Perfect 10, Inc. v. Visa International Service Association et al

Filing 23

MEMORANDUM in Support re 22 Consolidated Motion to Dismiss filed by Cardservice International, Inc., First Data Corporation, Humboldt Bank. (Related document(s)22) (Page, Michael) (Filed on 4/19/2004)

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Perfect 10, Inc. v. Visa International Service Association et al Doc. 23 Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 1 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 KEKER & VAN NEST, LLP ROBERT A. VAN NEST - #84065 MICHAEL H. PAGE - #154913 R. JAMES SLAUGHTER - #192813 710 Sansome Street San Francisco, CA 94111-1704 Telephone: (415) 391-5400 Facsimile: (415) 397-7188 Attorneys for Defendants FIRST DATA CORP., CARDSERVICE INTERNATIONAL, INC., and HUMBOLDT BANK [ADDITIONAL COUNSEL ON FOLLOWING PAGE] UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION PERFECT 10, INC., a California corporation, Plaintiff, v. VISA INTERNATIONAL SERVICE ASSOCIATION; FIRST DATA CORP., a corporation; CARDSERVICE INTERNATIONAL, INC., a corporation; MASTERCARD INTERNATIONAL INCORPORATED, a corporation; HUMBOLDT BANK, a national banking association; and DOES 1 through 100, inclusive, Defendants. Case No. C 04 0371 JW (PVT) ALL DEFENDANTS' CONSOLIDATED MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS Date: Time: Dept: Judge: June 14, 2004 9:00 a.m. Courtroom 8, 4th Floor Honorable James Ware 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Dockets.Justia.com Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 2 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TOWNSEND AND TOWNSEND AND CREW LLP DANIEL J. FURNISS - #73531 MARK T. JANSEN - #114896 JOHN C. BAUM - #167570 Two Embarcadero Center, Eighth Floor San Francisco, CA 94111 Telephone: (415) 576-0200 Facsimile: (415) 576-0300 Attorneys for Defendant VISA INTERNATIONAL SERVICE ASSOCIATION WINSTON & STRAWN LLP ANDREW P. BRIDGES - #122761 101 California Street, Suite 3900 San Francisco, CA 94111 Telephone: (415) 591-1000 Facsimile: (415) 591-1400 Attorneys for Defendant MASTERCARD INTERNATIONAL INCORPORATED 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 3 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 B. 2. III. TABLE OF CONTENTS Page TABLE OF AUTHORITIES ......................................................................................................... iii I. II. INTRODUCTION ...............................................................................................................1 FACTUAL BACKGROUND..............................................................................................3 A. B. C. D. Defendants' Payment Processing Systems ..............................................................3 Perfect 10's Adult Entertainment Business And the Allegedly Competing "Stolen Content Websites"....................................................................5 Perfect 10's Factual Allegations ..............................................................................6 Perfect 10 v. Cybernet..............................................................................................6 ALL OF PERFECT 10'S CLAIMS FAIL BECAUSE NO DEFENDANT HAS A DUTY TO POLICE THE GLOBAL ECONOMY, INCLUDING THE INTERNET ..........................................................................................................................7 PERFECT 10 FAILS TO STATE A CLAIM FOR CONTRIBUTORY, VICARIOUS, OR AIDING-AND-ABETTING LIABILITY FOR THE MISDEEDS OF THIRD PARTIES. ..................................................................................11 A. Perfect 10 Has Not Alleged Facts to Support Contributory or Vicarious Copyright Infringement .........................................................................................11 1. Perfect 10 fails to state a claim for contributory infringement because it cannot allege that Defendants have materially contributed to any copyright infringement. ...............................................11 Perfect 10 cannot adequately plead a basis for Defendants' vicarious liability for copyright infringement............................................13 a. Perfect 10 does not allege that Defendants have the requisite right and ability to control infringing activity by third party merchants. ...............................................................14 Perfect 10 does not allege facts to show that Defendants receive a direct financial benefit from any infringement...............16 IV. b. Perfect 10 Has Not Alleged Facts Supporting Its Lanham and State Trademark Claims..................................................................................................17 1. Perfect 10 has not alleged facts supporting any contributory trademark infringement..............................................................................18 a. Perfect 10 cannot allege that Defendants have intentionally induced any merchant to infringe its trademark. ......................................................................................18 i 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 4 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 VII. VI. V. C. D. 2. b. TABLE OF CONTENTS Page Perfect 10 cannot allege that any Defendant has supplied any product used in any alleged infringement.................19 Perfect 10 cannot allege the necessary partnership with or control over any merchant needed to support a claim for vicarious trademark infringement. .............................................................21 Perfect 10 Has Failed To Allege Facts Sufficient To State A Claim For Defendants' Vicarious Liability For Violation Of Publicity Rights......................22 Defendants Cannot Be Liable For Violation Of Sections 17200 And 17500 Of The California Business & Professions Code........................................23 1. Emery establishes that Defendants cannot be liable under Business and Professions Code �� 17200 or 17500 for the conduct of others........................................................................................23 To the extent Perfect 10 asserts claims based on copyright infringement, these state law claims are preempted. .................................24 The state-law unfair competition claims are congruent with Lanham Act claims and must fall with the Lanham Act claims. ...............25 2. 