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Designer Skin LLC v. S & L Vitamins, Inc., et al.
Unauthorized internet reseller of plaintiff’s products is not guilty of trademark infringement, and does not cause actionable initial interest confusion, by using plaintiff’s trademarks in meta tags of website at which plaintiff’s and its competitors’ products are sold, and in...

Perfect 10, Inc. v. Cybernet Ventures, Inc., et al.

2002 U.S. Dist. Lexis 7333, CV 01-2595 LGB (C.D. Ca., April 22, 2002)

Court issues preliminary injunction against Cybernet Ventures, which operates an Age Verification Service, based on the use by web sites operated by third parties of various images in which plaintiff held the copyright, or featuring a model who had assigned her right of publicity to plaintiff. 

Cybernet Ventures operates the Age Verification Service "Adult Check."  Participating web sites put a script on their site which direct first time users to Cybernet, who sells them access to the Adult Check family of sites.  The user is thereafter free to visit Adult Check sites for a set period of time.  The fees generated by this user are paid to Cybernet, who splits them with the web site which sent the user to Cybernet.  To assist the user in finding Adult Check sites to his liking, Cybernet provides both a series of links as well as a search engine.  It also advertises its network. 

Cybernet takes an active interest in the content of Adult Check sites, employing a staff of 12 to review the site both before it is admitted to the Adult Check family, and periodically thereafter.  The content of the site is reviewed by Cybernet to prevent the inclusion of prohibited images.  Cybernet also provides comment on the site's layout.  The images on each site, however, are not provided by Cybernet.  Instead, each site is run by a third party, who is responsible for locating the images, arranging to have the site hosted, and advertising the site.

Perfect 10, which holds the copyright in a number of images of nude women made available to the public both on its web site and in a magazine, brought this suit, charging that web sites in the Adult Check family contained over 10,000 images in which Perfect 10 held the copyright. 

The court determined that Perfect 10 was likely to prevail on its claims contributory and vicarious copyright infringement against Cybernet, as well on its claims of unfair competition under Cal. Bus. and Professions Code Section 17200.  The court held that Perfect 10 was likely to prevail on its contributory infringement claim because Cybernet was likely to be held to have the requisite notice of the infringing activities at issue, and to have materially contributed to this infringement by its operation of the Age Verification Service, and particular its collection of fees for, and advertising of the web sites in question.

The court further held that Perfect 10 was likely to prevail on its vicarious infringement claim, because Cybernet had the ability to control the web sites, as evidenced by the review of its content it conducted, and received a direct financial benefit from the presence on these web sites of the infringing images.  Lastly, the court held that Perfect 10 was likely to prevail on its unfair competition claim, because Cybernet was likely to be held to have aided and abetted a violation of various models' right to publicity, again by virtue of its knowledge of infringement, and contributed thereto by virtue of its operation of the AVS system.

The court further held that Cybernet was unlikely to be able to avoid this liability under the safe harbor provisions of the Digital Millennium Copyright Act, because the court was likely to hold both that the DMCA policy Cybernet adopted failed to comply with the DMCA, and that Cybernet failed to reasonably implement such a policy, or terminate repeat infringers.  Cybernet was also unlikely to be able to seek the protections of the DMCA because it received a financial benefit directly attributable to infringing activity it had the right and ability to control.

The court accordingly issued a preliminary injunction, which prohibited Cybernet from utilizing or linking to the images in question.  The injunction further obligated Cybernet to stop linking to sites containing the images in question where Cybernet had either notice thereof, or knew or should have known of the presence of the images, under circumstances specified in the injunction.  The injunction also obligated Cybernet to undertake reviews both of sites seeking to become members of the Adult Check network, and of designated existing sites, to ascertain whether they were using any of the images at issue, and to bar such new sites from entering the network without proper rights documentation.  The scope of this injunction is discussed in greater depth in the accompanying "in depth" analysis of this decision.

Perfect 10, Inc. ("Perfect 10") holds the copyright in a number of images of nude women which it makes available to the public via both a web site and magazine.  Perfect 10 has received assignments from a number of the models appearing in its images of their right to publicity.  For the privilege of viewing these images on its web site, users pay Perfect 10 a monthly fee.  Despite the revenues generated by these ventures, however, Perfect 10 has sustained significant operating losses since its inception.

