Copyright and Trademark Law: Perfect 10 v. CCBill 053107

Perfect 10 v. CCBill, 9th U.S. Circuit Court of Appeals, Nos. 04-57143/04-57207 (May 31, 2007):

Perfect 10 became aware of an ISP that featured such sites as illegal.net and that featured unlicensed copies of Perfect 10's copyrighted pictures on such sites. Perfect 10 sued this company, CWIE, and its related company, CCBill (collectively, the ISP). The ISP claimed safe harbor under the safeharbor provisions of the DMCA, and the lower court agreed -- granting summary judgment for the ISP. Perfect 10 appealed the grant of summary judgment.

Pertinent issues of copyright law:
1) Can one disqualify an ISP from safeharbor if that ISP has been notified of the infringing behavior via multiple notices that collectively would meet the requirements for notification according to Section 512 of the DMCA?
2) What constitutes reasonable implementation?
3) What constitutes sufficient notice of infringing activity to an ISP under the DMCA?
4) Can sufficient notice to third parties constitute a red flag under the DMCA?
5) Is website access a standard technical measure under the DMCA?
6) Can a web link be, in itself, infringing?

Pertinent issue of trademark law:
1) To what degree are the CDA's safeharbors applicable to intellectual property claims?

Conclusion:
The appeals court found that for the ISP to qualify for safeharbor, it must first establish that it reasonably implemented a policy to keep infringers in check. While Perfect 10 argued that the ISP did not do this, the evidence that the lower court saw and with which the appeals court agreed demonstrated that the ISP did indeed keep track of infringers in a log, despite what Perfect 10 claimed. While there were some blanks in the log where information should have been, it was beyond doubt that the logs recorded most webmasters' information. Also, in contrast to past cases where reasonable implementation was not found, there were no efforts by the ISP to prevent reasonable implementation of its policy.

Perfect 10 argued that the implementation was not reasonable, though, as the ISP allowed for flagrant and continued violations despite notice. The court took issue with the notice provided as the DMCA sets out very specifically that the steps laid out for notice therein must be rigidly followed. Perfect 10 argued that it complied with the notice provisions in a piecemeal fashion, having met certain steps in certain notices and other steps in other notices. The court said that forcing ISPs to cobble together on their own whether or not a copyright holder has provided adequate notice of an infringer would be unduly burdensome. Each notice, taken individually, was insufficient under the DMCA, so Perfect 10 did not provide notice sufficient to disqualify the ISP from safeharbor.

To this, Perfect 10 argued that even if it did not provide sufficient notice of infringer activity, other copyright holders had provided sufficient notice to the ISP, and the infringing activity nonetheless continued unfettered. The court found that the record of the ISP in addressing infringing activity of which it has been properly notified by copyright holders that were not a party in this case was relevant to the inquiry as to whether the policy had been reasonably implemented by the ISP. This was a factor that would require further review.

Perfect 10 argued that claims by its client websites that they dealt in stolen or illegal goods -- or that disclaimed liability for what was posted -- were red flags. The court found that such descriptive terms may only have been used to increase the salacious appeal of legally possessed goods or services. The court not only noted that the ISP may not even know about the disclaimer mentioned, but that the disclaimer clearly asserted that the site had a right to post the materials but otherwise disclaimed liability for what was posted. Thus, even with awareness of such disclaimers, the ISP would not have known of the legitimacy of the site's content without unduly burdening itself into a premature investigation before proper notice. The court similarly dismissed any awareness the ISP may have had about alleged password hacking sites that it hosted. Without trying the products, how could the ISP have verified the claims?

Perfect 10 also argued that proper notice by third parties were a red flag for infringing activity in this case. The court found that this would be correct, but it required further proceedings to determine if such red flags properly existed.

Perfect 10 next argued that the ISP unfairly prevented Perfect 10 from utilizing the standard technical measure of accessing sites by requiring a subscription to enter such sites. The court was unsure if access was a standard technical measure under the law, so it remanded that issue for further review and proceedings. If it is a standard technical measure, then whether this right to access was violated hinged on a factual matter. Perfect 10 that it was denied access to the sites because the ISP was trying to hide its wrongdoing, but the ISP assured the court that had Perfect 10 not reversed the charges on its subscription, then Perfect 10 would have been allowed to enjoy the benefits of such subscription. The court said that if Perfect 10 was trying to force the ISP to pay for the charges connected to Perfect 10's own duty of vigilance, then that may be an undue burden to the ISP.

Perfect 10 argued that the billing arm of the ISP was liable for copyright infringement for providing links in the billing statements that provided the billed person a means to click on such links to travel to the infringing sites. The court found that since such links were not themselves infringing, the district court clearly erred in agreeing with Perfect 10 and denying the ISP protection under the applicable safeharbor for such transmissions. However, because the billing arm of the ISP's methods for collecting payment were unclear, the court remanded the case for further proceedings to determine if the billing arm was indeed a service provider for the purposes of the statute.

Further, said the court, Perfect 10 was making claims of vicarious liability against the ISP without ever showing that the ISP directly benefited from the infringing behavior. There was no genuine issue of material fact sufficient to maintain the claim.

Based on the findings from the proceedings that were ordered above, the court found that the ISP may be eligible for safeharbor under the DMCA. Further, since the court chose to interpret the Communications Decency Act's (CDA's) references to intellectual property as a reference to federal intellectual property, the court found that the ISP may be eligible for safeharbor under the CDA for state claims relating to federal intellectual property.

The court also addressed the issue of hornybees.com. Evidently, there was some evidence that the site -- one which triably may be posting unauthorized copies of Perfect 10's copyrighted works -- is owned by the ISP. Because the lower court did not reach this analysis, the court sent the matter back to the lower court for further proceedings.

As far as attorneys' fees went, the court found that Perfect 10's claims were not frivolous or otherwise inappropriate, so the lower court did not err in not awarding the ISP attorneys' fees.

Since reasonable implementation was a threshold inquiry, the court first remanded that issue. Pending the outcome of that issue, the other DMCA issues in need of review would also come under scrutiny. The court remanded the hornybees.com issue for further deliberations on its relationship to the ISP, and the ISP's potential liability for the site.

As the lower court had found that CDA immunity was available for all state claims against the ISP for unfair competition, false advertising, and the right of publicity, the court reversed the publicity judgment but affirmed the court's decision with regard to false advertising and unfair competition (since those two would qualify as federal intellectual property).