3. PERFECT 10'S LIBEL CLAIM MUST BE DISMISSED BECAUSE IT HAS NOT ALLEGED, AND CANNOT ALLEGE, FACTS SUFFICIENT TO STATE A CLAIM FOR LIBEL. .......................................................................................25 A. B. C. D. Perfect 10's Libel Claim Is Time-Barred by the One-Year Statute of Limitations. ............................................................................................................26 Perfect 10's Libel Claim Must Be Dismissed because the Allegedly Libelous Statements Were True.............................................................................26 Perfect 10's Libel Claim Must Be Dismissed because the Allegedly Libelous Statements Are Privileged.......................................................................28 Perfect 10 Has Not Alleged Special Damages.......................................................30 PERFECT 10'S CLAIM FOR INTENTIONAL INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE MUST BE DISMISSED. .......................31 A. B. C. Perfect 10's Claim is Time-Barred by the Two-Year Statute of Limitations. ............................................................................................................31 Perfect 10 Has Failed to Allege a Probability of Future Economic Benefit from Existing Economic Relationships.....................................................31 Perfect 10 Has Failed to Allege an Independently Wrongful Act. ........................33 CONCLUSION..................................................................................................................34 ii 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 5 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page FEDERAL CASES A & M Records, Inc. v. Abdallah, 948 F. Supp. 1449 (C.D. Cal. 1996) ..........................................................................................19 A&M Records Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001) ...................................................................................9, 11, 12, 16 Adobe Systems Inc. v. Canus Productions, Inc., 173 F. Supp. 2d 1044 (C.D. Cal. 2001) .............................................................11, 13, 14, 15, 16 Banff Ltd. v. Limited, Inc., 869 F. Supp. 1103 (S.D.N.Y. 1994) ..........................................................................................14 Cabanas v. Gloodt Associates, 942 F. Supp. 1295 (E.D. Cal. 1996) ..........................................................................................28 Coastal Abstract Service, Inc. v. First American Title Insurance Co., 173 F.3d 725 (9th Cir. 1999) .....................................................................................................28 Demetriades v. Kaufmann, 690 F. Supp. 289 (S.D.N.Y. 1988) ......................................................................................12, 14 Denbicare U.S.A. Inc. v. Toys "R" Us, Inc., 84 F.3d 1143 (9th Cir. 1996) .....................................................................................................25 E.F. Hutton Mortgage Corp. v. Equitable Bank, N.A., 678 F. Supp. 567 (D. Md. 1988)..................................................................................................8 Ellison v. Robertson, 357 F.3d 1072 (9th Cir. 2004) .............................................................................................11, 13 Federal Deposit Insurance Corp. v. Imperial Bank, 859 F.2d 101 (9th Cir. 1988) .....................................................................................................10 Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996) ............................................................................................... passim Frank Music Corp. v. Metropolitan-Goldwyn-Mayer Inc., 886 F.2d 1545 (9th Cir. 1989) ...................................................................................................14 Gershwin Publishing Corp. v. Columbia Artists Management, Inc. 443 F.2d 1159 (2d Cir. 1971) ....................................................................................................12 Groubert v. Spyglass Entm't Group, LLP, 63 U.S.P.Q.2d (BNA) 1764, 1765 (C.D. Cal. 2002) .................................................................15 Hard Rock Cafe Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143 (9th Cir. 1992) ........................................................................................... passim Howard v. America Online Inc., 208 F.3d 741 (9th Cir. 2000) ...............................................................................................15, 29 Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844 (1982)...................................................................................................................18 Jacobsen v. Marin General Hospital, 192 F.3d 881 (9th Cir. 1999) .......................................................................................................7 iii 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 6 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page Kodadek v. MTV Networks, Inc., 152 F.3d 1209 (9th Cir. 1998) ...................................................................................................25 Livnat v. Lavi, 46 U.S.P.Q. 2d (BNA) 1300 (S.D.N.Y. 1998)...........................................................................12 Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980 (9th Cir. 1999) ............................................................................................. passim Mattel, Inc., v. MCA Records, Inc., 28 F. Supp. 2d 1120 (C.D. Cal. 1998), aff'd, 296 F.3d 894 (9th Cir. 2002) ............................................................................................18 Metropolitan-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 259 F. Supp. 2d 1029 (C.D. Cal. 2003) ...........................................................................9, 11, 12 Mid-Cal National Bank v. Federal Reserve Bank, 590 F.2d 761 (9th Cir. 1979) .................................................................................................8, 10 National Bancard Corp. v. Visa U.S.A., Inc., 779 F.2d 592 (11th Cir. 