Defendant Cybernet Ventures, Inc. ("Cybernet") operates an Age Verification Service ("AVS") called "Adult Check" which it offers to web masters operating web sites that feature pictures of nude women.  Web masters who agree to participate and are accepted into defendant's service place a script on their web site which connects first time users of their site to Cybernet.  Once there, Cybernet sells the user one of several packages which give the user access to designated web sites operated by web masters who have agreed to participate in the Adult Check system for a set period of time.  The user is then provided with a password which permits him to access the designated Adult Check sites. 

The user apparently pays Cybernet by credit card for this access.  Typically, Cybernet retains approximately 50% of these fees, and sends the balance to the web site that sent it the user.

The participating web sites in the Adult Check family are operated by third parties not directly affiliated with Cybernet.  These web masters are responsible for locating the images found on their site, finding a server to host their site, and procuring advertising to drive traffic to their site.  The images they display are not hosted on equipment owned or operated by Cybernet.

Cybernet takes steps to regulate the content of the sites that are members of its Adult Check family.  Cybernet has a staff of 12 that review each site before it is permitted to join the Adult Check family.  Cybernet thereafter attempts to  review participating sites once a month.  "Among [its] considerations in reviewing these sites, Cybernet looks for potentially underage images and overuse of celebrity images. …  Cybernet actively reviews and directs affiliated webmasters on the appearance and content of their sites … [and] provides Adult Check webmasters with a variety of tools to help them develop their web sites." 

Cybernet also has a number of policies in place which govern the content permissible on member sites.  Among other things, these policies prohibit the posting of illegal images, which include images of minors, or which depict rape or bestiality, as well as the use of copyrighted images without proper authorization.  Despite these policies, however, many of the web sites in the Adult Check family feature "disclaimers to the effect 'we do not hold copyrights to the works'" appearing on our site.

Cybernet provides users of Adult Check with both a linking service and search engine to assist them in finding sites containing images of the type they seek, including of celebrities.  Cybernet assigns keywords to participating sites that describe their content to further the efficiency of this search engine.

After the enactment of the Digital Millennium Copyright Act ("DMCA"), Cybernet adopted a DMCA policy, described below.  According to the Court, however, Cybernet did not "actively enforce" this policy, and did not stop providing services to websites which repeatedly engaged in copyright infringement.

Perfect 10 discovered that a substantial number of its copyrighted images appeared on websites which were part of the Adult Check family.  These included images of models who had assigned their right of publicity to Perfect 10, and images that bore Perfect 10's trademark.  In addition, Perfect 10 found images on Adult Check web sites that purported to be of various celebrities, but were, in fact, digitally altered images of models who had assigned their right of publicity to Perfect 10, to which were added the head of a celebrity.  Perfect 10 alleged that 10,000 of its images could be found on websites participating in the Adult Check system.

As a result, Perfect 10 commenced this suit, charging Cybernet with copyright and trademark infringement, as well as unfair competition under Calif. Bus. and Professions Code Section 17200.  Perfect 10 did not bring these alleged infringing activities to Cybernet's attention before it commenced the instant lawsuit.  It did delineate alleged infringing activities on 77 Adult Check websites in its Second Amended Complaint, and identified additional infringing conduct in subsequent court filings.  In addition, 18 celebrities sent Cybernet notice objecting to the use of their images on Adult Check sites.

Nine months after the commencement of the suit, Perfect 10 moved for a preliminary injunction.  Finding Perfect 10 had established a sufficient likelihood of success on the merits, the court issued the injunctive relief described below.

The court found that Perfect 10 was unlikely to prevail on its direct copyright infringement claim against Cybernet.  "Infringement occurs when a defendant violates use of exclusive rights of the copyright holder."  Cybernet did not participate sufficiently in the display of the images in question to be guilty of direct copyright infringement because they appeared on websites operated by third parties, not Cybernet, on equipment that was owned by third parties, and not Cybernet.  Said the court: 

The principle distilled from these cases is a requirement that defendants must actively engage in one of the activities recognized in the Copyright Act.  Based on the evidence before the Court it appears that Cybernet does not use its hardware to either store the infringing images or move them from one location to another for display.  This technical separation between its facilities and those of its webmasters prevents Cybernet from engaging in reproduction or distribution, and makes it doubtful that Cybernet publicly displays the works.  Further, there is currently no evidence that Cybernet has prepared works based upon Perfect 10's copyrighted material.  The Court therefore concludes that there is little likelihood that Perfect 10 will succeed on its direct infringement theory.

