remand to the district court for further consideration the

issue Of whether CCBill meets the requirements of § 51 2(a).

22a

Appendix A

D. Information Location Tools: § 512(d)

After CCBill processes a consumer’s credit card and

issues a password granting access to aclient website, CCBill

displays a hyperlink so that the user may access the client

website. CCBill argues that it falls under the safe harbor of

§ 512(d) by displaying this hyperlink at the conclusion of

the consumer transaction. We disagree. Section 512(d) reads:

A service provider shall not be liable for monetary

relief, or, except as provided in subsection (j), for

injunctive or other equitable relief, for

infringement of copyright by reason of the

provider referring or linking users to an online

location containing infringing material or

infringing activity, by using information location

tools, including a directory, index, reference,

pointer, or hypertext link.

Even if the hyperlink provided by CCBill could be

viewed as an “information location tool,” the majority of

CCBill’s functions would remain outside of the safe harbor

of § 512(d). Section 512(d) provides safe harbor only for

“infringement of copyright by reason of the provider referring

or linking users to an online location containing infringing

material or infringing activity.” (Emphasis added). Perfect

10 does not claim that CCBill infringed its copyrights by

providing a hyperlink; rather, Perfect 10 alleges infringement

through CCBill’s performance of other business services for

these websites. Even if CCBill’s provision of a hyperlink is

immune under § 512(n), CCBill does not receive blanket

immunity for its other services.

23a

Appendix A

E. Information Residing on Systems or Networks at

the Direction of Users: § 512(c)

Section 512(c) “limits the liability of qualifying service

providers for claims of direct, vicarious, and contributory

infringement for storage at the direction of a user of material

that resides on a system or network controlled or operated

by or for the service provider.” H.R. Rep., at 53. A service

provider qualifies for safe harbor under § 512(c) if it meets

the requirements of § 512(i) and:

(A)(i) does not have actual knowledge that the

material or an activity using the material on the

system or network is infringing;

(ii) in the absence of such actual knowledge, is

not aware of facts or circumstances from which

infringing activity is apparent; or

(iii) upon obtaining such knowledge or

awareness, acts expeditiously to remove, or

disable access to, the material;

(B) does not receive a financial benefit directly

attributable to the infringing activity, in a case in

which the service provider has the right and ability

to control such activity, and

described in paragraph (3), responds expeditiously

to remove, or disable access to, the material that

is Claimed to be infringing or to be the subject of

infringing activity.

24a

Appendix A

Section 512(c)(1). As discussed above, Perfect 10 did not

provide CWIE with knowledge or awareness within the

standard of § 512(c)(1)(A), and Perfect 10 did not provide

notice that complies with the requirements of § 512(c)(3).

The remaining question is whether Perfect 10 raises a

genuine issue of material fact that CWIE does not qualify

for safe harbor under § 512(c) because it fails to meet the

requirements of § 512(c)(1)(B), namely, that a service

provider not receive a direct financial benefit from the

infringing activity if the service provider also has the right

and ability to control the infringing activity.

Based on the “well-established rule of construction that

where Congress uses terms that have accumulated settled

meaning under common law, a court must infer, unless the

statute otherwise dictates, that Congress means to incorporate

the established meaning of these terms,” Rossi, 391 F.3d at

1004 n. 4 (9th Cir. 2004) (quoting Neder v. United States,

527 U.S. 1, 21, 119 S.Ct. 1827, 144 L.Ed.2d 35 (1999)), we

hold that “direct financial benefit” should be interpreted

consistent with the similarly-worded common law standard

for vicarious copyright liability. See, e.g., Ellison, 357 F.3d

at 1078 (a vicariously liable copyright infringer “derive[s] a

direct financial benefit from the infringement and hafs] the

right and ability to supervise the infringing activity”). Thus,

the relevant inquiry is “whether the infringing activity

constitutes a draw for subscribers, not just an added benefit.”

Id. at 1079. In Ellison, the court held that “no jury could

reasonably conclude that AOL received a direct financial

benefit from providing access to the infringing material”

because “[{t]he record lacks evidence that AOL attracted or

25a

Appendix A

retained subscriptions because of the infringement or lost

subscriptions because of AOL’s eventual obstruction of the

infringement.” /d.

In this case, Perfect 10 provides almost no evidence about

the alleged direct financial benefit to CWIE. Perfect 10 only

alleges that “CWIE ‘hosts’ websites for a fee.” This allegation

is insufficient to show that the infringing activity was

“a draw” as required by Ellison. 357 F.3d at 1079.

Furthermore, the legislative history expressly states that

“receiving a one-time set-up fee and flat, periodic payments

for service from a person engaging in infringing activities

would not constitute receiving a ‘financial benefit directly

attributable to the infringing activity.” ” H.R. Rep., at 54.

Perfect 10 has not raised a genuine issue of material fact that

CWIE receives a direct financial benefit from infringing

activity. Because CWIE does not receive a direct financial

benefit. CWIE meets the requirements of § 512(c).

If the district court finds that CWIE meets the threshold

requirements of § 512(i), CWIE ts entitled to safe harbor

under § 512(c).

Il. COMMUNICATIONS DECENCY ACT

The Communications Decency Act states that “[n]o

provider or user of an interactive computer service shall be

treated as the publisher or speaker of any information

provided by another information content provider,” and

expressly preempts any state law to the contrary. 47 U.S.C.

$$ 230(c)(1), (e)(3). “The majority of federal circuits have

interpreted the CDA to establish broad ‘federal immunity to

26a

Appendix A

any cause of action that would make service providers liable

for information originating with a third-party user of the

service.’ ” Almeida v. Amazon.com, Inc., 456 F.3d 1316, 1321

(11th Cir. 2006) (quoting Zeran v. America Online, Inc., 129

F.3d 327, 331 (4th Cir. 1997)); see also Carafano v.

Metrosplash.com, Inc., 339 F.3d 1119, 1122 (9th Cir. 2003)

(citing Batzel v. Smith, 333 F.3d 1018, 1026-27 (9th Cir.

2003)).

The immunity created by § 230(c)(1) is limited by

§ 230(e)(2), which requires the court to “construe Section

230(c)(1) tm a manner that would neither ‘limit or expand

any law pertaining to intellectual property.’ ” Gucci Am., Inc.

v. Hall & Assocs., 135 F.Supp.2d 409, 413 (S.D.N.Y. 2001)

(quoting § 230(e)(2)). As a result, the CDA does not clothe

service providers in immunity from “law([s] pertaining to

intellectual property.” See Almeida, 456 F.3d at 1322.

The CDA does not contain an express definition of

“intellectual property,” and there are many types of claims

in both state and federal law which may-or may not-be

characterized as “intellectual property” claims. While the

scope of federal intellectual property law is relatively well-

established, state laws protecting “intellectual property,”

however defined, are by no means uniform. Such laws may

bear various names, provide for varying causes of action and

remedies, and have varying purposes and policy goals.

Because material on a website may be viewed across the

Internet, and thus in more than one state at a time, permitting

the reach of any particular state’s definition of intellectual

property to dictate the contours of this federal immunity

would be contrary to Congress’s expressed goal of insulating

27a

Appendix A

the development of the Internet from the various state-law

regimes. See 47 U.S.C. §§ 230(a) and (b); see also Batzel,

333 F.3d at 1027 (noting that “courts construing § 230 have

recognized as critical in applying the statute the concern that

lawsuits could threaten the ‘freedom of speech in the new

and burgeoning Internet medium’ ” (quoting Zeran, 129 F.3d

at 330)). In the absence of a definition from Congress, we

construe the term “intellectual property” to mean “federal

intellectual property.” ° Accordingly, CCBill and CWIE are

5. In its petition for rehearing, Perfect 10 claims that our

decision on this point conflicts with Universal Communication

Systems, Inc. v. Lycos, Inc., 478 F.3d 413 (1st Cir. 2007). But neither

party in that case raised the question of whether state law counts as

“intellectual property” for purposes of § 230 and the court seems to

simply have assumed that it does. We thus create no conflict with

Universal Communication.

We note that Universal Communication demonstrates the

difficulties inherent in allowing state laws to count as intellectual

property for CDA purposes. In that case, the district court struggled

with the question of whether the “trademark dilution” claim brought

under Florida Law counted as intellectual property for purposes of

the CDA, and concluded that it was more like a defamation claim

than a trademark claim. /d. at 423 n. 7. Rather than decide how to

draw the iine between defamation and trademark, the First Circuit

held that “because of the serious First Amendment issues that would

be raised” if Lycos were found liable, defendant had not violated

the Florida statute. /d. at 423.

The First Circuit was able to sidestep the question of what

counted as intellectual property on First Amendment grounds. But

we cannot do so here. States have any number of laws that could be

characterized as intellectual property laws: trademark, untair

(Cont'd)

28a

Appendix A

eligible for CDA immunity for all of the state claims raised

by Perfect 10.

lil. DIRECT COPYRIGHT INFRINGEMENT

“Plaintiffs must satisfy two requirements to present a

prima facie case of direct infringement: (1) they must show

ownership of the allegedly infringed material and (2) they

must demonstrate that the alleged infringers violate at least

one exclusive right granted to copyright holders under

17 U.S.C. § 106.” Napster, 239 F.3d at 1013. Perfect 10

alleges that CCBill and CWIE directly infringed its

copyrights through its website, hornybees.com.

There is a genuine issue of material fact as to the

relationship between CCBill/CWIE and hornybees.com.

CCBill and CWIE state that hornybees.com is operated by

an entity called “CCBucks,” and that CCBill and CWIE have

no interest in hornybees.com. However, the hornybees.com

(Cont'd)

competition, dilution, right of publicity and trade defamation, to name

just a few. Because such laws vary widely from state to state, no

litigant will know if he ts entitled to immunity for a state claim until

a court decides the legal issuc. And, of course, defendants that are

otherwise entitled to CDA immunity will usually be subject to the

law of numerous states. An entity otherwise entitled to § 230

immunity would thus be forced to bear the costs of litigation under

a wide variety of state statutes that could arguably be classified as

“intellectual property.” As a practical matter, inclusion of rights

protected by state law within the “intellectual property” exemption

would fatally undermine the broad grant of immunity provided by

the CDA.

29a

Appendix A

website reads: “Brought to you by CCBill LLC and Cavecreek

Web Hosting.” The record indicates that Cavecreek Web

Hosting may be CWIE, and that CWIE may be the registrant

of hornybees.com. Furthermore, the vice president of

operations of both CCBill and CWIE lists CCBucks as being

related to CWIE and CCBill.

Perfect 10 has also raised a genuine issue of material

fact that hornybees.com has infringed Perfect 10’s copyrights

by posting pictures of a Perfect 10 model’s body with the

head of a celebrity. The declaration provided by Perfect 10's

founder and president asserting that the photo is that of a

Perfect 10 model is sufficient evidence to raise a genuine

issue of material fact.

Because Perfect 10 has raised a triable issue whether

CCBill and CWIE directly infringed Perfect 10 copyrights

by operating hornybees.com, and because the district court

did not address this issue in its order granting summary

judgment in favor of Perfect 10, we remand this issue for a

determination by the district court.®

Iv. COSTS AND ATTORNEY’S FEES

The Copyright Act of 1976 permits the district court to

“award a reasonable attorney’s fee to the prevailing party as

part of the costs.” 17 U.S.C. § 505. Fees are proper under

this statute when cither successful prosecution or successful

defense of the action furthers the purposes of the Copyright

6. If CCBill and CWIE operate hornybees.com, no immunity

for infringement on that site is available under cither the DMCA or

the CDA.

30a

Appendix A

Act. See Fantasy, Inc. v. Fogerty, 94 F.3d 553, 558 (9th Cir.

1996) (“[A] successful defense of a copyright infringement

action may further the policies of the Copyright Act every

bit as much as a successful prosecution of an infringement

claim by the holder of a copyright.) (quoting Fogerty v.

Fantasy, Inc., 510 U.S. 517, 527, 114S.Ct. 1023, 127 L.Ed.2d

455 (1994)). As such, prevailing defendants as well as

prevailing plaintiffs are eligible for such an award, and the

standards for evaluating whether an award is proper are the

same regardless of which party prevails. Fogerty v. Fantasy,

Inc., 510 U.S. 517, 534, 114 S.Ct. 1023, 127 L.Ed.2d 455

(1994).

Thus, the awarding of attorney’s fees is a matter for the

district court’s discretion. /d. To guide that discretion, the

Supreme Court endorsed the non-exclusive list employed by

the Third Circuit in Lieb v. Topstone Industries, Inc., 788

F.2d 151, 156 (1986) (the so-called “ Lieb factors”). Fogerty,

510 U.S. at 534 n. 19, 114 S.Ct. 1023. The list includes

“frivolousness, motivation, objective unreasonableness (both

in the factual and in the legal components of the case) and

the need in particular circumstances to advance

considerations of compensation and deterrence.” /d.

The district court made clear in its order denying fees

that it had weighed each of the Lieb factors and validly

exercised its discretion to deny defendants’ fees. Defendants

argue that the district judge inadequately considered these

factors, that Perfect 10's litigation positions were frivolous

and meritless, and that Perfect 10 is a serial filer of nuisance

substantial portion of this case to the district court, there is

3la

Appendix A

ample support for the district court’s finding that Perfect 10's

legal claims are not frivolous or objectively unreasonable.

The district court reasonably found the evidence regarding

Perfect 10’s motivation to be equivocal, and did not abuse

its discretion in weighing the interests of compensation and

deterrence and denying costs and attorney’s fees to

defendants.

CONCLUSION

We remand to the district court for a determination of

whether CCBill and CWIE reasonably implemented a policy

under § 512(i)(1)(A) based on its treatment of non-party

determination, we remand the remaining issues under § 512

for further proceedings consistent with this opinion.