1986) .....................................................................................................3 Perfect 10, Inc. v. Cybernet Ventures, Inc., 213 F. Supp. 2d 1146 (C.D. Cal. 2002) ...................................................................................6, 7 Perfect 10, Inc. v. Cybernet Ventures, Inc., 167 F. Supp. 2d at 1114 (C.D. Cal. 2001) .................................................................................25 Religious Tech. Ctr. v. Netcom On-Line Communication Services, Inc., 907 F. Supp. 1361 (N.D. Cal. 1995) ....................................................................................12, 13 Sacramento Valley Chapter of National Electric Contractors Association v. International Brotherhood, 632 F. Supp. 1403 (E.D. Cal. 1986) ............................................................................................7 SCFC ILC, Inc. v Visa U.S.A., Inc., 36 F.3d 958 (10th Cir. 1994) .......................................................................................................3 Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304 (2d Cir. 1963) ......................................................................................................13 Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984)........................................................................................................... passim Vackar v. Package Machine Co., 841 F. Supp. 310 (N.D. Cal. 1993) ............................................................................................28 STATE CASES Blank v. Kirwan, 39 Cal. 3d 311 (1985) ................................................................................................................32 Chazen v. Centennial Bank, 61 Cal. App. 4th 532 (1998) ......................................................................................................10 Cislaw v. Southland Corp., 4 Cal. App. 4th at 1288 ..............................................................................................................14 Della Penna v. Toyota Motor Sales, U.S.A., Inc., 11 Cal. 4th 376 (1995) .........................................................................................................31, 33 iv 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 7 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page Emery v. Visa International Service Association, 95 Cal. App. 4th 952 (2002) .............................................................................................. passim Francis v. Dun & Bradstreet, 3 Cal. App. 4th 535 (1992) ........................................................................................................26 Gantry Construction Co., Inc. v. American Pipe and Construction Co., 49 Cal. App. 3d 186 (1975) .......................................................................................................28 Gionfriddo v. Major League Baseball, 94 Cal. App. 4th 400 (2001) ......................................................................................................22 Gomes v. Fried, 136 Cal. App. 3d 924 (1982) .....................................................................................................30 JRS Products, Inc. v. Matsushita Electric Corp. of America, 15 Cal. App. 4th 168 (2004) ......................................................................................................31 Knoell v. Pertovich, 76 Cal. App. 4th 164 (1999) ......................................................................................................31 Korea Supply Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134 (2003) .............................................................................................................33 Lange v. TIG Insurance Co., 68 Cal. App. 4th 1179 (1998) ....................................................................................................33 Leger v. Stockton Unified School District, 202 Cal. App. 3d 1448 (1988) .....................................................................................................7 Noonan v. Rousselot, 239 Cal. App. 2d 447 (1966) .....................................................................................................29 Palm Springs Tennis Club v. Rangel, 73 Cal. App. 4th 1 (1999) ..........................................................................................................30 Pavlovsky v. Board of Trade, 171 Cal. App. 2d 110 (1959) ...............................................................................................29, 30 People v. Brophy, 49 Cal. App. 2d 15 (1942) .........................................................................................................23 Roth v. Rhodes, 25 Cal. App. 4th 530 (1994) ......................................................................................................32 Software Design & Application Ltd. v. Hoefer & Arnett, Inc., 49 Cal. App. 4th 472 (1996) ......................................................................................................10 Tu-Vu Drive-In Corp. v. Davies, 66 Cal. 2d 435 (1967) ................................................................................................................31 Westside Ctr. Associate v. Safeway Stores 23, Inc., 42 Cal. App. 4th 507 (1996) ......................................................................................................32 Youst v. Longo 43 Cal.3d 64, 71 (1987) .............................................................................................................32 FEDERAL STATUTES Copyright Act, 17 U.S.C. �301......................................................................................................25 Fed. R. Civ. P. 9(g) ........................................................................................................................30 v ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) 330585.01 Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 8 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 TABLE OF AUTHORITIES Page STATE STATUTES California Business & Professions Code � 14335...........................................................................................................................................17 � 