Credit card companies that process payments for pirated Internet images are not liable for copyright infringement, a federal appeals court ruled on July 3, 2007.
The Ninth Circuit Court of Appeals upheld the dismissal of a lawsuit brought by a publisher of adult Web sites against Visa International, MasterCard International, and other financial companies.
The 2-1 decision found that Perfect 10 failed to prove that credit card providers were liable because they played no role in helping people find or download the infringing images. The court reasoned that if credit card companies were found to contribute to infringement, so might other peripherally involved third parties such as computer makers, software companies, and even utility companies. It distinguished the Grokster and Napster decisions, finding in this case that none of the infringing material directly passes through the defendants’ payment systems.
The decision was a blow to Perfect 10’s ongoing battle against Web sites that sell access to its erotic photographs without permission. It comes on the heels of another court loss by Perfect 10 in May. As reported in the May 25, 2007 issue of AdvertisingLaw@manatt, the appeals court reversed a temporary injunction barring Google from displaying thumbnail versions of images owned by Perfect 10 that other sites had improperly posted.
Before suing the financial companies, Perfect 10 had notified the defendants of the specific Web sites carrying the stolen content and had asked that they prohibit payments to those sites. When the defendants failed to honor the requests, Perfect 10 sued, asserting contributory copyright infringement, and aiding and abetting unfair competition and false advertising.
Perfect 10 argued that the credit card companies were in a unique position to do something about copyright infringement because their rules require member banks to investigate merchants suspected of participating in illegal activity.
In a dissenting opinion, Judge Alex Kozinski agreed with Perfect 10. He wrote that the credit card companies "knowingly provide a financial bridge between buyers and sellers of pirated works, enabling them to consummate infringing transactions while making a profit on every sale."
He argued that facilitating payment for an infringing image is just as bad as carrying the image itself:
"If this were a drug deal, for example, we would never say that the guy entrusted with delivery of the purchase money is less involved in the transaction than the guy who helps find the seller. Both would be held equally culpable."
The other two appeals court judges, Stephen Reinhardt and Milan Smith, Jr., held that although credit card companies could withhold payment, they lacked the tools to prevent the offending Web sites from reproducing, altering, and distributing infringing copies of Perfect 10’s photos.
In disposing of the false advertising claims, the court followed Emery v. Visa, a Ninth Circuit case finding no liability for aiding and abetting false advertising, as long as the defendant played no part in preparing or sending the offending advertisement.
SignificanceThe legal duties of companies that support online businesses and advertising are not always clear, and the court attempted to draw a distinct line between them and intellectual property infringers. However, as evidenced by the 2-1 split, the courts themselves are still struggling with how to apply and interpret this evolving area of the law.
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