We remand for further determination of whether

hornybees.com is owned by CCBill or CWIE. and if so,

whether CCBill or CWIE are directly liable under state or

federal law for its operation.

The district court’s decision regarding CDA immunity

is affirmed as to the unfair competition and false advertising

claims, and reversed as to the right of publicity claim.

We affirm the district court's decision to deny an award

of attorney's fees and costs to defendants.

32a

Appendix A

Each party shall bear its own costs on appeal.

AFFIRMED IN PART, REVERSED IN PART, AND

REMANDED

33a

APPENDIX B — ORDER GRANTING, IN PART, AND

DENYING, IN PART, DEFENDANTS’ MOTIONS FOR

SUMMARY JUDGMENT OF THE UNITED STATES

DISTRICT COURT FOR THE CENTRAL DISTRICT

OF CALIFORNIA DATED JUNE 22, 2004

UNITED STATES DISTRICT COURT FOR THE

C.D. OF CALIFORNIA

No. CV 02-7624 LBG(SHx)

PERFECT 10, INC.,

Plaintiff,

CCBILL, LLC, et al.,

Defendants.

ORDER GRANTING, IN PART, AND DENYING, IN

PART, DEFENDANTS’ MOTIONS FOR

SUMMARY JUDGMENT

BAIRD, District Judge.

I. INTRODUCTION

Defendants Internet Billing Co., LLC (“IBill”), Internet

Key, Inc. (“Internet Key”), Cavecreek Wholesale Internet

Exchange (“CWIE”), and CCBill, LLC (“CCBill”) have filed

the instant motions for partial summary judgment of Perfect

34a

Appendix B

10, Inc.’s (“Perfect 10”) copyright, RICO, and state law

claims based on safe harbors provided by the Digital

Millennium Copyright Act (“DMCA”) and immunity

provided by the Communications Decency Act (“CDA”). By

this Order, the Court addresses the four motions for partial

summary judgment. '

Il. FACTUAL AND PROCEDURAL HISTORY

A. Factual History

The facts are undisputed unless otherwise noted.

1. Perfect 10

Perfect 10 is the publisher of the adult entertainment

magazine Perfect 10 and the owner of the website

perfectlOcom See Il Zadeh Decl. at 4 2. Perfect 10 has

created approximately 5,000 photographic images for display

in its magazine and on its website. See id. at] 17. Perfect 10

holds registered U.S. copyrights for these images. See id.;

see also Comp!. Exh. O (containing copies of the copyright

registrations owned when the complaint was filed). In

addition, Perfect 10 has several registered trademark/service

marks. See Il Zadeh Decl. at { 18; see also Compl. Exh. P

1. The Court has devised the following citation nomenclature

to distinguish the pleadings filed in support of the different motions:

(1) all pleadings filed in support of Internet Key’s motion against

Perfect 10 shall be preceded by an “I”; (2) all pleadings filed in

support of IBill’s motion against Perfect 10 shall be preceded by an

“II”; (3) all pleadings filed in support of CCBill’s and CWIE’s

motions against Perfect 10 shall be preceded by an “UL”

35a

Appendix B

(containing copies of trademark registrations owned when

the complaint was filed). Finally, Perfect 10 is the assignee

of the rights of publicity of many models. See Il Zadeh Decl.

at J 19-21.

2. IBill

IBill is a company that processes payments for online

merchants. II Zadeh Decl. at 4 22. IBill has nearly 5,000

clients with over 70,000 websites. II Smith Decl. at ¥ 4. All

material selected and posted by IBill’s clients’ websites is

selected and posted by !Bill’s clients. /d., | 7. [Bill can

suspend or terminate its relationship with websites if it

becomes aware that the website is violating IBill’s policies

or state or federal law. /d., J 8. When IBill suspends or

terminates a client, the contents of the clients’ website

remains intact and unchanged. /d., {9 In addition, suspension

or termination does not affect the ability of the website’s

exisiilig customers (those who have already paid) to obtain

access to the website. /d. Suspension or termination does,

however, prevent the owner of the website from receiving

new payments using [Bill's payment processing services. /d.

3. Internet Key

Hank Freeman is the President of Internet Key. | Freeman

Decl., | 1; [Cooper Decl., Exh. | (Freeman Depo.), at 15:10-

20.° Internet Key is an age verification system for adult

2. The deposition contains two different sets of page numbers.

The Court will refer to the original deposition pages found on the

bottom right-hand side of the pages, not the exhibit page numbers

found at the bottom middle of the pages.

36a

Appendix B

content websites. I Freeman Decl., { 2. Starting in 1997,

Internet Key has provided adult verification services,

including providing links, to third-party adult content

websites. /d. Currently, Internet Key verifies age and provides

a link to approximately 30,000 third-party adult content

websites that participate in the SexKey system (“Affiliated

Websites”). Id. The Affiliated Websites are not owned by

Internet Key although some are owned by employees of WCD

Enterprises, another company that Freeman owns. /d., 4 4; |

Cooper Decl., Exh. | (Freeman Depo.), at 119:1-5. A user

(consumer) cannot access an Affiliated Website without

proving he or she is of legal age. I Freeman Dec!., { 5. Internet

Key provides each Affiliated Website with a site ID and an

HTML code to place on their site. /d. When a new user clicks

onto an Affiliated Website, a link that tracks the site ID

automatically directs the user to sexkey.com for age

verification. /d. The user is directed to Internet Key’s

registration page, which contains Internet Key’s User

Agreement. /d., 4 6. The User Agreement sets forth terms

and conditions that a user must certify and agree in order to

subscribe to a SexKey membership. /d. Once the user agrees

to all the terms of the User Agreement by checking on a box

that the user agrees, the user is provided a user password to

access all of the Affiliated Websites in the SexKey system.

id., 4 8. Internet Key does not store the content of the

Affiliated Websites on its computer system. /d., ¥ 13. It only

stores information related to the Affiliated Websites’ URLs,

site descriptions and webmaster information. /d.

Prior to January 22, 2004, the only website Internet Key

owned was sexkey.com. /d., ¢ 12. On January 22, 2004,

37a

Appendix B

Internet Key started a new website called sksignature.com,

which is part of the SexKey system. /d. Internet Key owns

or leases all the content contained on sksignature.com. /d.°

Internet Key also acts as a search engine (similar to Yahoo

or Google) for free adult content on the Internet. | Freeman

Decl., 4 4. Sometimes, when an Affiliated Website is accessed

through SexKey, the words “sexkey.com” appear in the URL.

1 Zadeh Decl., | 65, Exh. 51. Internet Key did not adopt a

DMCA policy until August 21, 2002. | Cooper Decl., ¥ 4,

Exh. 2 at 27.

4. CWIE

Thomas Fisher is the Executive Vice-President of CWIE.

II] CWIE Fisher Decl., ¢ 1.4 CWIE is a provider of web

hosting and related Internet connectivity services. /d., | 3.

CWIE provides what is referenced within the industry as

“ning, power, and pipe "/d. As a provider of Internet access.

website hosting, and other Internet-related services, CWIE

offers its clients, and their customers and users, the means

to acquire and disseminate public, private, commercial, and

non-commercial information. /d. “Ping, power, and pipe”

refers respectively to ensuring the “box” or server is on,

3. Perfect 10 has not alleged any infringements on

www.sksignature.com. /d.

4. Perfect 10 contends that CWIE and CCBill are both owned

by CWIE Holdings, LLC. Il Zadeh Decl., { 233, Exh. 202. Perfect

10 has submitted a chart that it received from CCBill or CWIE that

does not identify, in any manner, common corporate ownership.

Therefore, this contention 1s not supported by the evidence presented.

38a

Appendix B

ensuring power is provided to the server, and connecting the

client’s server or website to the Internet backbone via a data

center connection. /d.

CWIE’s clients are the creators and/or owners of the

content they seek to present to consumers via their website.

Id., 4 4. CWIE is not in the business of producing, designing,

supervising or editing the content that appears on CWIE’s

clients’ websites. Jd. CWIE adopted its repeat infringer policy

in 1999. Id., J 11. CWIE’s termination policy states that:

Engaging in any activity that infringes or

misappropriates the intellectual property rights of

others is prohibited. This includes copyrights,

trademarks, service marks, trade secrets, software

piracy, and patents held by individuals,

corporations, or other entities. Engaging in

activity that violates privacy, publicity, and other

personal rights of others is likewise prohibited.

CWIE is required by law to remove or block

access to client content upon receipt of a proper

notice of copyright infringement or other

violations of the law. It is also CWIE’s policy to

terminate the privileges of clients who commit

repeat violations of copyright laws.

[1f CWIE Fisher Decl., 4 9, Exh. A, at 1-2.

39a

Appendix B

5. CCBill

Thomas Fisher is the Executive Vice-President of

CCBill. II] CCBill Fisher Decl., J 1. CCBill’s clients are the

creators and/or owners of the content they seek to present to

consumers via the Internet. /d., { 3. CCBill is not in the

business of producing, designing, supervising or editing the

content that appears on CCBill’s clients’ websites. Jd. CCBill

provides a fully automated Internet service that enables

consumers to use credit cards or checks to pay for

subscriptions or memberships to e-commerce venues created

and offered by CCBill’s clients. Jd. CCBill does not own or

operate any site for which a subscription or membership is

required. /d. As part of its services to its clients, CCBill

provides an automated on-line accounting mechanism that

clients may use to verify statistical and financial activities

processed for them through CCBill’s on-line Internet

automated transaction processing system. /d. Consumers who

have juined a4 client’s venue may cancel their subscription

via an email or telephone call directed to CCBIII. /d.

CCBill has a repeat infringer policy, adopted in 1999,

which states:

As an ISP, CCBill follows the procedures

prescribed by the Digital Millenium Copyright Act

(DMCA) for notification, takedown, and counter-

notification. If you believe that a CCBill client

has something on a website that constitutes a

[violation] of your copyrights, or if any of your

other intellectual property rights [have been]

violated, please provide the following information

to CCBill’s Registered [DMCA Agent].

40a

Appendix B

1. Your electronic or physical signature.

2. A description of the copyrighted work and

where the original work [is located].

3. A description of where the infringement is

located.

4. Your address, telephone number, and email

address.

5. A statement by you that you have a good faith

belief that the use is not authorized by the

6. A statement by you, that under penalty of

perjury, that the [above] is accurate and that you

are the copyright owner or authorized [to act] on

the owner's behalf.

Please send all legal notices to...

Id., 4 9, Exh. D.

B. Procedural History

Plaintiff Perfect 10 filed its Complaint against

Defendants CCBill, IBill, Paycom Billing Services, Inc., IMA

Enterprises, Inc., Clarence Coogan, U. Berger, Cybertech

Communications, NV, Celebskank, Network Authentication

Systems Corporation, CWIE, Netpass Systems, Inc., and

4la

Appendix B

Internet Key on September 30, 2002. The Complaint alleges

the following claims against all of the Defendants

Claim |: federal copyright infringement;

Claim 2: federal trademark infringement;

Claim 3: federal trademark disparagement;

Claim 4: wrongful use of registered mark under

California state law;

Claim 5: violation of right of publicity under

California state law;

Claim 6: unfair competition under California

Business & Professions Code §§ 17200 and under

the Lanham Act § 43(a);

Claim 7: false and misleading advertising

pursuant to California Business & Professions

Code §§ 17500 and the common law;

Claim 8: RICO (investment of proceeds); and

Claim 9: RICO (participation in criminal

enterprise).

S.e Compl.

On October 16, 2003, the Court ordered the bifurcation

of discovery in this case. See October 16, 2003 Minute Order.

42a

Appendix B

The first phase of discovery was to relate solely to the

Defendants’ defenses to the claims under the CDA and the

DMCA. /d. Phase I discovery was closed on January 16,

2003. See November 17, 2003 Minute Order, at 2.

The parties have filed evidentiary objections in

connection with the motions for summary judgment. The

Court will only address the objections to the evidence that is

relevant to the Court’s analysis.

lil. LEGAL STANDARD

Rule 56 of the Federal Rules of Civil Procedure provides

that a court shal! grant a motion for summary judgment if

“the pleadings, depositions, answers to interrogatories, and

admissions on file, together with the affidavits, if any, show

that there is no genuine issue as to any material fact and that

the moving party is entitled to judgment as a matter of law.”

Fed.R.Civ.P. 56(c). Material facts are those that may affect

the outcome of the case. Anderson vy. Liberty Lobby, Inc.,

477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

A dispute as to a material fact is genuine if there ts sufficient

evidence for a reasonable jury to return a verdict for the

nonmoving party. /d.

The party moving for summary judgment bears the initial

burden of informing the district court of the basis of the

summary judgment motion and of demonstrating the absence

of a genuine issue of material fact for trial. Celotex Corp. v.

Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265

(1986): Katz v. Children’s Hosp. of Orange County, 28 F.3d

1520, 1534 (9th Cir. 1994). On an issue for which the

43a

Appendix B

nonmoving party has the burden of proof at trial, the moving

party need only point out “that there is an absence of evidence

to support the nonmoving party’s case.” Celotex, 477 US.

at 325, 106 S.Ct. 2548.

Once this initial burden is satisfied, the non-moving party

is required to “go beyond the pleadings and by her own

affidavits, or by the depositions, answers to interrogatories,

and admissions on file, designate ‘specific facts’ showing

that there is a genuine issue for trial.” Celotex, 477 U.S. at

324, 106 S.Ct. 2548 (internal quotations omitted); see also

Nilsson, Robbins, Dalgarn, Berliner, Carson & Wurst v.

Louisiana Hydrolec, 854 F.2d 1538, 1544 (9th Cir. 1988).

Where the standard of proof at trial is preponderance of the

evidence, the non-moving party’s evidence must be such that

a “fair-minded jury could return a verdict for the [non-moving

party} on the evidence presented.” Anderson, 477 U.S. at

252, 106 S.Ct. 2505.