17200...........................................................................................................................................22 California Civil Code � 45 ....................................................................................................................................25, 26, 27 � 45a...............................................................................................................................................30 � 47(c) ......................................................................................................................................28, 29 � 48a(4)(d) ...............................................................................................................................29, 30 � 3344.............................................................................................................................................22 California Code of Civil Procedure � 339...............................................................................................................................................31 � 340(c) ..........................................................................................................................................26 MISCELLANEOUS 2 Dobbs, The Law of Torts, � 314, at 853 (2001).................................................................................................................7, 8 Prosser and Keeton on Torts, � 53 at 356 (5th ed. 1984) ............................................................................................................7 Nimmer on Copyright � 12.04(A)(1) .............................................................................................................................13 Restatement (Second of Torts) � 314.................................................................................................................................................8 � 314A..............................................................................................................................................8 � 315.................................................................................................................................................8 � 315(a) ............................................................................................................................................8 � 316.................................................................................................................................................9 � 317.................................................................................................................................................9 � 318.................................................................................................................................................9 � 319.............................................................................................................................................8, 9 vi 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 9 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 I. INTRODUCTION Plaintiff Perfect 10, Inc. publishes an adult magazine and operates an adult content website. It claims that others in its business are infringing its copyrights and trademarks and unfairly competing with it by "stealing" unspecified Perfect 10 content. Rather than suing those who it alleges are infringing its rights, even though it purports to have identified the infringing parties, Perfect 10 instead asks this Court to hold two bank card clearinghouse networks (Visa and MasterCard), two bank card processing companies (First Data Corporation and CardService International), and one bank that participates in the Visa and MasterCard systems (Humboldt Bank) responsible for those alleged infringements. The sole reason for this appears to be that the alleged infringers allow consumers to charge their subscription fees on Visa and MasterCard cards.1 All of Perfect 10's claims fail as a matter of law. Perfect 10's lawsuit is based upon the unsupportable notion that, by simply providing notice of its complaints, not to the alleged infringer, but rather to third parties that provide general business services, it can force those third parties to act as the enforcer of its rights, under pain of liability for the alleged acts of others. No court has ever imposed such a duty as Perfect 10 seeks to establish in this case. To the contrary, courts have consistently recognized that one cannot hold payment network providers responsible for the variety of misdeeds that may be perpetrated by users of those payment systems. As the California Court of Appeal stated recently: Given the millions of merchants that use the VISA payment system and the millions of transactions it processes daily, we are unwilling to foist upon Visa the onerous role of the global policeman plaintiff seems to think it should be. Emery v. Visa Int'l Serv. Ass'n., 95 Cal. App. 4th 952, 965-66 (2002). Perfect 10 also asserts libel and tortious interference claims against all Defendants because years ago Perfect 10 was terminated as a Visa merchant on the ground that it suffered excessive chargebacks (charges that are reversed because cardholders claim that they were unauthorized or fraudulent) and was as a result placed on the Combined Terminated Merchant File. Those claims are both frivolous and time-barred. Perfect 10's Ninth Claim for Relief requests injunctive relief. Because that Claim for Relief does not assert any particular facts or cause of action, but merely requests a remedy, the Court may dismiss or strike that Claim for Relief without the need for extended argument by Defendants. 