Perfect 10, Inc. v. Visa Int'l Serv. Ass'n
494 F.3d 788 (2007)
Rule of Law:
Providing a conventional financial service, such as credit card payment processing, to a third party engaged in direct copyright infringement does not constitute secondary liability. To be held contributorily liable, a defendant must materially contribute to or induce the infringing conduct itself, not merely make it more profitable; to be held vicariously liable, the defendant must have the right and ability to directly supervise the infringing activity, not just exert indirect financial pressure.
Facts:
- Perfect 10, Inc. creates and publishes copyrighted photographic images of 'natural models' in its magazine and on its subscription website.
- Numerous third-party websites stole Perfect 10's proprietary images, altered them, and illegally offered them for sale to the public online.
- Visa International Service Association, MasterCard International Inc., and affiliated banks and data processors (collectively, Defendants) provided credit card payment processing services to these third-party websites.
- These services enabled the infringing websites to accept credit card payments from consumers who purchased the stolen images.
- Perfect 10 sent repeated notices to the Defendants, specifically identifying the infringing websites and informing them that their payment systems were being used to facilitate the sale of infringing material.
- Despite receiving these notices, the Defendants took no action and continued to process credit card payments to the infringing websites.
- Separately, defendant First Data Corporation terminated a merchant account it had with Perfect 10 in 2001, citing a high rate of disputed charges, and placed Perfect 10 on an industry-wide 'black list'.
Procedural Posture:
- Perfect 10, Inc. sued Visa, MasterCard, and affiliated banks in the U.S. District Court, alleging secondary copyright and trademark infringement, among other state law claims.
- The Defendants filed a motion to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).
- The district court granted the motion, dismissing some claims with prejudice but allowing Perfect 10 to amend its complaint.
- Perfect 10 filed a first amended complaint.
- The Defendants again moved to dismiss under Rule 12(b)(6).
- The district court granted the second motion, dismissing all remaining causes of action with prejudice.
- Perfect 10, as appellant, appealed the final dismissal to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does providing credit card payment processing services to websites that are known to be infringing on copyrights and trademarks subject the financial institutions to secondary liability for contributory or vicarious infringement under federal law?
Opinions:
Majority - Judge Milan D. Smith, Jr.
No. Providing credit card payment processing services to infringing websites does not subject the financial institutions to secondary liability because their services do not materially contribute to or induce the infringement itself, nor do they possess the right and ability to supervise the infringing conduct. For contributory infringement, the Defendants do not materially contribute because the infringement (reproduction, display, distribution) occurs independently of the payment process, and no infringing material passes through their systems. Unlike a search engine that helps users locate infringing material, the Defendants' services only make the infringement more profitable, which is an indirect causal link. Furthermore, there is no inducement because the Defendants did not promote their payment systems with the specific object of fostering infringement. For vicarious infringement, the Defendants lack the requisite right and ability to supervise. While they can terminate payment processing, this amounts to indirect financial pressure, not the direct control over the infringing websites' content and activities required for liability. Their ability to withdraw a financial 'carrot' does not equate to the 'stick' of control over the actual infringement.
Dissenting - Judge Kozinski
Yes. The credit card companies are liable for indirect copyright infringement because they knowingly provide an essential financial bridge that enables infringing transactions to be consummated, and they profit from every sale. For contributory infringement, processing payment is an 'essential step' for distribution 'by sale,' and is as material to the infringement as a search engine that helps locate the content. The majority's distinction between locating and paying for content is an ephemeral one, as both are equally central to commercial infringement. For vicarious infringement, the Defendants have both a direct financial interest and the 'practical ability' to stop or limit the infringement, which is the correct standard under precedent. They have a contractual right, through their own merchant rules, to terminate services for illegal activity, and withdrawing their payment systems—the financial lifeblood of these websites—would effectively stop or severely limit the infringing commerce. The majority incorrectly substitutes a new 'absolute right to stop' standard for the established 'practical ability' standard.
Analysis:
This decision significantly narrows the scope of secondary liability for financial service providers and other third parties in the e-commerce ecosystem. By distinguishing the act of processing payment from acts that help locate or distribute infringing content, the court insulates payment processors from liability even when they have knowledge of the underlying infringement. This ruling raises the bar for plaintiffs, requiring them to show that a defendant's service is integral to the infringing act itself, not just the profitability of the infringing enterprise. It solidifies the view that the ability to exert financial pressure is not equivalent to the 'right and ability to control' needed for vicarious liability, thereby protecting a wide range of service providers from being deputized as copyright enforcers.
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