The court views all facts and draws all inferences

therefrom in the light most favorable to the nonmoving party.

United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct.

993, 8 L.Ed.2d 176(1962). The Court must accept the

plaintiff's view of all material disputed facts. Lalonde v.

County of Riverside, 204 F.3d 947, 954 (2000). If, however,

the nonmoving party's evidence is “merely colorable” or “not

significantly probative,” summary judgment may be granted.

Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505.

44a

Appendix B

IV. ANALYSIS

A. Digital Millennium Copyright Act

“The DMCA was enacted both to preserve copyright

enforcement on the Internet and to provide immunity to

service providers from copyright infringement liability” for

“passive,” “automatic” actions in which a service provider’s

system engages through a technological process initiated by

another without the knowledge of the service provider. H.R.

Conf. Rep. No. 105-796, at 72 (1998), reprinted in 1998

U.S.C.C.A.N. 649; H.R.Rep. No. 105-551(1), at 11 (1998).”

ALS Scan. Inc. v. RemarQ Cmtys., Inc., 239 F.3d 619, 625

(4th Cir. 2001). This immunity, however, is not presumptive,

but granted only to “innocent” service providers who can

prove they do not have actual or constructive knowledge of

the infringement, as defined under any of the three prongs of

17 U.S.C. § 512(c)(1). Jd. The DMCA’s protection of an

innocent service provider disappears at the moment the

service provider loses its innocence, i.e., at the moment it

becomes aware that a third party is using its system to

infringe. /d. At that point, the Act shifts responsibility to the

service provider t disab’e the infringing matter, preserving

the strong incentives for service providers and copyright

Owners to cooperate © detect and deal with copyright

infringements that take place in the digital network

environment. /d. (citations omitted). In the spirit of achieving

a balance between the responsibilities of the service provider

and the copyright owner, the DMCA requires that a copyright

owner put the service provider on notice in a detailed manner

but allows notice by means that comport with the prescribed

format only “substantially,” rather than perfectly. /d.

45a

Appendix B

The Digital Millenium Copyright Act (“DMCA”) creates a

“safe harbor” for internet service providers who satisfy the

requirements of the statute-protecting them against suits for

damages and most injunctive relief. See generally, 17 U.S.C.

§ 512. There are four separate safe harbors within § 512,

each with its own separate requirements. See 17 U.S.C.

§ 512(a), (b),(c)(1),(d). However, a threshold requirement

for any protection by the DMCA is satisfaction of the

requirements in § 512(i). The section reads as follows:

The limitations on liability established by this

section shall apply to a service provider only if

the service provider(A) has adopted and

reasonably implemented, and informs subscribers

and account holders of the service provider’s

system or network of, a policy that provides for

the termination in appropriate circumstances of

subscribers and account holders of the service

provider’s system or network who are repeat

infringers; and (B) accommodates and does not

interfere with standard technical measures.

17 U.S.C. § 512(i)(1)2° Unless this threshold requirement is

met, further analysis of the specific safe harbors is not

required.

The Ninth Circuit has held that § 512(1)(1)(A) has three

separate requirements. See Ellison vy. Robertson, 357 F.3d

1072, 1080 (9th Cir. 2004). Service providers must: (1) adopt

a policy that provides for the termination of service access

5. There is no dispute between the parties that the Defendants

fulfill the requirements of subsection (B).

46a

Appendix B

for repeat copyright infringers in appropriate circumstances;

(2) implement that policy in a reasonable manner; and (3)

inform their clients of the policy. /d.

The courts have not defined what reasonable

implementation of a repeat infringer policy entails. Since the

purpose of the DMCA is to relieve internet service providers

of the duty of patrolling the Internet for copyright

infringements that are not immediately apparent or of which

they have no actual knowledge, the DMCA requires that

infringements on the client websites of the internet service

providers. See § 512(c)(1)(A) and § 512(c)(3). General or

vague allegations of copyright infringements are not

sufficient to place internet service providers on “notice” of

potential copyright infringements. The DMCA provides

requirements for proper noti:ication of possible copyright

infringements in § 512(c)(3)(A). See § 512(c)(3)(A).° The

6. § 512(c)(3) states:

(3) Elements of notification.

(A) To be effective under this subsection, a notification

of claimed infringement must be a _ written

communication provided to the designated agent of a

service provider that includes substantially the

following:

(i) A physical or electronic signature of a person

authorized to act on behalf of the owner of an exclusive

right that is allegedly intringed.

(11) Identification of the copyrighted work claimed to

have been infringed, or, if multiple copyrighted works

(Cont'd)

47a

Appendix B

purpose behind the notice requirement under the DMCA is

to provide the internet service provider with adequate

information to find and examine the allegedly infringing

material expeditiously. Hendrickson v. Amazon.Com. Inc.,

298 F.Supp.2d 914, 917 (C.D.Cal.2003). “Under the DMCA,

a notification from a copyright owner that fails to comply

substantially with § 512(c)(3) ‘shall not be considered ...

in determining whether a service provider has actual

knowledge or is aware of the facts or circumstances from

(Cont'd)

at a single online site are covered by a single notification,

a representative list of such works at that site.

(iii) Identification of the material that is claimed to be

infringing or to be the subject of infringing activity and

that is to be removed or access to which is to be disabled,

and information reasonably sufficient to permit the

service provider to locate the material.

(iv) Information reasonably sufficient to permit the

service provider to contact the complaining party, such

as an address, telephone number, and, if available, an

electronic mail address at which the complaining party

may be contacted.

(v) A statement that the complaining party has a good

faith belicf that use of the material in the manner

complained of is not authorized by the copyright owner,

its agent, or the law.

(vi) A statement that the information tn the notification

is accurate, and under penalty of perjury, that the

complaining party is authorized to act on behalf of the

owner of an exclusive right that is allegedly intringed.

48a

Appendix B

which infringing activity is apparent.” ” Hendrickson v.

Amazon.Com. Inc., 298 F.Supp.2d 914, 917-18

(C.D.Cal.2003). In order for a notification to be “DMCA-

compliant,” it should substantially fulfill the requirements

of § 512(c)(3)(A). ALS Scan, Inc. v. RemarQ Communities,

Inc., 239 F.3d 619, 625 (4th Cir. 2001).’ Absolute compliance

is not required. /d.

Therefore, an internet service provider who receives

repeat notifications that substantially comply with the

requirements of § 512(c)(3)(A) about one of its clients, but

does not terminate its relationship with the client, has not

reasonably implemented a repeat infringer policy.

1. iBill’s Motion for Summary Judgment on

Perfect 10's Copyright Claim

IBill argues that Perfect 10°s Claim 1 for copyright

infringement is barred by § 512(a) of the DMCA. Perfect 10

opposes summary judgment because, among other reasons,

it contends that [Bill has not met the requirements for

terminating repeat infringers as required by § 512(i).

7. During oral argument, Perfect 10 argued that notifications

of repeat infringers under § 512(i) did not have to meet the

requirements of § 512(c)3)(A) based on Jn re Aimster Copyright

Litigation, 252 F.Supp.2d 634, 659 (N.D.1N.2002). In Aimster, the

district court found that the DMCA did not require that a copyright

holder provide Aimster with the internet protocol address of the

infringement on the Aimster system. /d. An internet protocol address

is the numeric address given to servers and users connected to the

Internet. The district court did not, however, hold that DMCA

notifications under § 512(i) do not need to meet the requirements of

§ SI2(cM 3A). Therefore, Perfect 10°s reliance Aimster to support

its argument is misplaced

49a

Appendix B

a. Threshold Requirements Under § 512(i)

The crux of the dispute between Perfect 10 and IBill is

whether the policy adopted by [Bill provided for termination

of repeat infringers in appropriate circumstances and whether

that policy was reasonably implemented.®

i. Policy for Termination of Repeat Infringers

IBill argues that its policy terminated repeat infringers

in appropriate circumstances. IBill states that its policy is

that when it receives a notice of copyright infringement that

substantially complies with the requirements of the DMCA,

IBill suspends payment processing services to that client.

See Il De Vito Decl. at J 26. If IBill determines that it has

received previous complaints about that client or the website,

IBill terminates the account permanently. See id. Perfect 10

argues that IBill’s policy does not terminate repeat infringers

in appropriate circumstances because it suspends services

for particular websites without terminating the webmasters

responsible for that material. Therefore, Perfect 10 argues

that IBill’s policy does not provide for the termination of

service access for repeat copyright infringers. Perfect 10 also

argues that IBill has not reasonably implemented its policy

because repeat infringers known to [Bill were not terminated.

The focus of § 512(i) is on infringing users rather than

on content. See Perfect 10 v. Cybernet Ventures, Inc., 213

%. There is no dispute between the parties that [Bill ts an internet

service provider under the DMCA. There is also no dispute between

the parties that IBill adopted its termination policy before the alleged

infringements occurred.

$0a

Appendix B

F.Supp 2d 1146, 1177 (C.D.Cal.2002); see also Costar

Group, Inc. v. LoopNet, Inc., 164 F.Supp.2d 688, 704

(D.Md.2001), Therefore, an internet service provider that

seeks to fall within the safe harbors provided by the DMCA,

must adopt a policy that terminates the infringing user, not

just the content. [Bill has submitted several versions of its

infringement policy, the most recent of which states:

IBill may, its discretion (sic), disable and/or

terminate the accounts of any IBill client who is

accused of infringing the rights of others. If you

believe that your work has been copied in a way

that constitutes copyright infringement, or your

intellectual property rights have been otherwise

violated, please provide IBill’s Copyright Agent

the following information:

1. an electronic or physical signature of the

person authorized to act on behalf of the owner

of the copyright;

2. a description of the copyrighted work, and a

description of where the work is located;

3. your address, telephone number, and email

address;

4. a statement by you that you have a good faith

belief that the use of the work is not authorized

by the copyright owner, agent, or the law:

Sla

Appendix B

5. a statement by you, that under penalty of

perjury, that the above information is accurate and

that you are the copyright owner or authorized to

act on the owners’s behalf.

Please send such notice to...

Il Devito Decl., Exh. B, at 40 (Copyright Policy, 12/9/03).

The Court notes that this policy states that it will terminate

or disable the accounts of IBill clients who are accused of

infringing third-party copyrights. Therefore, there is no

genuine issue of material fact that [Bill has adopted a policy

that terminates repeat infringers in appropriate circumstances.

ii. Reasonable Policy Implementation

Perfect 10 contends that IBill has not reasonably

implemented its policy. [Bill replies that its DMCA immunity

cannot be defeated by individual instances of non-

enforcement because Congress requires reasonable

implementation of the policy rather than perfect

implementation. IBill also argues that it had no legal

obligation under § 512(i) unless the notices of infringement

were substantially DMCA compliant. IBill is correct that

Congress requires reasonable implementation of a repeat

infringer policy rather than perfect implementation.

See 17 U.S.C. § 512(1)(1)(A). During oral argument, Perfect

10 argued that there is a genuine issue of material fact that

IBill does not reasonably implement its repeat infringer policy

because IBill has failed to produce its DMCA-notice log.

However, the DMCA does not require the internet service

provider to keep a log of its notifications. IBill has submitted

52a

Appendix B

the actual DMCA-notifications it has received which are

sufficient to demonstrate that [Bill tracks its notifications. II

DeVito Decl., Exhs. P-T.

Perfect 10 has submitted notifications that Perfect 10 or

its counsel sent to IBill of infringements of Perfect 10's

copyrights. II Zadeh Decl., J 29, Exhs. 19-33. Exhibit 19 is

an email dated August 24, 2001, sent from Perfect 10’s

counsel to IBill, which identifies 12 websites that are IBill

clients which Perfect 10 states have infringements of Perfect

10’s and third-party copyrights. II] Zadeh Decl., Exh. 19 at

204. The email only identifies the websites that contain the

allegedly infringing material, it does not identify the URLs

of the images nor does it identify which of Perfect 10’s images

are being infringed. Under § 512(c)(3)(A)(il) and (iii),

DMCA-compliant notification must identify the copyrighted

work claimed to have been infringed and the material that is

claimed to be infringing with “information reasonably

sufficient to permit the service provider to locate the

material.” This notification does not fulfill either of those

requirements because it docs not identify Perfect 10’s images

or give IBill sufficient information to locate the infringing

inaierial. These websites may contain more than one hundred

images at different URLs; it is Perfect 10°s responsibility,

under the DMCA, to provide [Bill with enough information

to allow IBill to locate the infringing material. The Court

finds that the August 21, 2001 email does not substantially

comply with the requirements of the DMCA and therefore,

does not constitute proper notification under § 512(c)(3)(A).

The next notification is an email from Norman Zadeh,

the President of Perfect 10, dated August 28, 2001 which

53a

Appendix B

identifies a Perfect 10 copyrighted image that appeared on

celebclub.com on August 19, 2001 by its URL,

celebclub.com/parto/New/080301/Kovari-Kristina/nif. gif. II

Zadeh Decl., Exh. 21 at 209. This email identifies one image

by its URL in a manner that allows IBill to locate the

infringing image. Although it does not comply with any of

the other requirements of § 512(c)(3)(A), it does provide IBill

with sufficient information to locate the allegedly infringing

material and, as such, substantially fulfills the requirements

of § 512(c)(3)(A).

Exhibits 20 and 22-33 all suffer from the same

deficiencies as Exhibit 19. They contain emails from Norman

Zadeh to IBill that make general allegations of copyright

infringement and do not provide the exact location of the

infringing images and do not identify the Perfect 10 images

that are being infringed. If Zadeh Decl., Exh. 20, 22-33. IBill

notes this problem in one of its emails to Norman Zadeh

which states: “The point I ain trying to make is that without

an URL (www.***.com) I cannot attempt to figure out cach

URL.” II Zadeh Decl., Exh. 29 at 220.