1 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) 1 330585.01 Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 10 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Courts have recognized that imposing broad policing duties on banks, financial institutions and "back-end" data processing entities, such as the Defendants in this case, would unduly burden the national and international economy. Yet these are exactly the economycrippling duties that Perfect 10 asks the Court to impose on Defendants. Defendants are no better positioned to police every merchant that uses their payment infrastructure than the local telephone company, janitorial service, or plumber. If companies that process bank card transactions are liable to Perfect 10 for third-party infringements of its rights, then so too are the office supply vendor, electric utility, and accounting firm. Each provides content-neutral services to potential infringers of Perfect 10's images. It does not follow, however, that each is contributorily or vicariously liable to Perfect 10. Under Perfect 10's logic, anyone who does business with any alleged infringer of Perfect 10's rights, and even those like Visa and MasterCard who do not do any such business directly with alleged infringers, can be converted from an unrelated third-party to a tortfeasor by the simple expedient of sending a letter, alleging infringement by someone else, and demanding that it step in and enforce Perfect 10's rights. Does the alleged infringer buy workstations from Sun Microsystems? Send Sun a letter, demand that Sun cease selling to the alleged infringer, and then file suit. Does the local power company provide the electricity without which the infringer could not operate? Send it a letter, and make it a defendant. Does the infringer use the services of an accountant? Federal Express? A janitorial service? Pick whatever convenient defendant you choose: under Perfect 10's breathtakingly broad view of contributory and vicarious liability, anyone can be nominated. So long as the defendant du jour provides any "critical support" whatsoever to the alleged infringer, Perfect 10 can hold it liable. This is not the law. No such duty to police unrelated merchants or other third parties has ever been imposed upon any financial institution or payment system providers or, indeed, on any person who provides legal content-neutral supplies and services to others engaged in unlawful conduct. Perfect 10 has failed to provide a basis for imposing a duty on Defendants, and has failed to state any claim for which relief can be granted. The Court should therefore dismiss the action. 2 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 11 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 A. II. FACTUAL BACKGROUND Defendants' Payment Processing Systems A basic understanding of the role and operation of the payment processing systems--and the similarly structured Visa and MasterCard systems in particular--is fundamental to the appropriate resolution of this case. The Visa and MasterCard systems have been analyzed and described in detail by several courts, and alleged in Perfect 10's Complaint.2 Visa and MasterCard process hundreds of millions of dollars in transactions every day by acting as conduits that relay and clear transaction information among hundreds of millions of cardholders, tens of millions of merchants, and many thousands of banks worldwide. Complaint, �� 8, 9. The Court in Emery described Visa's system. The MasterCard system is structured similarly: VISA provides a medium for interchange and settlement among the financial institutions that lend to consumers and transfer funds to merchants. VISA is an international organization of over 20,000 autonomous financial institutions located in 240 countries and territories. Through its worldwide computer system, VISA acts as a clearinghouse for credit, debit, and funds transfer transactions among its member financial institutions. It processes over 2,700 transactions every second during its peak season. . . . VISA enters into contractual relationships with member financial institutions, authorizing them to use the VISA payment system and the VISA mark. "Acquiring" member institutions then enter into separate contracts with merchants to display the VISA mark and to accept, in lieu of cash, VISA bank cards as a form of payment. "Issuing" member institutions enter into contracts with consumers whereby consumers obtain their VISA bank cards. VISA does not set the interest rate or any of the terms and conditions of the consumer's card. .... As a consequence, VISA is not involved either in transferring funds to merchants or in billing cardholders. Nor does VISA receive any fee from either the cardholder or the merchant involved in a particular transaction. Emery, 95 Cal. App. 4th at 956. Perfect 10's Complaint describes a typical transaction as follows: The customer presents the merchant with her payment card. The merchant then presents the payment card to either a third-party processor (such as First Data or CardService) or to the merchant's Visa- or See, e.g., Emery, 95 Cal. App. 4th 952 (2002); National Bancard Corp. v. Visa U.S.A., Inc., 779 F.2d 592 (11th Cir. 1986); SCFC ILC, Inc. v Visa U.S.A., Inc., 36 F.3d 958 (10th Cir. 1994). 3 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) 2 330585.01 Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 12 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 MasterCard-affiliated bank (the "acquiring" bank) (such as Humboldt). The information is relayed to Visa or MasterCard, which automatically relays the information to the member bank that issued the customer her payment card (the issuing bank). The customer's issuing bank either authorizes or denies the transaction and relays the appropriate information through Visa or MasterCard back to the merchant's acquiring bank. The acquiring bank then relays the information back to the merchant. Visa or MasterCard then provides the data that allow the two interested banks to "settle" the resulting debits and credits between themselves. Complaint, � 11. Each of these millions of daily transactions is completed in seconds. Defendants enable transaction authorization and interchange of funds as well as the settlement of the debits and credits among members that arise from the millions of bank card transactions that occur each day across the globe. Thus, through their worldwide computer systems, Defendants act as important clearinghouses for credit, debit and funds transfer transactions data exchanged by their member financial institutions. Throughout this process, Visa and MasterCard have no direct relationship or contact with any merchants or consumers, all such contact being in the hands of member financial institutions.3 The Visa and MasterCard systems instead provide a medium for interchange and settlement among the banks that do perform these