The Court, however, found that there was "a strong likelihood" that Perfect 10 would prevail on the contributory and vicarious copyright infringement claims it asserted against Cybernet.

"Liability for contributory copyright infringement attaches when 'one who, with knowledge of the infringing activities, induces, causes or materially contributes to the infringing conduct of another.'  ... The standard for the knowledge requirement is objective, and is satisfied when the defendant knows or has reason to know of the infringing activity."  The Court held that there was a strong likelihood that Perfect 10 could establish both that Cybernet possessed the requisite knowledge, and that it materially contributed to the infringing activities of the Adult Check webmasters.

In finding that there was a strong likelihood that Perfect 10 would establish that Cybernet had the requisite knowledge of the infringing activities, the Court relied on the actual notice of copyright infringement provided in Perfect 10's Second Amended Complaint, approximately 2000 e-mails sent by the Association for the Protection of Internet Copyright, "notifying Cybernet of alleged copyright infringement on its system" and the fact that many Adult Check sites, reviewed by Cybernet employees, contained disclaimers to the effect "we do not hold copyrights for the works" appearing on our site.

The Court further held that there is a strong likelihood that Perfect 10 will succeed in establishing that Cybernet materially contributed to the infringing conduct of the Adult Check webmasters.  Said the Court:

. . . Cybernet's hand in Adult Check, and in particular its steady payments to infringing sites along with its advertising, materially contribute to the growth and proliferation of any infringement. . . . Cybernet markets the Adult Check brand through advertising, its pays webmasters commissions directly based upon the number of Adult Check users that register through the site, it provides technical and content advice, it reviews sites, and it attempts to control the quality of the "product" it presents to consumers as a unified brand.

As a result, the court held that there was a strong likelihood that Perfect 10 would prevail on its contributory infringement claim.

The Court also held that there was a strong likelihood that Perfect 10 would prevail on its vicarious copyright infringement claim.  A defendant will be liable for vicarious copyright infringement where he has "(1) the right and ability to exercise control over a directly infringing party and its activities and (2) obtained a direct financial benefit from the 'infringing activities.'"

The Court held that there was a strong likelihood that Perfect 10 would be able to show that Cybernet obtained a direct financial benefit from the infringing activities of its webmasters in posting some 10,000 infringing images on their sites.  "Cybernet benefits directly from these infringing sites to the extent that they have brought in new users because new customers pay Cybernet directly." 

The Court rejected Cybernet's argument that the infringing images in question represented a minor portion of the total images on its Adult Check network, and therefore did not produce the necessary direct financial benefit, because the infringing images, by themselves, did not attract sufficient traffic to Adult Check.  Said the Court:

Cybernet attempts to hide behind the sheer volume of images on its sites to argue that even 10,000 infringing images does not establish a sufficiently direct financial interest or relationship.  The Court disagrees.  In Adobe Systems, the court implied that the small number of infringing articles was insufficient to support a conclusion that these items provided "a significant draw" bringing consumers to the fairs.  173 F. Supp. 2d at 1053.  In contrast, the Court concludes that there is a strong likelihood Perfect 10 will establish a large number of infringing sites. …  The Court also concludes that the fortunes of these sites and Cybernet are sufficiently tied to create the requisite direct financial benefit.

The Court further held that Perfect 10 had a strong likelihood of showing that Cybernet had the requisite ability to control the websites in question necessary to establish vicarious liability.  In reaching this conclusion, the Court relied on Cybernet's policing of the websites' content, its provision of detailed instructions to webmasters on site layout, appearance and content, its right to terminate a site's participation in the Adult Check network, and its ability to control consumer access to the network.