Perfect 10 also argues that “[dJespite the fact that Perfect

10 complained to IBill about the website

femalecelebrities.com on at least 7 separate occasions”, a

Concordance electronic search of IBILL’s document

production revealed only two documents containing the term

“femalecelebrities.com.” Il Zadeh Decl., | 89. However,

9. Perfect 10 has also submitted a letter to IBII that accompanied

a 22,000 page document production to IBill as notification. The letter

is almost identical to the letters sent to Internet Key, CCBill, and

CWIHE. The letter is discussed in Sections IIL A.2.b.t1, fnfra.

54a

Appendix B

Perfect 10 has not identified the DMCA-compliant

notification that Perfect 10 sent to IBill notifying IBill of

infringements on femalecelebrities.com. Therefore, the Court

finds that this evidence is not probative of IBill’s failure to

reasonably implement its repeat infringer policy.

Therefore, Perfect 10 has only identified a single

notification, the email dated August 28, 2001, that provides

IBill with sufficient notification to locate an allegedly

infringing image on the website celebclub.com. On August

27, 2001, IBill sent Perfect 10 an email stating that

celebclub.com’s IBill account was suspended. II DeVito

Decl., Exh. T at 186. In IBill’s interrogatory responses, IBill

admitted that celebclub was a client of IBill as of September

30, 2003. I] Zadeh Decl., Exh. 16 at 169. Perfect 10 has not

presented the Court with any evidence to demonstrate that

the infringing image remained on celebclub.com after [Bill

received the August 28, 2001 notification.

The Court finds that, as to Perfect 10°s copyrights,

Perfect 10 has not raised a genuine issue of material fact that

[Bill did not reasonably implement its repeat infringer policy

or that IBill has not met the threshold requirements in

§$ 512¢i)."°

10. Pertect 10 has also submitted documents referring to alleged

violations of the rights of publicity of celebrities on [Bill's clients’

websites and violations of third-party copyrights. IBill is asserting

the safe harbor provision under § $1 2(a) as a defense to Perfect 10's

Claim | for copyright infringement. Perfect 10°s Claim | for

Evidence of infringements of third-party copymghts and violations

(Cont'd)

55a

Appendix B

b. Safe Harbor Under § 512(a)

IBill argues that it falls within the safe harbor in § 512(a)

which provides:

a) Transitory digital network communications. A

service provider shall not be liable for monetary

relief, or, except as provided in subsection (j), for

injunctive or other equitable relief, for

infringement of copyright by reason of the

provider’s transmitting, routing, or providing

connections for, material through a system or

network controlled or operated by or for the

service provider, or by reason of the intermediate

and transient storage of that material in the course

of such transmitting, routing, or providing

connections, if-

(Cont'd)

of the right of publicity are not relevant to Perfect 10°s claim for

During oral argument, Perfect 10 argued that notices of third-

party copyrights should be considered by the Court in determining

whether [Bill reasonably implements its termination policy. To

support its argument, Perfect 10 relies on Ellison v. Robertson, 357

F.3d 1072, 1080 (9th Cir. 2004), which held that AOL had not

reasonably implemented its termination policy because the email

address of AOL's copyright agent was inactive and therefore,

notifications of copyright infringement went unheeded. Ellison did

not hold that notifications of third-party infringements should be

considered in determining whether AOL had reasonably implemented

its termination policy. Therefore, Perfect 10's reliance on Ellison is

misplaced.

56a

Appendix B

(1) the transmission of the material was initiated

by or at the direction of a person other than the

service provider;

(2) the transmission, routing, provision of

connections, or storage is carried out through an

automatic technical process without selection of

the material by the service provider;

(3) the service provider does not select the

recipients of the material except as an automatic

response to the request of another person;

(4) no copy of the material made by the service

provider in the course of such intermediate or

transient storage is maintained on the system or

network in a manner ordinarily accessible to

anyone other than anticipated recipients, and no

such copy is maintained on the system or network

in a manner ordinarily accessible to such

anticipated recipients for a longer period than is

reasonably necessary for the transmission, routing,

or provision of connections; and

(5) the material is transmitted through the system

or network without modification of its content.

17 U.S.C. § 512(a).

Perfect 10 argues that IBill does not fall within the safe

harbor provided in § 512(a) because it does not transmit the

infringing material at issue in this case. Perfect 10 argues

S7a

Appendix B

that § 512(a) only provides protection for internet service

providers that transmit the allegedly infringing material, not

other material, such as credit card information. Perfect 10

relies on Jn re Aimster Copyright Litigation, 252 F.Supp.2d

634, 659-660 (N.D.II!.2002), to support its argument.

Perfect 10 relies on the section of § 512(a) that refers to

the transmission of the material; it has failed, however, to

address the section of § 512(a) which refers to the provision

of a connection to the material. The section provides that

“an internet service provider shall not be liable ... for

infringement of copyright by reason of the provider’s ...

providing connections for material through a system or

network controlled or operated by or for the service provider,

or...” § 512(a). IBill provides a connection to the material

on its clients’ websites through a system which it operates in

order to provide its clients with billing services.

Perfect 10’s reliance on /n re Aimster Litigation is

misplaced because that case dealt with the transmission of

material, not the provision of a connection to the material.

See In re Aimster Litigation, 252 F.Supp.2d at 659-660. The

Court finds that there is no genuine issue of material fact

that IBill has met the requirements of § 512(i) and § 512(a).

Therefore, the Court grants IBill’s motion for summary

judgment and finds that IBill is entitled to protection under

the safe harbor provided in § 512(a).

58a

Appendix B

2. Internet Key’s Motion for Summary Judgment on

Perfect 10’s Copyright Claim

Internet Key contends that it is entitled to summary

judgment on Perfect 10’s Claim | for copyright infringement

because the claim falls within the safe harbor provided by

the DMCA under § 512(d). Perfect 10 counters that Internet

Key does not fall within the safe harbors provided by the

DMCA because Internet Key has not adopted and

implemented a reasonable repeat infringer policy.

As a preliminary matter, the Court notes that Perfect 10

has submitted evidence of infringements on Internet Key’s

Affiliate Websites that were displayed on the Internet prior

to August 21, 2002 when Internet Key implemented its

DMCA policy. See, e.g., | Zadeh Decl., J 43, Exh. 33. Internet

Key has not submitted a DMCA policy that was provided to

its clients prior to August 2002 as required under § 512(i).

Therefore, Internet Key has not met the threshold

requirements of § 512(1) for the period before August 2002

and Perfect 10 may maintain its claim for copyright

infringement that occurred prior to August 21, 2002.

a. Direct Infringement

Perfect 10 argues that Internet Key is not entitled to

protection under the DMCA because it is a direct copyright

infringer and therefore, not merely an internet service

provider. Perfect 10°s basis for this argument ts that since

some of the employees of WCD Enterprises, which is also

owned by Freeman, own some of the Affiliate Websites,

Internet Key is liable for the infringements on those websites.

59a

Appendix B

Perfect 10 relies on H.A.S. Loan Serv., Inc. v. McColgan,

21 Cal.2d 518, 523, 133 P.2d 391 (1943), to support its

argument that a corporate entity cannot avoid liability when

it splits its business functions with another related

corporation and that Internet Key should be considered the

alter ego of WCD Enterprises. An alter ego theory of liability

would require Perfect 10 to demonstrate, as its prima facie

case (1) that there is such unity of interest and ownership

that the separate personalities of [two entities] no longer exist

and (2) that failure to disregard [their separate identities]

would result in fraud or injustice.” American Tel. & Telegraph

Co. v. Compagnie Bruxelles Lambert, 94 F.3d 586, 591 (9th

Cir. 1996). The fact that some of the Affiliate Websites are

owned by the employees of a separate company which is

owned by the President of Internet Key does not raise a

genuine issue of material fact that there is such unity of

interest and ownership that the separate personalities of

Internet Key and WCD Enterprises no longer exist.

Furthermore, Perfect 10 has not presented evidence that WCD

Enterprises owns the Affiliate Websites, but that certain

employees of WCD Enterprises own the Affiliate Websites.

Even if Perfect 10 had raised a genuine issue of material fact

that WCD Enterprises was the alter ego of Internet Key,

Perfect 10 has not provided evidence that there is a unity of

interest between WCD Enterprises’ employees and the

company WCD Enterprises. Therefore, the Court finds this

argument without merit.

Perfect 10 also notes that sometimes, when an Affiliated

Website is accessed through Sex Key, the words “sexkey.com”

appear in the URL. I Zadeh Decl., 4 65, Exh. 51. However,

Perfect 10 has not provided the Court with any precedent

60a

Appendix B

that this fact alone imparts direct infringer liability onto

Internet Key without demonstrating that Internet Key or its

employees actually engaged in the infringing conduct.

Infringement occurs when a defendant violates one of the

exclusive rights of the copyright holder. 17 U.S.C. § 501(a).

A plaintiff can establish direct infringement by demonstrating

that a defendant used the copies in any of the ways described

under 17 U.S.C. § 106, which include: (1) reproduction of

the copyrighted work, (2) preparation of derivative works

based upon the copyrighted work, (3) distribution of copies

of the copyrighted work to the public by sale or other transfer

of ownership, or (4) display of the copyrighted work publicly.

17 U.S.C. § 106. In order to prevail, defendants must

“actively engage in” and “directly cause” one of the activities

recognized in the Copyright Act. See Perfect 10 v. Cybernet,

213 F.Supp.2d 1146, 1168 (C.D.Cal.2002) ( citing Religious

Tech. Ctr. v. Netcom On-Line Communication Servs., Inc.,

907 F.Supp. 1361 (N.D.Cal. 1995); Sega Enters., Ltd. v.

MAPHIA, 948 F.Supp. 923, 931 (N.D.Cal. 1996); Playboy

Enters., Inc. v. Russ Hardenburgh, Inc., 982 F.Supp. 503

(N.D.Ohio)). Without evidence that Internet Key actively

engaged in or directly caused the alleged infringements, this

argument is equally unavailing.''

11. Perfect 10 also argues that Internet Key's website,

sexkey.com, contains “infringements of celebrities.” | Zadeh Decl.,

q 13, Exh. 4. However, the printouts of sexkey.com do not contain a

singie image of a celebrity but mercly list their names. /d. The Court

fails to see how a list of names can constitute a copyright violation

pursuant to 17 U.S.C. § 501(a). Therefore, the Court finds this

argument without merit.

6la

Appendix B

b. Threshold Requirements Under § 512(i)

Perfect 10 contends that Internet Key does not satisfy

the threshold requirements under § 512(i). To reiterate,

§ 512(i) requires service providers to: (1) adopt a policy that

provides for the termination of service access for repeat

(2) implement that policy in a reasonable manner; and (3)

inform their clients of the policy. See Ellison v. Robertson,

357 F.3d 1072, 1080 (9th Cir. 2004). Perfect 10 does not

dispute that Internet Key informs the webmasters of its

Affiliate Websites (“Affiliate Webmasters”) of its policy.

Therefore, the two remaining issues before the Court are

whether Internet Key has adopted a policy that provides for

the termination of repeat infringers in appropriate

circumstances and whether Internet Key implements that

policy in a reasonable manner.

i. Policy for Termination of Repeat Infringers

Internet Key has submitted its copyright infringement

policv. Dykeman Decl., 4 14, Exh. A. Perfect !0 argues that

the policy fails on its face because “it is entirely possible for

a website owned by a given webmaster to receive copyright

infringement complaints week after week and nonetheless

to remain part of SexKey, provided that Internet Key does

not receive complaints about ... three different websites

owned by the same webmaster.” I] Opp. at 10:17-21. Perfect

62a

Appendix B

10 bases its argument on the section of Internet Key’s policy

which refers to webmasters, which states:

Banned Webmaster

If a webmaster, identified by either the

webmaster’s name, vendor ID or common* 1094

ownership entity, has had three (3) websites which

have been denied participation in the SexKey

program in accordance with this policy, that

webmaster will be denied participation in its

program of any webmaster or website in its

discretion.

Il Dykeman Decl., Exh. A at 11. However, the policy also

states that for websites, if Internet Key receives DMCA-

compliant notification, Internet Key will:

* Act expeditiously to remove links to, or disable

access, to the allegedly infringing material

¢ Take reasonable steps to promptly notify the

accused subscriber that the Company has removed

or disabled access to the allegedly infringing

material.

¢ Forward a copy of the written notification to

the accused subscriber, and inform the accused

subscriber of counter notification procedures.

63a

Appendix B

Repeat Offenders

The participation of any website deemed to be a

repeat offender will be terminated.

Banned Websites

Pending receipt of a Counter Notification, ©

participation of the website subject to a

Notification will be suspended. A website will be

permanently prohibited from participating in the

SexKey program upon receipt by the Company

of a second Notification.

Id. The policy provides that Internet Key will disable access

to an Affiliate Website after it receives a single notification

of an infringement. it also provides that it will permanently

ban a webmaster from Internet Key after it has received three

notifications regarding websites of any particular webmaster.

Therefore, Perfect 10’s characterization of Internet Key’s

policy is incorrect.

Perfect 10 also argues that Internet Key has not adopted

a reasonable termination policy because there is a discrepancy

in the evidence regarding the identity of Internet Key’s

located on its website, sexkey.com, states that Lawrence

Walters is Internet Key's copyright agent. | Dykeman Decl.,

Exh. A at 8-9. During his deposition, Freeman stated that

Internet Key's copyright agent is the company CSC in

Delaware. | Cooper Decl., Exh. | at 121. Perfect 10 argues

that Internet Key changed its copyright agent and did not

64a

Appendix B

inform its subscribers of the change. However, Perfect 10

has not submitted any evidence that the copyright agent has

changed or that notifications sent to Walters were not

responded to by Internet Key. Internet Key may have more

than one copyright agent or the company CSC may have hired

Walters to be the individual copyright agent. Furthermore,

every notification submitted as evidence in this case was

addressed to Freeman, not Walters or CSC. Therefore,

Internet Key likely has more than one individual who

responds to notifications of copyright infringement.