functions, under strict government regulation. According to the Complaint, Defendants' rules also provide that member banks must terminate the accounts of merchants whose "chargeback" ratios exceed allowable limits. Complaint, � 11. Merchants whose accounts are terminated are listed by member banks on the Combined Terminated Merchant File ("CTMF"), which is alleged to be published by Visa and MasterCard. Id. at � 12. The allegations in Perfect 10's Complaint do not distinguish among the Defendants in terms of the different roles each plays in the payment card processing industry. Visa and MasterCard, for instance, do not have any contact with merchants or consumers, while FDC, CardService and Humboldt have limited, content-neutral, contact with merchants. For the purposes of this motion to dismiss, however, the differences among the Defendants are irrelevant, as all of the allegations of the Complaint (and thus all of the legal arguments made in this brief) are directed to all of the Defendants. 4 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) 3 330585.01 Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 13 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 B. Perfect 10's Adult Entertainment Business And the Allegedly Competing "Stolen Content Websites" Perfect 10 is an "adult entertainment" business. Complaint, � 39. Perfect 10 publishes the magazine Perfect 10 and owns an adult entertainment internet website of the same name. Id. As such, Perfect 10 claims it designs, films, produces and promotes a variety of adult entertainment products, including nude photographs, magazines, and videos. Complaint, � 40. Perfect 10 claims it owns and has attached to the Complaint copyright registrations for many of its photographic images. Complaint, � 74, Exs. 8-9. Additionally, Perfect 10 claims it owns a federal trademark registration for the PERFECT 10 mark that is used in connection with its adult entertainment products and services. Complaint, � 42. Perfect 10 also purportedly owns the rights of publicity of many of the models that appear in its photographic works through assignment. Complaint, � 44. Perfect 10 does not, however, allege that it owns or has any rights to the "celebrities" whose images and rights of publicity are allegedly infringed by the few websites that are specifically identified in the Complaint, so-called "Stolen Content Websites." Complaint, �� 6, 20. Perfect 10 does not presume to allege that any "Stolen Content Website" is affiliated with any Defendant. See, e.g., Complaint, �� 20, 52-53. Perfect 10 has not specifically identified, either in its Complaint or in any of the letters or emails sent to any Defendant (see Complaint, Ex. 5), even one "Stolen Content Website" infringing any trademark, copyright or other right belonging to Perfect 10. Perfect 10 further asserts (without any ownership rights to protect), that the "Stolen Content Websites" violate the rights of publicity of certain mainstream and adult actresses. Complaint, � 20. Again, Perfect 10 does not allege that it owns these actresses' rights of publicity. These websites allegedly charge a "membership fee" to consumers to view a wide variety of adult content--including the allegedly infringing images. Complaint, � 81. The websites provide numerous payment options. Some--but by no means all--of these membership fees are processed using "back-end" data transaction processing networks provided by one or more Defendants. 5 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 14 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 C. Perfect 10's Factual Allegations Perfect 10 alleges Defendants are vicariously and contributorily liable for providing "critical support" to numerous independent "Stolen Content Websites" that allegedly infringe Perfect 10's rights. Complaint, � 20. Despite its length and conclusory rhetoric, the Complaint actually contains only one, solitary factual allegation on which its claims of "critical support" rely: that Defendants process the bank card transactions of allegedly infringing third parties. See e.g. Complaint �� 55(b) (Defendants "facilitat[e]" bank card processing), 56 (same), 59 (Defendants "processes transactions"). The Complaint does not allege, because it cannot, that Defendants review the data transmitted, have control over the individual transactions, or have any control over the infringing activities. Defendants have absolutely no role in creating, displaying, hosting, transmitting or promoting the content complained about--and Perfect 10 does not contend that they do. Rather, Perfect 10 simply asserts that Defendants act as conduits of payment transaction information, and that they should be liable to Perfect 10 if they do not stop providing their services to third-party businesses. The Complaint further alleges that, in 2001, Perfect 10 was terminated as an approved merchant because it had excessive "chargebacks." Complaint, �� 28, 72. Even though Perfect 10 admits its chargebacks actually did exceed the allowed level, and even though it was therefore appropriately terminated (id. at �� 28, 144), Perfect 10 claims it was "libeled" when its name was placed on a register of terminated merchants. D. Perfect 10 v. Cybernet Perfect 10 will doubtless attempt to rely on a preliminary ruling in another easily distinguishable case it brought as part of its effort to hold responsible entities remotely connected to the activities of the direct infringers: Perfect 10, Inc. v. Cybernet Ventures, Inc., 213 F. Supp. 2d 1146 (C.D. Cal. 2002). In that case, the Central District of California found that Cybernet was likely to be found liable for contributory and vicarious copyright infringement. Id. at 1182. Notably, the Cybernet case is materially different from the present case. Cybernet provided technical and content advice directly to its customers, the individual infringing websites, reviewed the infringing sites, paid webmasters commissions, provided links and access to 6 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 15 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 challenged web sites, operated a search engine for its customers that searched those web sites, assigned the infringing web sites keywords to promote the efficiency of its search