Cybernet argued that it was protected from liability for copyright infringement by the DMCA.  The Court rejected this argument, and held that Cybernet was unlikely to establish that it qualified for protection under the DMCA for a number of reasons.  The DMCA creates a series of four 'safe harbors' to protect 'providers of online services' from liability, primarily monetary, based on claims of copyright infringement attributable to the action of users of its system.  To qualify for this protection, an online service provider must "develop, promulgate and reasonably implement a policy providing for termination in appropriate circumstances of repeat copyright infringers."  17 U.S.C. §512(i).

The Court held that such appropriate "circumstances would appear to cover, at a minimum, instances where a service provider is given sufficient evidence to create actual knowledge of blatant, repeat infringement by particular users, particularly infringement of a willful and commercial nature."  In reaching this conclusion, the Court made clear its view that the DMCA imposes obligations on the online service provider seeking its protections to take action against repeat infringers.  Said the Court:

The Court does not read section 512 to endorse business practices that would encourage content providers to turn a blind eye to the source of massive copyright infringement while continuing to knowingly profit, indirectly or not, from every single one of these same sources until a court orders the provider to terminate each individual account. … The court does recognize that section 512(1) allows for court orders terminating user accounts, but it also recognizes that online service providers are meant to have strong incentives to work with copyright holders.  The possible loss of the safe harbor provides that incentive and furthers a regulatory scheme in which courts are meant to play a secondary role to self-regulation.

The Court found, on the evidence before it, that Cybernet had not implemented a policy that complied with the DMCA, and thus was not likely to prevail on its claim that it was entitled to its protection.  Said the Court:

Cybernet disclaims any intent to impose "impossible affirmative duties upon itself."  In the context of this litigation, the Court sees this as an implicit argument that rooting out repeat infringers imposes such "impossible" duties and finds it runs against Cybernet's argument that it is actually trying to cope with repeat infringers. … The record supports the conclusion that Cybernet has taken great pains to avoid shouldering the burdens of the copyright regime, all the while profiting from pirates.

The Court further found that Cybernet was unlikely to be entitled to any of the protections offered by the DMCA for a number of additional reasons as well.  The DMCA policy Cybernet promulgated was deficient in a number of respects.  Under the DMCA, the copyright owner initiates the removal of infringing material by delivering a notice containing specified information to the online service provider.  Under the statute (17 USC §513(c)(3)(A)), if there are multiple infringing works on a single web site, the owner may simply provide a representative list of those infringing works in this notice.  Cybernet's policy required the owner instead to specify each infringing image, and the location on the web site in question at which it could be found.  This imposed a significantly greater burden on the copyright holder to review the infringing site.  In addition, under the statute, the online service provider must work with a copyright owner who provides a deficient notice.  Cybernet's policy contained no such provision.

Cybernet's DMCA policy also had additional defects.  An appropriate DMCA policy requires the service provider to expeditiously remove or disable access to infringing material once the proper notice is received, and to notify the user promptly.  "The affected user may then submit a counter-notification consisting of a statement under penalty of perjury, that the user has a good faith belief that the material was removed as a result of mistake or misidentification of the material."  The material thereafter will be reposted, unless a court action is filed.

Cybernet eliminated this counter notification procedure from its DMCA policy.  Under its policy, "by stating under penalty of perjury that they removed the named infringing material, a knowing infringer will be established on the Adult Check System."  This policy, according to the Court, was likely to be held inadequate, because it permitted Cybernet to avoid appropriately identifying repeat infringers.  Said the Court:

The DMCA's counter-notification statement, with its good-faith requirement stated under penalty of perjury, separates good-faith infringers and innocent users from those who knowingly infringe copyrights.  See 17 U.S.C. §512(g)(3). … [T]here is an implication that a party who cannot sign the required statement is a knowing infringer. … This … allows Cybernet to reinstate an infringer without the Congressionally-required statement and provides cover for Cybernet to water down its termination policy by treating these minimalist take-down statements as neither an admission nor a denial of the copyright infringement allegations, regardless  of how blatant the infringement might be.

Based on the foregoing, the court concluded it was unlikely that Cybernet had promulgated a DMCA policy sufficient to obtain protection under the statute.