The Court finds, therefore, that Perfect 10 has failed to

raise a genuine issue of material fact that Internet Key has

not adopted a policy that terminates repeat infringers in

appropriate circumstances."*

ii. Reasonable Policy Implementation

Perfect 10 contends that Internet Key received

substantially-compliant DMCA notifications and that Internet

Key did not disable access to the infringing websites.'* The

12. Perfect 10 may argue that the fact that it takes three

notifications to terminate a webmaster is not sufficient under § 512(i).

However, § 512(i) specifically states that the internet service provider

must adopt a policy that terminates “repeat infringers.” In order for

an infringer to be a “repeat” infringer, he or she must infringe at

least twice. Therefore, the Court finds that Internet Key's policy of

terminating a webmaster after 3 notifications is reasonable.

13. The Court notes that Internet Key is asserting the safe harbor

provided under § 512d) which adopts the notification and take down

procedures identified in § 512(c) 3A). H.R. Rep. 105-55 1(1D),

WL at *57.

65a

Appendix B

parties dispute whether Perfect 10 provided Internet Key with

DMCA-compliant notification of infringements. Since

Internet Key’s DMCA policy was not adopted unti] August

21, 2002, the Court will only look at notifications that were

received by Internet Key after August 21, 2002.

Perfect 10 states that in its October 17, 2002 document

production to Internet Key, Perfect 10 provided Internet Key

with thousands of pages of printouts from SexKey affiliated

websites which infringed either Perfect 10’s or celebrities’

rights. | Zadeh Decl., J 24, Exh. 14 (representative examples

of the print-outs). Some of the print-outs contain the names

of Perfect 10 models in the URLs. Jd. On March 13, 2002,

Internet Key received a list of names of Perfect 10 models.

I Freeman Decl., 35, Exh. D, at 29-34. Internet Key states

that the October 17, 2002 document production contained

22, 185 pages of documents. I Reply, at 7:3-11; see also

I Zadeh Decl., | 25, Exh. 15. Accompanying the production

was a letter from Sean Morris of Arnold & Porter which

states:

With this letter | am sending you several boxes of

documents that contain examples of the

voluminous infringements on websites affiliated

with Internet Key, Inc. (“SexKey”) and other

defendants in this case. These documents should

assist you in assessing the scope of the

infringements at issue in the above-referenced

lawsuit and the potential damages SexKey.

¢ The documents that accompany this letter

represent examples of the infringements at issue

66a

Appendix B

in this case; these documents are not the only

instances of wrongful conduct by the defendants.

* The documents that accompany this letter

contain examples of both (i) infringements of

Perfect 10 material; and (ii) infringements of

third-party copyrights and rights of publicity.

These documents were collected from so-called

“celebrity” sites, which are easily locatable and

are comprised of images that clearly infringe the

copyrights and publicity rights of Perfect 10 and

others.

¢ The infringements of Perfect 10 material are

readily identifiable, especially in connection with

the information contained in the complaint, and

all come from celebrity sites.

¢ To further aid you in your assessment of the

potential damages your company faces in this

case, we have often included a full-sized printout

of the image that constitutes infringement of

Perfect 10’s material. . .

| Zadeh Decl., Exh. 15. Perfect 10 has also submitted

evidence that despite its notification of these infringements,

the websites that contained the images were still active in

October 2003. I Zadeh Decl., ¥ 46, Exh. 35.'* For example,

14. Internet Key objects to portions of Exhibit 35 of Zadeh’s

declaration because some of the pages were not produced until after

January 16, 2004, the deadline for the completion of Phase I discovery

in this matter. See Il Kearney Decl., 79 11-12. This objection is

overruled.

67a

Appendix B

in October 2002, Perfect 10 produced an image of Perfect

10 model Genevieve Maylam printed from the website

cpics.adultmasters.net. I Zadeh Decl., | 14, Exh. 14, at 40.

In October 2003, the same image was still available on the

same website. I Zadeh Decl., | 46, Exh. 35, at 1041.

The issue before the Court, therefore, is whether the

notice provided by Perfect 10 is substantially DMCA-

compliant. If the notice is substantially DMCA-compliant,

then Perfect 10 has raised a genuine issue of material fact

that Internet Key has not reasonably implemented its

termination policy.

First, Internet Key objects to this evidence because it

argues that post-litigation notices cannot be considered for

purposes of the DMCA. To support its argument, Internet

Key relies on Hendrickson v. Ebay, Inc., 165 F.Supp.2d 1082,

1092 n. 12(C.D.Cal.2001). However, in that case, the Court

found that a discovery response by the plaintiff in that case

was not DMCA-compliant because it was not under oath,

did not attest to a good faith belief of the alleged

infringements, and did not attest to the accuracy of the

allegations. /d. The Court did not state that the discovery

response was insufficient because it was provided after the

complaint was filed. /d. Therefore, Internet Key’s reading of

the case is incorrect.

Under § $12(c)(3)(A)(it), DMCA-compliant notification

requires that the accusing party identify the copyrighted work

claimed to have been infringed, or, if multiple copyrighted

works at a single online site are covered by a single

notification, provide a representative list of such works at

68a

Appendix B

that site. The notification requirements also require that the

notification contain a statement that the information in the

notification is accurate, under penalty of perjury, that the

complaining party is authorized to act on behalf of the owner

of an exclusive right that is allegedly infringed.

§ 512(c)(3)(A)(vi). Perfect 10’s letter states that the document

production contains infringements by Internet Key and the

other defendants in this case of Perfect 10’s copyrights and

the copyrights of third parties. However, the letter

accompanying the document production does not identify

wiich documents were found on Internet Key’s Affiliate

Websites. The letter also does not contain a statement that

the information in the notification is accurate. The letter also

does not state that the author has a good faith belief that the

information in the letter is accurate nor is there a declaration

under penalty of perjury. The letter does state that the enlarged

images are Perfect 10’s images and include the specific URLs

of the images. Therefore the letter identifies which images

are infringements of Perfect 10°s copyrights; however, the

letter does not identify Perfect 10’s copyrights themselves,

only the infringing images.'* Under § 512(c)(3)(A)(ii) & (iii),

the notification is required to identify both the.copyrighted

image and the infringing image. The purpose behind the

notice requirement under the DMCA is to provide the internet

service provider with adequate information to find and

examine the allegedly infringing material expeditiously.

Hendrickson vy. Amazon.Com, Inc., 298 F.Supp.2d 914, 917

(C.D.Cal.2003). Congress’ intent was that both the copyright

owner and the [internet service provider] cooperate with each

1S. The Court also notes that many Perfect 10 models have

appeared in a variety of non-Perfect 10 venues such as Playboy,

Penthouse, and other websites. IHIf Spillane Reply Decl.. Exh. | at 4.

694

Appendix B

other to detect and deal with copyright infringement that takes

place on the Internet. /d. at 916-17.

The Court finds that Perfect 10°s blanket statement that

infringements of Perfect 10’s copyrights are contained within

22,000 pages of documents without identification of Perfect

10’s copyrights, without an identification of which documents

were printed off of Internet Key’s Affiliate Websites, and

without a statement that the notification is accurate does not

constitute notice that is substantially compliant with the

requirements of § 512(c)(3)(A). Perfect 10 has not iden ified

any other DMCA-compliant notices sent to Internet Key after

Internet Key instituted its repeat infringer policy to trigger

the implementation of Internet Key’s policy. In the absence

of evidence of DMCA-compliant notice, the Court finds that

Perfect 10 has failed to raise a genuine issue of material fact

that Internet Key failed to implement its termination policy

in a reasonable manner. Therefore, there is no genuine issue

of material fact that Internet Key has met the threshold

requirements under § 512(1).

c. Safe Harbor Under $$ 512(d) and 512(a)"

Section 512(d) states:

(d) Information location tools. A service provider

shall not be liable for monetary relief, or, except

16. Internet Key did not raise the safe harbor under § 51 2(a) in

its summary judgment motion. During oral argument. the Court

invited Internet Key to submit supplemental briefing regarding

§ S12(a). Internet Key filed a supplemental brief on May 20, 2004.

Pertect 10 tiled an opposition on May 27, 2004.

70a

Appendix B

as provided in subsection (j), for injunctive or

other equitable relief, for infringement of

linking users to an online location containing

infringing material or infringing activity, by using

information location tools, including a directory,

index, reference, pointer, or hypertext link, if the

service provider—

(1) (A) does not have actual knowledge that the

material or activity is infringing;

(B) in the absence of such actual knowledge, is

not aware of facts or circumstances from which

infringing activity is apparent; or

acts expeditiously to remove, or disable access

to, the material;

(2) does not receive a financial benefit directly

attributable to the infringing activity, in a case in

which the service provider has the right and ability

to control such activity; and

(3) upon notification of claimed infringement as

described in subsection (c)(3), responds

expeditiously to remove, or disable access to, the

material that is claimed to be infringing or to be

the subject of infringing activity, except that, for

purposes of this paragraph, the information

described in subsection (c)(3)(A)(ili) shall be

Tla

Appendix B

identification of the reference or link, to material

or activity claimed to be infringing, that is to be

removed or access to which is to be disabled, and

information reasonably sufficient to permit the

service provider to locate that reference or link.

17 U.S.C. § 512(d).

Perfect 10 contends that Internet Key does not fall within

the safe harbor provided by § 512(d) because Internet Key

(1) does not use an information location tool, (2) has actual

knowledge of infringements, (2) is aware of facts or

circumstances from which infringing activity is apparent.

Perfect 10 argues that Internet Key does not use an

information location tool as defined in § 512(d) because

Internet Key is not like Yahoo! or Google which provide links

to millions of websites with whom it has no relationship.

Perfect 10 reasons that because Internet Key merely links to

a relatively small universe of websites with whom it has in

place contractual relationships and established review

procedures, it is not entitled to protection under § 512(d).

Section 512(d) does not state that the safe harbor is limited

to internet service providers that provide links to millions of

websites. Nor does § 512(d) state that the use of an

information location tool is limited to internet service

providers that do not have contractual relationships with their

affiliate websites. Therefore, these arguments are without

merit.

Section 512(d) refers to service providers who refer or

link users to an online location containing infringing material

72a

Appendix B

or infringing activity, by using information location tools,

including a directory, index, reference, pointer, or hypertext

link. § 512(d). Internet Key’s sexkey.com website provides

that function and is therefore covered by § 512(d).

Pursuant to § 512(d), the internet service provider must

also (1) not be aware of facts or circumstances from which

infringing activity is apparent and (2) not receive a financial

benefit directly attributable to the infringing activity, in a

case in which the service provider has the right and ability

to control such activity. Perfect 10 argues that Internet Key

fails both of these requirements. Perfect 10 argues that

Internet Key should have known there were copyright

infringements on its clients’ websites because of the

disclaimers on some of those websites. The disclaimers

gencrally claim that the copyrighted images are in the public

domain or that the webmaster is posting the images for

newsworthy purposes. I Zadeh Decl., Exh. 22. These

disclaimers are not sufficient to raise a red flag of copyright

infringement. Therefore, Perfect 10 has not demonstrated that

Internet Key was aware of facts or circumstances from which

infringing was apparent.

The second requirement is that the internet service

provider not receive a direct financial benefit directly

attributable to the infringing activity when it has the right

and ability to control such activity. A right and ability to

control infringing activity, “as the concept is used in the

DMCA, cannot simply mean the ability of a service provider

to remove or block access to materials posted on its website

or stored in its system.” Costar Group, Inc. v. Loopnet, Inc.,

164 F.Supp.2d 688, 704 (D.Md.2001). Internet Key's right

73a

Appendix B

and ability to control infringing activity is limited to

disconnecting the webmasters’ access to Internet Key’s

service. That type of control is not sufficient, under the

DMCA, to demonstrate a “right and ability to control” the

infringing activity. As recognized in Perfect 10 v. Cybernet

Ventures, Inc., 213 F.Supp.2d 1146, 1181 (C.D.Cal.2002),

“closing the safe harbor based on the mere ability to exclude

users from the system is inconsistent with the statutory

scheme.” /d. Since Internet Key does not have a right and

ability to control the infringing activity, the Court need not

address whether Internet Key receives a direct financial

benefit from the infringing conduct.

Additionally, Internet Key serves another function.

Namely, when a user goes to one of Internet Key’s Affiliate

Websites, the user is directed to the Internet Key sign-up

page for age verification purposes. I Freeman Decl., Tf 5-8.

This function falls outside of the parameters of § 512(d)

because Internet Key is not referring users to other websites

through a directory, index, reference, pointer, or hypertext

link. However, this function falls within the purview of

§ 512(a) which provides:

a) Transitory digital network communications. A

service provider shall not be liable for monetary

relief, or, except as provided in subsection (j), for

injunctive or other equitable relief, for

infringement of copyright by reason of the

provider's transmitting, routing, or providing

connections for, material through a *1099 system

or network controlled or operated by or for the

service provider, or by reason of the intermediate

74a

Appendix B

and transient storage of that material in the course

of such transmitting, routing, or providing

connections, if-

(1) the transmission of the material was initiated

by or at the direction of a person other than the

service provider;

(2) the transmission, routing, provision of

connections, or storage is carried out through an

automatic technical process without selection of

the material by the service provider;

(3) the service provider does not select the

recipients of the material except as an automatic

response to the request of another person;

(4) no copy of the material made by the servic

provider in the course of such intermediate or

transient storage is maintained on the system or

network in a manner ordinarily accessible to

anyone other than anticipated recipients, and no

such copy is maintained on the system or network

in a manner ordinarily accessible to such

anticipated recipients for a longer period than is

reasonably necessary for the transmission, routing,

or provision of connections; and

(5) the material is transmitted through the system

or network without modification of its content.