engine, and attempted to control the quality of the websites. Id. at 1170-71. In contrast to the substantial direct involvement that Cybernet had in the activities of the direct infringers, Perfect 10 does not (and cannot) allege that Defendants had any direct involvement with the allegedly infringing merchants in this case. III. ALL OF PERFECT 10'S CLAIMS FAIL BECAUSE NO DEFENDANT HAS A DUTY TO POLICE THE GLOBAL ECONOMY, INCLUDING THE INTERNET Defendants can only be liable under any of Perfect 10's causes of action if they owed a legal duty to Perfect 10. Perfect 10 has not--and cannot--allege that any Defendant owes Perfect 10 any duty to investigate, control and cease providing payment transaction processing services to a few "bad" merchants among the many millions that use Defendants' services. Perfect 10 would impose on Defendants the burden of investigating and judging complex factual matters relating to the highly specialized and ever evolving law of intellectual property on the internet. It is black letter law that "`[d]uty' is a question of whether the defendant is under any obligation for the benefit of the particular plaintiff." Prosser and Keeton on Torts, � 53 at 356 (5th ed. 1984).4 Duty is a question of law for the court to decide.5 The general rule is that "[u]nless the defendant has assumed a duty to act, or stands in a special relationship to the plaintiff, defendants are not liable in tort for a pure failure to act for the plaintiff's benefit." 2 Dobbs, The Law of Torts, � 314, at 853 (2001). Thus, Perfect 10 may not create a duty where the requisite "special relationship" does not exist, simply by purporting to put Defendants "on Neither the federal trademark or copyright statutes Perfect 10 sued under explicitly create vicarious or contributory liability. Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 435 (1984); Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 261 (9th Cir. 1996). The federal courts have been influenced by state common law theories to find the very limited situations in which persons who do not engage directly in infringements have a duty to police or control others, typically lessees, or subsidiaries and business partners. See also Hard Rock Cafe Licensing Corp. v. Concession Services, Inc., 955 F.2d 1143, 1148-49 (9th Cir. 1992). 5 Jacobsen v. Marin Gen. Hosp., 192 F.3d 881, 885 (9th Cir. 1999); Sacramento Valley Chapter of Nat'l Elec. Contractors Ass'n. v. Int'l Brotherhood, 632 F. Supp. 1403, 1409 n. 11 (E.D. Cal. 1986); Leger v. Stockton Unified School Dist., 202 Cal. App. 3d 1448, 1458 (1988). 7 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) 4 330585.01 Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 16 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 notice" of a threatened injury. Complaint, �� 61-65 and Ex. 5.6 Defendants should not, cannot and do not owe Perfect 10 any legal duty to act as a policeman and enforce Perfect 10's trademarks, copyrights and alleged rights of publicity assigned by Perfect 10's "models." While Perfect 10 has asserted ten different claims for relief, all with their individual "elements," the Court need not parse down to that level, for the simple reason that Perfect 10 has not alleged facts creating a legally enforceable duty owed by any Defendant to Perfect 10. The general rule, that there is no duty to police or halt other's unlawful acts absent a special relationship, either with the plaintiff or the actor, is the common law in every jurisdiction. Restatement (Second) of Torts � 314; see also, e.g., Mid-Cal Nat'l Bank v. Federal Reserve Bank, 590 F.2d 761, 763 (9th Cir. 1979). The Restatement provides that even though the defendant "realizes or should realize that action on his part is necessary for another's aid or protection does not of itself impose upon him a duty to take such action." Restatement (Second) of Torts � 314. As the Ninth Circuit recognized in Mid-Cal, a duty to police others may result only if the defendant stands in a special relationship to the party claiming protection, as, for example, an employer to an injured employee. Mid-Cal, 590 F.2d at 763, see also Restatement (Second) of Torts �� 314A, 315. The Ninth Circuit adopted the same approach in rejecting a claim of contributory trademark infringement in Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 984 (9th Cir. 1999), when it recognized that "the legal duty owed by a landlord to control illegal activities on his or her premises" could not extend to a provider of internet routing services. Simply put, Perfect 10 nowhere alleges the requisite "special relationship exist[ing] between [Defendants] and the [Stolen Content Website merchants] which imposes a duty upon [Defendants] to control the third person's conduct." Restatement (Second) of Torts � 315(a). "The fact that the defendant foresees harm to a particular individual from his failure to act does not change the general rule." 2 Dobbs, Law of Torts at 853. See also Restatement (Second) of Torts �� 314-319; Mid-Cal Nat'l Bank v. Federal Reserve Bank, 590 F.2d 761, 763 (9th Cir. 1979) (bank had no duty to stop or protect other bank from known check-kiting scheme); E.F. Hutton Mortgage Corp. v. Equitable Bank, N.A., 678 F. Supp. 567, 577 (D. Md. 1988) (no duty owed as a result of bank's knowledge or suspicion of customer's fraudulent scheme); Emery, 95 Cal. App. 4th at 966 (refusing to "foist upon VISA the onerous role of the global policeman."). 