The Court also held that it was unlikely that Cybernet could qualify for protection under the DMCA because, as stated above, it received a financial benefit directly attributable to infringing activity it had the right and ability to control.  Such was likely to bar Cybernet from seeking protection under the DMCA safe harbors found in sections 512(c) and (d).

The Court also found that Perfect 10 was likely to prevail on its claim that Cybernet violated Cal. Bus. & Professions Code Section 17200, which protects against "unfair competition."  Under this statute, "unfair competition shall mean and include any unlawful, unfair or fraudulent business practice or act …".  Perfect 10 based its claim on Cybernet's violation of the rights of publicity of models appearing in images in which Perfect 10 held the copyright, which rights had been assigned to plaintiff.  It also based its claim on the right of publicity of various celebrities which had been assigned to neither party.

California recognizes two causes of action based on violation of rights of publicity, one under common law and the other under California Civil Code Section 3344.  To establish a claim at common law, the plaintiff must establish the unauthorized use by defendant of plaintiff's name or likeness to defendant's advantage which use resulted in injury to the plaintiff.  To establish a claim under Section 3344, plaintiff must show that defendant knowingly used plaintiff's name, photograph or likeness on or in products, merchandise or goods without plaintiff's consent.

The court held that under California law, a cause of action existed for aiding or abetting a violation of another's right of publicity.  Following the Restatement (Second) of Torts, Section 876, such liability arises when one knows that the other's conduct constitutes a breach of duty and gives substantial assistance or encouragement to the conduct himself.  Applying this standard, the court found that Perfect 10 had a strong likelihood of establishing that Cybernet aided and abetted the violation of the right of publicity of Perfect 10's models, because it both knew of such violations (by virtue, inter alia, of the notice it received in various court filings in this action) and substantially participated therein, by virtue of its operation of the AVS as described above.

This violation, in turn, was sufficient to sustain Perfect 10's Section 17200 unfair competition claim.

The court also held that Perfect 10 had standing to assert that Cybernet violated the rights of publicity of various celebrities by virtue of its status as a competitor of Cybernet in the cyberporn industry, and that it had a strong likelihood of prevailing as to 18 celebrities who had given written notice to Cybernet, complaining of the posting of their images on Adult Check websites.

Lastly, the court found, on the evidence before it, that Perfect 10 was not likely to prevail on its trademark infringement claims, because it had failed to establish that Cybernet had the requisite knowledge that webmasters operating Adult Check sites were improperly using plaintiff's Perfect 10 trademark.

The court, having held that Perfect 10 had a strong likelihood of success on the merits on both its copyright infringement and unfair competition claims, awarded plaintiff injunctive relief, as irreparable injury is presumed in such cases.  The court held that there was also sufficient evidence presented to establish actual irreparable harm by defendant's conduct.  Such harm arose out of the vast number of users visiting Adult Check sites, in part because of plaintiff's images, in lieu of plaintiff's site.

The court accordingly issued an injunction which:

1. Prohibited defendants from displaying on any web site defendant's operated or listing in its Adult Check search engine any image in which Perfect 10 held a copyright or of any of the identified celebrities or Perfect 10 Models ("Prohibited Content");

2. Directed Cybernet to block access to any website, through Adult Check network links or an Adult Check password, and bar any site from using any Cybernet computer facility,   (a) if Cybernet knows or has reason to know that that website contains any Prohibited Content, or (b) as to which Cybernet is or has been given adequate notice that it contains Prohibited Content.  A website can avoid such blocking if it produces appropriate Rights Documentation establishing its right to use the contested images, or submits a sworn counter notification complying with 17 U.S.C. §512(i).

The injunction further directed Cybernet to take various affirmative steps to review websites for Prohibited Content, both with respect to websites seeking to join the Adult Check network, and various other designated sites as well.  Sites that contained such Prohibited Content were to be barred from joining the Adult Check network if such content is reasonably apparent or if the website disclaims copyright ownership to its images, unless the site produced appropriate rights documentation establishing an entitlement to use the images.

In addition, the injunction, among other things,  directed Cybernet to require each Adult Check site within its Celebrity category to produce rights documentation showing it had the right to use the image of any celebrity that had complained to Cybernet.  Failure to produce such documentation required Cybernet to treat the site as one containing Prohibited Content in accordance with paragraph 2, above.

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