75a

Appendix B

17 U.S.C. § 512(a). The section provides that “an internet

service provider shail not be liable .. . for infringement of

connections for material through a system or network

controlled or operated by or for the service provider, or...”

§ 512(a). Internet Key provides a connection to the material

on its clients’ websites through a system which it operates in

order to provide its clients with adult verification services.

Therefore, Internet Key’s services fall within the purview of

both §§ 512(a) and 512(d).

The Court finds that there is no genuine issue of material

fact that Internet Key is entitled to the safe harbors pursuant

to §§ 512(a) and 512(d). Based on the foregoing, Internet

Key’s motion for summary judgment for infringements after

August 21, 2002 based on the safe harbors under § 512(d)

and § 512(a) is granted. However, Internet Key’s motion for

summary judgment on Perfect 10’s copyright infringement

claim for infringements before August 21, 2002 is dented.

3. CWIE’'s and CCBill’s Motions for Summary Judgment

on Perfect 10's Copyright Claim

Since the parties address many of the issues regarding

CWIE and CCBill together, the Court will address these

Defendants together for issues where the evidence overlaps.

CWIE and CCBill assert that they are entitled to summary

judgment on Perfect 10°s Claim | for copyright infringement

because they fall within the safe harbors provided by the

DMCA under § 512.

76a

Appendix B

a. Threshold Requirements Under § 512(i)

Perfect 10 argues that CWIE and CCBill do not

reasonably implement their repeat infringer policies under

§ 512(i).'"’ Perfect 10 cites to CWIE and CCBill’s DMCA

notice spreadsheet and argues that many of the webmaster

names are not included in the spreadsheet. III Fisher Decl.,

Exh. C. Perfect 10 contends that CWIE and CCBill do not

track the actual webmasters of the websites for which they

receive notifications. The Court has reviewed the spreadsheet

and finds that a few of the webmaster names are missing

from notifications that were either resolved by the copyright

owner and the webmaster or were not DMCA-compliant. The

Court finds that the fact that a few of the webmaster names

are missing from the spreadsheet in instances where the notice

was deficient or the issue was resolved is not sufficient to

raise a genuine issue of material fact that CWIE and CCBill

do not reasonably implement their repeat infringer policies.

Perfect 10 has submitted notifications of infringement

of Perfect 10’s copyrights that it sent to CCBill and CWIE

which it claims are DMCA-compliant. The first is a letter

from Perfect 10°s counsel to Fisher dated August 10, 2001.

Il! Zadeh Decl., Exh. 14. The letter identifies several websites

which Perfect !0 claims contain infringements of Perfect 10’s

17. Perfect 10 does not assert other violations of § 512(i) against

these Defendants.

CWIE and CCBill adopted their policies in 1999. Since Perfect

10 does not allege any infringements that pre-date 1999, the Court

finds that CWIE’s and CCBill’s repeat intringer policies were in

place during the entire period of alleged infringements.

77a

Appendix B

copyrights. Jd. at 144. The letter only identifies the websites

that contain the allegedly infringing material, it does not

identify the URLs of the images nor does it identify which

of Perfect 10’s images are being infringed. Under

§ 512(c)(3)(A)(ii) and (111), DMCA-compliant notification

must identify the copyrighted work claimed to have been

infringed and the material that is claimed to be infringing

with “information reasonably sufficient to permit the service

provider to locate the material.” This notification does not

fulfill either of those requirements because it does not identify

Perfect 10’s images or give CCBill and CWIE sufficient

information to locate the infringing material. These websites

may contain more than one hundred images at different

URLs; it is Perfect 10’s responsibility, under the DMCA, to

provide these Defendants with enough information to allow

them to locate the infringing material. The Court finds that

the August 10, 2001 letter does not substantially comply with

the requirements of the DMCA and therefore, does not

constitute proper notification under § 512(c)(3)(A)."*

The next notification is an email Norman Zadch sent to

Fisher on February 6, 2002 which identifies websites which

contain images of celebrities but does not identify websites

which contain Perfect 10’s copyrighted images. III Zadeh

Decl., Exh. 17. Therefore, this email does not comply.

The next notification is a letter from Perfect 10°s counsel

dated March 12, 2002 which suffers from the same deficiency

as Exhibit 14 above. II Zadeh Decl., Exh. 18. It does not

18. Perfect 10 also cites to Exhibit 16 of the Zadeh Declaration

but it has failed to include it in the declaration.

78a

Appendix B

identify the allegedly infringing material with enough

specificity to allow CCBill and CWIE to locate the

information. Exhibit 20 (email dated March 28, 2002) also

suffers from the same lack of specificity.

Perfect 10 also identifies Exhibit I to the Complaint as

notification of violations of Perfect 10’s copyrights. Exhibit

I to the Complaint lists websites that Perfect 10 contends

contain Perfect 10 infringements. See Compl., Exh. I. The

Court finds that Exhibit I is not DMCA-compliant because

it does not give the Defendants sufficient notification to allow

them to locate the allegedly infringing material.'? Perfect 10

has also submitted its RICO Case Statement which Perfect

iO produced to Defendants on December 19, 2002. HII] Zadeh

Decl., Exh. 26 at 317-321. The RICO Case Statement does

not identify the URLs of the allegedly infringing material or

identify Perfect 10’s copyrighted images. /d. Therefore, this

notification does not substantially comply with the

requirements of § 512(c)(3)(A).

Perfect 10 also identifies a July 14, 2003 email sent to

Fisher which had attached to it an Excel spreadsheet which

identifies websites and the names of Perfect 10 models who

appear on those websites. Ill Zadeh Decl., Exh. 29. Perfect

10 argues that this spreadsheet contains the URLs of the

infringing images, however, the Court is unable to locate a

single URL that is the URL for the actual infringing image.

19. Perfect 10 has also submitted a letter dated October 16,

2002 that ts nearly identical to the letter sent to Internet Key that

accompanied the same 22,000 page document production to all of

the Defendants. II] Zadeh Deci., Exh. 25. See Section IV.2.b.11, supra,

for a discussion of this letter.

79a

Appendix B

Id. Most of the URLs provided refer to the “members only”

area of the website, not the URL of the specific image within

the “members only” area of the website. /d. Again, this is

not the type of notification contemplated by

§ 512(c)(3)(A).”

Perfect 10 has also submitted several emails from Perfect

10 to CWIE regarding password hacking websites that

provide passwords to Perfect 10°s website, perfectl0.com,

hosted by CWIE. III Zadeh Decl., Exhs. 72, 75, 76, 77 & 78.

Password hacking websites are free websites which post

passwords to subscription websites. Perfect 10 argues that it

provided DMCA-compliant notification regarding these

websites and CWIE did not discontinue its hosting of these

websites. However, Perfect 10 has not submitted any

evidence that the use of the passwords on these websites

actually resulted in the infringement of Perfect 10’s

copyrights. Perfect 10 has submitted a print-out of its server

log and Zadeh’s declaration which states that there were

attempted accesses from crazypasses.com on September 18,

2002. Ill Zadeh Decl., ¢ 101, Exh. 88. However, attempted

access to Perfect 10’s website is not sufficient to demonstrate

20. During his deposition, Fisher was asked whether he could

act on the information that was provided in the spreadsheet and

responded “yes.” III Cooper Decl., Exh. 2 at 30:16-21. Perfect 10

argues that Fisher admitted that he had received DMCA-compliant

notification based on this deposition testimony. However, Fisher did

not State that the notification was DMCA-compliant or that the

information allowed CCBill and CWIE to expeditiously locate the

infringing material. Therefore, the Court finds Perfect 10’s argument

without merit.

80a

Appendix B

Perfect 10’s website were actually copied onto the user’s

computer when the user accessed the website. See 17 U.S.C.

§ 106. Therefore, Perfect 10’s has not demonstrated that

CWIE’s hosting of these password hacking websites resulted

in copyright infringement.

Perfect 10 has not provided the Court with any

substantially compliant DMCA-notifications that were sent

to CCBill and CWIE. Perfect 10 may not make an end-run

around the requirements of the DMCA by providing the

Defendants with notification that does not substantially

comply with the requirements of § 512(c)(3)(A). The Court

finds that Perfect 10 has not raised a genuine issue of material

fact that CCBill and CWIE did not reasonably implement

their repeat infringer policies.”!

b. Safe Harbor Under § 512(a) and CCBill

CCBill argues that it falls within the safe harbor in

§ 512(a) which provides:

a) Transitory digital network communications.

A service provider shall not be liable for monetary

relief, or, except as provided in subsection (j), for

injunctive or other equitable relief, for

infringement of copyright by reason of the

provider's transmitting, routing, or providing

21. Perfect 10 has also submitted notifications by third-party

notifications of third-party copyright infringements are not relevant

to Perfect 10°s claim for copyright infringement and the Defendants

DMCA defense to that claim.

8la

Appendix B

connections for, material through a system or

network controlled or operated by or for the

service provider, or by reason of the intermediate

and transient storage of that material in the course

of such transmitting, routing, or providing

connections, if-

(1) the transmission of the material was initiated

by or at the direction of a person other than the

service provider;

(2) the transmission, routing, provision of

connections, or storage is carried out through an

automatic technical process without selection of

the material by the service provider;

(3) the service provider does not select the

recipients of the material except as an automatic

response to the request of another person;

(4) no copy of the material made by the service

provider in the course of such intermediate or

transient storage is maintained on the system or

network in a manner ordinarily accessible to

anyone other than anticipated recipients, and no

such copy is maintained on the system or network

in a manner ordinarily accessible to such

anticipated recipients for a Jonger period than is

reasonably necessary for the transmission, routing,

or provision Of connections; and

82a

Appendix B

(5) the material is transmitted through the system

or network without modification of its content.

17 U.S.C. § 512(a). Perfect 10 argues that CCBill does not

fall within the safe harbor provided in § 512(a) because it

does not transmit the infringing material at issue in this case.

Perfect 10 argues that § 512(a) only provides protection for

internet service providers that transmit the allegedly

infringing material, not other material, such as credit card

information. Perfect 10 relies on Jn re Aimster Copyright

Litigation, 252 F.Supp.2d 634, 659-660 (N.D.III.2002), to

support its argument.

Perfect 10 relies on the section of § 512(a) that refers to

the transmission of the material; it has failed, however, to

address the section of § 512(a) which refers to the provision

of a connection to the material. The section provides that

“an internet service provider shall not be liable ... for

infringement of copyright by reason of the provider’s ...

providing connections for material through a system or

network controlled or operated by or for the service provider,

or...” §512(a). CCBill provides a connection to the material

on its clients’ websites through a system which it operates in

order to provide its clients with billing services. Perfect 10

argues that CCBill “blocks” access to these websites and does

not provide a connection to the websites because it prevents

consumers from accessing the websites if they have not first

paid a fee to CCBill. CCBill does not block access to these

websites; the webmasters of the websites block consumers

from accessing the websites unless those consumers pay for

access through CCBill. Therefore, the Court finds this

argument without merit.

83a

Appendix B

Perfect 10’s reliance on /n re Aimster Litigation is

misplaced because that case dealt with the transmission of

material, not the provision of a connection to the material.

See In re Aimster Copyright Litigation, 252 F.Supp.2d 634,

659-660 (N.D.111.2002). The Court finds that there is no

genuine issue of material fact that “CBill is entitled to

protection under the safe harbor provided by § 512(a).

Therefore, the Court grants CCBill’s motion for summary

judgment and finds that CCBill is protected by the safe harbor

under § 512(a).

c. Safe Harbor Under § 512(c) and CWIE

CWIE argues that it is entitled to protection under the

safe harbor provided in § 512(c)(1). Sections 512(c)(1) states:

(1) In general. A service provider shall not be

liable for monetary relief, or, except as provided

in subsection (j), for injunctive or other equitable

relief, for infringement of copyright by reason of

the storage at the direction of a user of material

that resides on a system or network controlled or

operated by or for the service provider, if the

service provider—

(A) (i) does not have actual knowledge that the

material or an activity using the material on the

system or network is infringing;

(11) in the absence of such actual knowledge, is

not aware of facts or circumstances from which

infringing activity is apparent: or

84a

Appendix B

(iii) upon obtaining such knowledge or

awareness, acts expeditiously to remove, or

disable access to, the material;

(B) does not receive a financial benefit directly

attributable to the infringing activity, in a case in

which the service provider has the right and ability

to control such activity; and

described in paragraph (3), responds expeditiously

to remove, or disable access to, the material that

is claimed to be infringing or to be the subject of

infringing activity.

17 U.S.C. § 512(c).” Perfect 10 argues that CWIE does not

fulfill the requirements of § 512(c)(1) because (1) it has actual

knowledge of Perfect 10’s infringements on its clients’

websites; (2) is aware of facts or circumstances from which

infringing activity is apparent; (3) it has failed to

expeditiously remove or disable access to infringing material

of which it had knowledge; and (4) it receives a financial

benefit directly attributable to the infringing activity and has

the right and ability to control such activity.

22. Section 512(c)(2) also requires that the internet service

provider have a designated copyright agent to receive notification

under § 512(c)(3). Perfect 10 does not contend that CWIE does not

have such an agent.

85a

Appendix B

i. Knowledge

Perfect 10 argues that CWIE cannot assert the safe harbor

under § 512(c)(1) because it had knowledge of copyright

infringements on its clients’ websites. Perfect 10 relies on

the notifications Perfect 10 sent to CWIE to support its

argument. However, the Court has already found that those

notifications did not comply with the requirements of

§ 512(c)(3)(A). Therefore, Perfect 10 cannot argue that CWIE

had knowledge of infringements based on these notices.

Hendrickson v. Ebay, 165 F.Supp.2d 1082, 1093

(C.D.Cal.2001) (“the court does not consider [those]

defective notices when evaluating the actual or constructive

knowledge prong of the safe harbor test.”).

Perfect 10 also argues that CWIE was aware of facts or

circumstances from which infringing activity was apparent.

In including § 512(c)({1)(A)(ii), Congress contemplated

obvious “pirate sites” where “sound recordings, software,

movies, or books were available for unauthorized

downloading, public performance’’-in other words, “red flag”

websites from which infringements would be apparent based

on a cursory review of the website. H.R. Rep. 105-SS51(I1)

at 57. Congress described such websites as obviously

infringing because they typically use words such as “pirate”

or “bootleg” or slang terms in their URL, and header

information to make their illegal purpose obvious, in the first

place, to the pirate directories as well as other Internet users.

Id. at 58. “Because the infringing nature of such sites would

be apparent from even a brief and casual viewing, safe harbor

status for a provider that views such a site and then establishes

a link to it would not be appropriate.” /d.

86a

Appendix B

Perfect 10 argues that CWIE hosted websites that

obviously contained images of celebrities to which the

webmasters did not own the copyrights. III Zadeh Decl.,

{ 76, Exh. 61. Perfect 10 has submitted print-outs from the

websites that advertise images of celebrities. See id. The

websites advertise images of celebrities; however, the Court

does not find that the websites contain obvious infringements

because the websites do not advertise themselves as piraie

websites. See id. Furthermore, the Court finds that Perfect

10’s argument that most celebrity websites contain stolen

material and therefore CWIE should have known there were

infringements on these websites without merit. As noted by

Congress, “a directory provider would not be similarly aware

because it saw one or more well known photographs of a

celebrity at a site devoted to that person. The provider could

not be expected, during the course of its brief cataloguing

visit, to determine whether the photograph was still protected

by copyright or was in the public domain; if the photograph

was still protected by copyright, whether the use was licensed;

and if the use was not licensed, whether it was permitted

under the fair use doctrine.” The Court finds that the

advertisement of celebrity photos is not sufficient to raise a

“red flag” that these websites were obviously pirate websites

with infringing content.** Based on the foregoing, the Court

finds that Perfect 10 has not raised a genuine issue of material

fact that CWIE had actual or constructive knowledge of

23. During oral argument, Perfect 10 also cited to several

disclaimers on websites affiliated with CCBill to support its argument

that CWIE had “red flag” knowledge of copyright infringement. ITI

Zadeh Decl., Exhs. 63 & 64. However, Perfect 10 has not provided

any disclaimers on websites associated with CWIE. Therefore, this

evidence is irrelevant to the Court's analysis of CWIE's knowledge.

87a

Appendix B

infringements on its clients’ websites. The Court also finds

that there is no genuine issue of material fact that CWIE

failed to expeditiously remove or disable access to infringing

material of which it had knowledge.

ii. Financial Benefit and Right and Ability to Control

Perfect 10 argues that CWIE cannot assert safe harbor

protection because it receives a direct financial benefit from

the infringing activity on its clients’ websites and has the

right and ability to control the infringing activity on its

clients’ websites. 17 U.S.C. § 512(c)(B). A right and ability

to control infringing activity, “as the concept is used in the

DMCA, cannot simply mean the ability of a service provider

to remove or block access to materials posted on its website

or stored in its system”. Costar Group, Inc. v. Loopnet, Inc.,

164 F.Supp.2d 688, 704 (D.Md.2001). CWIE’s right and

ability to control infringing activity is limited to

disconnecting the webmasters’ access to CWIE’s service.

That type of control is not sufficient, under the DMCA, to

demonstrate a “right and ability to control” the infringing

activity. As recognized in Perfect 10 v. Cybernet Ventures,

Inc., 213 F.Supp.2d 1146, 1181 (C.D.Cal.2002), “closing the

safe harbor based on the mere ability to exclude users from

the system is inconsistent with the statutory scheme.” /d.

Perfect 10 argues that the fact that CWIE reviews its websites

for illegal material, such as child pornography and obscenity,

takes CWIE out of the safe harbor provision because CWIE

has the right and ability to do more than merely exclude users

from its system. In Cybernet, the Court found that the fact

that the defendant “prescreens sites, gives them extensive

advice, [and] prohibits the proliferation of identical sites”

88a

Appendix B

was sufficient additional control to fall outside of the safe

harbor. However, the Court did not find that merely

prescreening sites was enough. In this case, the Court finds

that merely because CWIE reviews its sites to look for

blatantly illegal and criminal conduct is not sufficient to close

the safe harbor to CWIE. Such a reading of the statute would

not be in line with the purpose of the DMCA to encourage

internet service providers to work with copyright owners to

locate and stop infringing conduct.

Since the Court finds that CWIE does not have a right

and ability to control the infringing activity on its clients’

websites, it need not reach the issue of whether CWIE

receives a direct financial benefit from the allegedly

infringing conduct.

Based on the foregoing, the Court finds that Perfect 10

has not raised a genuine issue of material fact that CWIE

does not fall within the safe harbor under § 512(c). Therefore,

the Court grants CWIE’s motion for summary judgment and

finds that CWIE is entitled to the protection provided in §

$12(c).

4. Perfect 10s RICO Claims

Defendants argue that since they fall within the safe

harbors provided by § 512 which limit liability for copyright

infringement, their liability for Perfect 10’s RICO violations

should similarly be limited.~* Perfect 10 argues that the

24. Perfect 10°s RICO claims are based solely on predicate acts

of criminal copyright infringement.

89a

Appendix B

Defendants cannot assert the safe harbors under § 512 against

its RICO claims because its RICO claims are predicated on

(1) infringements of Perfect 10’s copyrights and (2)

infringements of third-party copyrights. The Defendants do

not dispute that Perfect 10 has standing to maintain its RICO

claims based on infringements of Perfect 10’s copyrights.

However, since the Court has already found that Defendants

IBill, CCBill, CWIE, and Internet Key * are entitled to safe

harbor protections under § 512 against Perfect 10's copyright

claims, those safe harbors also provide these Defendants with

protection against Perfect 10’s RICO claims based on the

infringements of Perfect 10’s copyrights. The issue before

the Court, therefore, is whether Perfect 10 has standing to

allege RICO claims based on predicate acts of infringements

of third-party copyrights.

The Ninth Circuit addressed the issue of statutory

standing in Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1168-

69 (9th Cir. 2002). The Ninth Circuit first examined the RICO

statute which states that “any person injured in his business

or property by reason of a violation of section 1962 of this

chapter may sue therefor in any appropriate United States

district court for civil damages.” /d. at 1168. The Ninth

Circuit identified the key issue in its analysis as determining

whether the injury suffered by the plaintiffs “was by reason

of” the defendants’ conduct. /d. The Ninth Circuit referred

to several cases, decided by the U.S. Supreme Court in the

context of antitrust and RICO, which hold that “potential

plaintiffs who have suffered a ‘passed-on’ injury-that is,

25. Internet Key is entitled to the safe harbor provisions of §

S12 against Perfect 10°s RICO claims for copyright infringements

after August 21, 2002.

90a

Appendix B

injury derived from a third party’s direct injury-lack statutory

standing.” /d. In the Ninth Circuit, there are three factors

that courts consider in determining whether an injury is too

remote to allow the plaintiff statutory standing:

(1) whether there are more direct victims of the

alleged wrongful conduct who can be counted on

to vindicate the law as private attorneys general;

(2) whether it will be difficult to ascertain the

amount of the plaintiff's damages attributable to

defendant’s wrongful conduct; and (3) whether the

courts will have to adopt complicated rules

apportioning damages to obviate the risk of

multiple recoveries.

Id. at 1169. Perfect 10 is asserting that it has suffered an

injury based on the Defendants’ alleged infringements of

third-party copyrights. Under the first factor, it is clear that

the owners of the copyrights themselves are the more direct

victims of the alleged wrongful conduct. Furthermore, Perfect

10 has not presented any evidence that those direct victims

cannot assert their own rights on their own behalf. Under

the second factor, the Court finds that it would be difficult

to ascertain the amount of damages to Perfect 10 based on

the Defendants’ alleged infringements of third parties’

copyrights. Perfect 10’s injury is stated as a competitive

injury-however, proving that violations of another party's

copyrights have caused a competitive injury is too speculative

to allow for the ascertainment of a damages amount. And

finally, under the third consideration, it is also clear that the

demonstrate that the Defendants have violated their

9la

Appendix B

copyrights. Therefore, the Court would have to apportion

damages as to prevent double recovery by the copyright

owners and Perfect 10.

During oral argument, Perfect 10 argued that the Second

Circuit’s opinion in Commercial Cleaning Services, LLC v.

Colin Service Systems, Inc., 271 F.3d 374 (2d Cir. 2001),

supports its argument that it may assert the violations of third

parties’ copyrights as the predicate acts of its RICO claim.

In Commercial Cleaning, the Second Circuit found that the

competitor of a cleaning agency that was hiring illegal

immigrants to underbid the competitor had standing to bring

a RICO claim based on its competitive injury. Jd. at 385.

However, the Second Circuit also found that there were not

more direct victims of the illegal activity who had standing

to sue. “There is no class of potential plaintiffs who have

been more directly injured by the alleged RICO conspiracy

than the defendant’s business competitors . . .” /d. In the case

before this Court, the third-party copyright owners are the

direct victims of the alleged infringement and may bring suit

on their own behalf. Therefore, this case is distinguishable

from the case at bar and does not support Perfect 10°s

argument that it has standing to assert the violations of third-

parties’ copyrights.

The Court finds that in consideration of these factors,

Perfect 10 has not demonstrated that it has statutory standing

to assert the violations of third parties’ copyrights as the

predicate acts of its RICO claim.

92a

Appendix B

Therefore, IBill, CCBill, CWIE and Internet Key (limited

to post-August 21, 2002 infringements) are entitled to the

safe harbor provisions of § 512 against Perfect 10°s RICO

claims.

B. Communications Decency Act

The CDA provides immunity to providers and users of

interactive computer services. It states that “[nJo provider

or user of interactive computer service shall be treated as a

publisher or speaker of any information provided by another

content provider.” 47 U.S.C. § 230(c)(1). In addition, the

CDA states that “[n]o cause of action may be brought and no

liability may be imposed under any State or local law that is

inconsistent with this section.” 47 U.S.C. § 230(e)(3).

Congress placed two limitations on the grant of this broad

immunity. The first is § 230(e)(2) which states that the CDA

shall not be construed to limit or expand any law pertaining

to intellectual property. 47 U.S.C. § 230(e)(2). The second

is that immunity is not available for violations of federal

criminal statutes. 47 U.S.C. § 230(e)(1).

Defendants assert that they are entitled to summary

judgment on Perfect 10’s state law claims because they are

immune from prosecution for these claims under the CDA.

All of the Defendants seek summary judgment on the

bases that they are immune from Perfect 10’s Fifth Cause of

Action for violation of rights of publicity, Sixth Cause of

Action for unfair competition under the California Business

& Professions Code §§ 17200, and Seventh Cause of Action

for false and misleading advertising pursuant to California

93a

Appendix B

Business & Professions Code § 17500 and California

common law.”° Defendants IBill, CWIE, and CCBill also

assert that they are immune from prosecution for Perfect 10’s

Fourth Cause of Action for wrongful use of a registered

trademark under California law.

Perfect 10 opposes summary judgment on the following

grounds: |) the CDA does not apply to intellectual property

claims, 2) the Defendants’ knowledge of infringements

negates the CDA’s protection, 3) the CDA does not protect

the Defendants’ alleged roles as distributors, and 4) the

Defendants’ roles in the promotion of obscenity and child

pornography bar them from taking advantage of the CDA.

Perfect 10 does not argue that the Defendants do not fulfill

any of the other requirements of the CDA; for example, there

is nO genuine issue of material fact that all of the Defendants

are providers and users of interactive computer services.

Therefore, the Court does not address these additional

requirements.

Since these arguments apply equally to all of the

Defendants because they are legal arguments regarding the

scope of the CDA and are not fact dependent, the Court

addresses the Defendants collectively.

26. Claim 6 also contains allegations of unfair competition

under the Lanham Act. The Defendants have not asserted that they

are immune from prosecution for this claim, therefore, the Court

limits its discussion of Claim 6 to the alleged violations of California

Business & Professions Code §§ 17200.

94a

Appendix B

1. Intellectual Property

The CDA does not “limit or expand any law pertaining

to intellectual property.” 47 U.S.C. § 230(e)(2). Perfect 10

asserts that all four of its state law claims are based on

intellectual property law and thus the CDA does not provide

immunity for them. The Defendants argue that these claims

are not intellectual property claims but state law tort claims.

The Court will address each claim in turn.

a. Wrongful Use of a Mark

Perfect 10’s Fourth Cause of Action alleges wrongful

use of a registered mark in violation of Cal. Bus. & Prof.Code

§ 14335. It is generally understood that trademarks are

intellectual property. See, e.g., Allison v. Vintage Sports

Plaques, 136 F.3d 1443, 1448 (11th Cir. 1998) (holding that

the three principal forms of intellectual property are

Corp. of Am., Inc., 9 F.3d 1091, 1103-04 (4th Cir. 1993)

(listing the areas of intellectual property as trademark,

989 F.2d 1512, 1516 (9th Cir. 1993) (discussing the different

balances of public interest in patents, copyright, and

trademark). Several cases have held that immunity under the

CDA does not apply to federal trademark claims. See Gucci

Am., Inc. v. Hall & Assocs., 135 F.Supp.2d 409, 413 (S.D.NLY.

2001) (holding that to immunize defendant from trademark

claims would limit laws pertaining to intellectual property);

Ford Motor Co. v. GreatDomains.com, Inc., No. 00-CV-

71544-DT, 2001 WL 1176319, at *1 (E.D.Mich. Sept. 25,

2001) (holding that if defendant violated federal trademark

95a

Appendix B

laws the CDA would not provide immunity). Consequently,

California’s wrongful use of registered mark law also pertains

to intellectual property because the law provides the same

type of relief as the federal trademark laws under the Lanham

Act, namely, protection for trademarks. Since the CDA does

not extend immunity for Perfect 10’s Claim 4 for wrongful

use of a registered mark because such immunity would limit

laws pertaining to intellectual property, Defendants IBill’s,

CCBill’s, and CWIE’s motions for summary judgment on

this claim are denied.

b. Unfair Competition under California Business

& Professions Code § 17200

Perfect 10 also points out that its Claim 6 for unfair

competition arises from Defendants’ trademark infringement,

a violation of law pertaining to intellectual property. As

discussed above, the CDA does not limit any law pertaining

to intellectual property. See 47 U.S.C. § 230(e)(2). The issue

here is whether the UCL based on alleged infringement of

trademarks is a “law pertaining to intellectual property.” The

unfair competition law (the “UCL”) itself makes no mention

of intellectual property. See Cal. Bus. & Prof.Code § 17200

(“As used in this chapter, unfair competition shall mean and

include any unlawful, unfair or fraudulent business act or

practice and unfair, deceptive, untrue or misleading

advertising and any act prohibited by Chapter | ... of the

Business and Professions Code”). Whiie intellectual property

law generally seeks to encourage creativity and invention,

the purpose of the UCL is to preserve fair business

competition. See Cel-Tech Communications. Inc. v. Los

Angeles Cellular Tel. Co., 20 Cal.4th 163, 180, 83

Cal.Rptr.2d 548, 560-61, 973 P.2d 527 (1999),

96a

Appendix B

. Infringing on a trademark is an unlawful business

practice which may establish a violation of the UCL.

See Century 21 Real Estate Corp. v. Sandlin, 846 F.2d 1175,

1178 (9th Cir. 1988) (holding that likelihood of confusion

was the crucial issue for both trademark infringement and

unfair competition). Perfect 10 argues that this makes the

unfair competition statute a law pertaining to intellectual

property. However, a violation of the UCL includes any

business practice which may be unlawful, unfair, or

fraudulent. People v. McKale, 25 Cal.3d 626, 631-32, 159

Cal.Rptr. 811, 813-14, 602 P.2d 731 (1979); Wilkinson v.

Times Mirror Corp., 215 Cal.App.3d 1034, 1052, 264

Cal.Rptr. 194, 206 (Cal.Ct.App. 1989). Accordingly, unfair

competition encompasses anything that can properly called

a business practice which at the same time is forbidden by

law. Wilkinson, 215 Cal.App.3d at 1052, 264 Cal.Rptr. at

206. The fact that violations of intellectual property laws

may create the underlying unfair or unlawful act for the UCL

does not transform the statute into a law pertaining to

intellectual property. Therefore, the immunity provided by

the CDA does apply to Perfect 10’s Claim 6 for unfair

competition under the UCL.

c. Right of Publicity

The parties also dispute whether Perfect 10°s Claim 5

for violations of the right of publicity pursuant to California

Civil Code section 3344 and common law rights of publicity

bring § 230(e)(2) into play. The California Supreme Court

has held that the right of publicity is a form of intellectual

property. See Comedy Il Productions. Inc. v. Gary Saderup,

Inc., 25 Cal.4th 387, 399, 106 Cal.Rptr.2d 126, 135, 21 P.3d

97a

Appendix B

797 (2001). This conclusion is buttressed by other courts

and commentators. See, e.g., ETW Corp. v. Jireh Pub., Inc.,

332 F.3d 915, 928 (6th Cir. 2003) (“The right of publicity is

an intellectual property right of recent origin which has been

defined as the inherent right of every human being to control

the commercial use of his or her identity.”); 4 J. Thomas

McCarthy, McCarthy on Trademarks and Unfair Competition,

§ 28.1 (4th ed. 2003) (“The right of publicity is property,

and is properly categorized as a form of intellectual

property.”). In Carafano v. Metrosplash.Com, Inc., 339 F.3d

L119, 1125 (9th Cir. 2003), the Ninth Circuit dismissed a

right of publicity claim based on immunity granted under

§ 230(c)(1) of the CDA without any discussion of § 230(e)(2).

However, since neither the Ninth Circuit nor the trial court,

207 F.Supp.2d 1055 (C.D.Cal.2002), performed any analysis

as to whether the exclusion in § 230(e)(2) applied, it is

unclear whether this issue was properly before the Ninth

Circuit in that case. Since the weight of authority supports a

finding that the right of publicity is an intellectual property

right, the Court finds that claims under California’s right of

publicity statute and the common law are excluded from

immunity under the CDA.

Therefore, the Court denies the Defendants’ motions for

summary judgment on Perfect 10°s Claim 5 for violations of

the right of publicity.

98a

Appendix B

d. False Advertising Pursuant to California Business

& Professions Code §§ 17500 and the Common Law

Finally, Perfect 10 contends that Claim 7 for false

advertising pursuant to California Business & Professions

Code § 17500 and California common law is an intellectual

property claim and, as such, is excluded under § 230(e)(2)

of the CDA. Perfect 10 argues that since it is alleging that

the Defendants’ affiliate webmasters have engaged in false

advertising by misrepresenting the nature and source of the

content on their websites and that such conduct constitutes

violations of Perfect 10’s intellectual property rights, the false

advertising claims are also excluded from the immunities

provided by § 230(e)(2) of the CDA. Perfect 10 does not

cite to any authority to support its argument. Neither § 17500

nor California common law false advertising refer to

intellectual property rights. See Cal. Bus. & Prof.Code

§ 17500;?’ Chronicle Pub. Co. v. Chronicle Publications, Inc.,

27. Section 17500 provides:

it is unlawful for any person, firm, corporation or

association, or any employce thereof with intent directly

or indirectly to dispose of real or personal property or

to perform services, professional or otherwise, or

anything of any nature whatsoever or to induce the public

to enter into any obligation relating thereto, to make or

disseminate or cause to be made or disseminated before

the public in this state, or to make or disseminate or

cause to be made or disseminated from this state before

the public in any state, in any newspaper or other

publication, or any advertising device, or by public

outcry or proclamation, or in any other manner or means

(Cont'd)

99a

Appendix B

733 F.Supp. 1371, 1380-81 (N.D.Cal. 1989) (claim under

§ 17500 and California common law false advertising require

analysis of the same factors). Since false advertising under

§ 17500 and California common law does not pertain to

intellectual property rights, the Court finds that the immunity

provided under the CDA for Perfect 10’s false advertising

claim is not excluded under § 230(e)(2).

2. Knowledge

Perfect 10 argues that the CDA does not apply to its

claims against the Defendants because the Defendants knew

or should have known of the infringements on their affiliate

websites. Accordingly, Perfect 10 argues that under Barzel v.

Smith, 333 F.3d 1018 (9th Cir. 2003), the Defendants are not

(Cont'd)

whatever, including over the Internet, any statement,

concerning that real or personal property or those

services, professional or otherwise, or concerning any

circumstance or matter of fact connected with the

proposed performance or disposition thereof, which is

untrue or misleading, and which is known, or which by

the exercise of reasonable care should be known, to be

untrue or misleading, or for any person, firm, or

corporation to so make or disseminate or cause to be so

made or disseminated any such statement as part of a

plan or scheme with the intent not to sell that personal

property or those services, professional or otherwise,

so advertised at the price stated thercin, or as so

advertised. Any violation of the provisions of this section

is a misdemeanor punishable by imprisonment in the

county jail not exceeding six months, or by a fine not

exceeding two thousand five hundred dollars ($ 2,500),

or by both that imprisonment and fine.

100a

Appendix B

entitled to CDA immunity. Batzel, however, creates no such

knowledge exception. Batzel stands for the unrelated

proposition that internet service providers are not provided

immunity if they know or should have known that the content

was not meant for publication.

In Batzel, one defendant, Cremers, published listserve

newsletters aoout museum security and stolen art based partly

on e-mails from third parties. See id. at 1021. Defendant

Smith sent Cremers an e-mail alleging that Batzel was in

possession of stolen art. See id. Cremers published Smith’s

e-mail on his listserve newsletter. See id. at 1022.

In considering whether Cremers was protected by the CDA,

the Court looked at whether Smith had “‘provided” Cremers

with the e-mail as required by section 230(c)(1). “If the

defamatory information is not ‘provided by another

information content provider,’ then § 230(c) does not confer

immunity on the publisher of the information.” Jd. at 1032

(emphasis in original). The Court found that it was not the

intent of Congress to create immunity for the intentional

posting of material never meant to be put on the Internet.

See id. at 1033. It was in this context that the Court stated

that immunity only applies when the “third person or entity

that created or developed the information in question

furnished it to the provider or user under circumstances in

which a reasonable person in the position of the service

provider or user would conclude that the information was

provided for publication on the Internet or other ‘interactive

computer service.’ ” /d. at 1034. In other words, in Batzel,

the focus on the applicability of immunity under § 230(c)(1)

is on the service provider's or user's reasonable perception

10la

Appendix B

that the information was provided for publication on an

interactive computer service. See id. at 1032-34.

In this case, it is clear that any content on the Defendants’

affiliate websites was provided for publication on the Internet.

Perfect 10 contends that the focus should be on whether

Perfect 10 provided the material for publication by the

affiliate webmasters. Based on this argument, an interactive

computer service would be required to determine whether

the information content provider intended the content to be

published in a particular forum. This was not the focus of

the Ninth Circuit in Batzel. Rather the Court withdrew

protection only for those internet service providers who

would publish on the Internet private communications the

provider knew or had reason to know were never intended

to be published at all. All of the images owned by Perfect 10

were intended to be published and they are indeed published

on Perfect 10’s own website. See, e.g., | Zadeh Decl. at J 17.

None of the evidence provided by Perfect 10 creates a genuine

issue Of material fact as to whether the images on the

Defendants’ affiliate websites were intended to be private

and unpublished. Therefore Batzel is inapposite and does not

preclude the application of CDA immunities tu Perfect 10°s

Claim 6 for unfair competition under the UCL and Claim 7

for false advertising.

3. Distributor

Perfect 10 also contends that the CDA’s immunity cannot

protect the Defendants because the CDA does not cover

distributors. Every published case that has considered the

issue has held that the CDA tmmunizes distributor liability

102a

Appendix B

as well as publisher liability. See, e.g., Zeran v. America

Online, Inc., 129 F.3d 327, 331-32 (4th Cir. 1997); Ben Ezra,

Weinstein & Co. v. America Online, Inc., 206 F.3d 980, 986

(10th Cir. 2000).7° Therefore, even if the Defendants are

considered distributors rather than publishers, the CDA

immunities would still apply to Perfect 10’s Claim 6 for

unfair competition under the UCL and Claim 7 for false

advertising.

4. Legislative Purpose

Perfect 10’s final contention is that the legislative

purpose of the CDA is to protect minors from harmful

material on the Internet and the Defendants aid in the

distribution of offensive and obscene content and should

therefore not be able to shield themselves from liability based

on the CDA. However, the immunity conferred by the CDA

does not depend on the content of the information provided.

Furthermore, the portion of the CDA that attempted to

regulate indecency on the Internet based on content was

deemed unconstitutional. See Reno v. American Civil

Liberties Union, 521 U.S. 844, 885, 117 S.Ct. 2329, 138

L.Ed.2d 874 (1997). Therefore, this argument is without

merit.

Based on the foregoing, the Court finds that Perfect 10

has not raised a genuine issue of material fact that Perfect

28. Perfect 10 relies heavily on Barrett v. Rosenthal, formerly

published as 114 Cal.App.4th 1379, 9 Cal. Rptr.3d 142 (2004), review

granted April 14, 2004, $122953. Since the California Supreme Court

has granted review of this case, Barrett may not be relied on as

precedent. Cal. State Rules of Court 976(d) & 977(a).

103a

Appendix B

10’s claims against the Defendants for |) unfair competition

under the UCL and 2) false advertising pursuant to California

Business & Professions Code §§ 17200 and the common law

are not barred by the CDA. Therefore, the Court GRANTS

the Defendants summary judgment on Claim 6 for unfair

competition under the UCL and Claim 7 for false and

misleading advertising.”

V. CONCLUSION

Based on the foregoing, the Court hereby ORDERS as

follows:

A. Defendant IBill’s Motion for Summary Judgment

Defendant IBill’s motion for summary judgment is

GRANTED, in part, and DENIED, in part. The Court:

1) GRANTS IBill’s motion for summary judgment

and finds that IBill is entitled to the safe harbor

provision under § 512(a) on Claim | for copyright

infringement and Claims 8 and 9 for RICO

violations;

2) DENIES IBill’s motion for summary judgment

on Claim Four for wrongful use of a registered

mark;

29. The Court notes that Perfect 10’s Claim 6 for unfair

competition under 15 U.S.C. § 1125(a) of the Lanham Act ts not

affected by this ruling.

104a

Appendix B

3) DENIES IBill’s motion for summary judgment

on Claim Five for violation of rights of publicity;

4) GRANTS IBill’s motion for summary judgment

on Claim Six for unfair competition under the

UCL; and

5) GRANTS IBill’s motion for summary

judgment on Claim Seven for false and misleading

advertising.

B. Defendant Internet Key’s Motion for

Summary Judgment

Defendant Internet Key’s Motion for summary judgment

is GRANTED, in part, and DENIED, in part. The Court:

1) GRANTS Internet Key’s motion for summary

judgment and finds that Internet Key is entitled

to the safe harbor provision under §§ 512(a) and

512(d) on Claim | for copyright infringement and

Claims 8 and 9 for RICO violations for

infringements after August 21, 2002;

2) DENIES Intern

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