8 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) 6 330585.01 Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 17 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Perfect 10 has not alleged, and cannot allege, any such special relationship, sufficient to create a duty to police or control, between Defendants and any merchant that utilizes Defendants' services. The only relationships which create a duty to control the conduct of a third-party actor are (1) parents; (2) masters; (3) landowners; and (4) persons who have assumed custody over the actor. Restatement (Second) of Torts �� 316-319. Defendants are not alleged to have any such relationships with any of the "Stolen Content Website" merchants. The only alleged link these merchants--a tiny fraction of the many millions of retailers that participate in the Defendants' systems--have to Defendants is the indirect one through which Defendants process the merchants' transactions. Complaint, �� 8-9, 46-48; see also Emery, 95 Cal. App. 4th at 956. As Perfect 10 alleges, Defendants have done nothing more than provide those payment transaction processing networks, i.e., Defendants have supplied content-neutral "back-end" accounting networks to process transactions for merchants. Defendants' provision of these services does not, as a matter of law, result in a relationship with those millions of merchants significant to impose any duty flowing to Perfect 10. Lockheed, 194 F.3d at 984; Emery, 95 Cal. App. 4th at 966. Adapting the common-law rule that landowners may be under a duty to control their tenants, a number of federal courts have recognized that secondary liability can be imposed on internet service providers, online bulletin boards and other "digital real estate" providers who, like real estate lessors, provide the "site and facilities" used by others to infringe. See, e.g., A&M Records Inc. v. Napster, Inc., 239 F.3d 1004, 1022 (9th Cir. 2001); Fonovisa, 76 F.3d at 264; Hard Rock Cafe, 955 F.2d at 1148-49; Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 259 F. Supp. 2d 1029, 1038 (C.D. Cal. 2003). But Perfect 10 does not (and cannot) allege that Defendants here are landlords--real or digital--of infringement sites or facilities and no reported copyright or trademark case has extended duty or vicarious liability to financial institutions or other arms-length providers of content-neutral services. Indeed to do so would be directly contrary to the teachings of Sony Corp., 464 U.S. 417, since there are many non-infringing uses for the transaction processing networks Defendants provide. In Sony Corp., the Supreme Court ruled that an arms-length provider of equipment actually used by many purchasers to commit 9 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 18 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 infringement could not be secondarily liable, since there were substantial non-infringing uses. Sony Corp., 464 U.S. at 456. Certainly no more onerous duty can be applied to Defendants, who supply content-neutral networks that Perfect 10 admits are used by many millions of admittedly law abiding merchants. A long line of cases, including Mid-Cal, have held that a financial institution does "not have a special relationship with its depositors such that the bank had a duty to control their conduct for the benefit" of unrelated persons such as Perfect 10. Mid-Cal, 590 F.2d at 763; see also Federal Deposit Ins. Corp. v. Imperial Bank, 859 F.2d 101, 104 (9th Cir. 1988) (no duty owed because no special relationship); Emery, 95 Cal. App. 4th at 962 (Visa not responsible for monitoring or policing merchants authorized to accept Visa payment cards); Chazen v. Centennial Bank, 61 Cal. App. 4th 532, 537-38 (1998) (no duty to police or supervise depositors' accounts or account activities). The sound policy reasons for not extending policing duties to banks apply equally to payment system providers such as Defendants. As the court explained in Mid-Cal, to impose account policing duties on a financial institution "would be to alter radically the nature of banking and the general conduct of business. Such an alteration is neither necessary nor warranted." Mid-Cal, 590 F.2d at 763. Similarly, the policy reasons enunciated by the California Court of Appeal in a recent case apply equally to Defendants' banking-related, payment transaction processing services: The present banking system under which an enormous number of checks are processed daily could not function effectively if banks were not required to make prompt and effective decisions on whether to pay or dishonor checks. . . . Under this system favoring expedited handling of funds transfers, a bank cannot be expected to track transactions in fiduciary accounts or to intervene in suspicious activities. Chazen, 61 Cal. App. 4th at 539; see also Software Design & Application Ltd. v. Hoefer & Arnett, Inc., 49 Cal. App. 4th 472, 481-83 (1996). Finally, as the California Court of Appeal explained in refusing to impose a duty upon Visa to monitor and police merchants serviced by its member banks: For a bank to be liable even potentially to undisclosed principals would force it to investigate the background of other entities or persons. Forcing an issuing bank 10 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 19 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 A. into this investigative role would conflict with the goals of increasing the efficiency of commercial transactions, and limiting the liability of issuing banks. Emery, 95 Cal. App. 4th at 963 (quoting Kools v. Citibank, N.A., 872 F. Supp 67, 72 (S.D.N.Y. 1995). IV. PERFECT 10 FAILS TO STATE A CLAIM FOR CONTRIBUTORY, VICARIOUS, OR AIDING-AND-ABETTING LIABILITY FOR THE MISDEEDS OF THIRD PARTIES. Perfect 10 Has Not Alleged Facts to Support Contributory or Vicarious Copyright Infringement Perfect 10 nowhere attempts to allege that any named Defendant has directly engaged in any copyright violation. Perfect 10 instead is attempting to pursue the two forms of third-party liability for copyright infringement recognized in the case law but not codified in the Copyright Act: vicarious liability, which is "derived from the similar concept in the law of employeremployee relations; and contributory infringement derived from the tort concept of enterprise liability." Adobe Systems Inc. v. Canus Productions, Inc., 173 F. Supp. 2d 1044, 1048 (C.D. Cal. 2001).7 1. Perfect 10 fails to state a claim for contributory infringement because it cannot allege that Defendants have materially contributed to any copyright infringement. Liability for contributory infringement requires proof of two things in addition to direct infringement by a third party: (1) that defendants had actual knowledge of the third party's direct infringement; and (2) that defendants induced, caused or "materially contribute[d] to the infringing conduct of another." Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir. 2004) See id. at 1049-1050; see also Napster, 239 F.3d at 1013 n.2 ("secondary liability for copyright infringement does not exist in the absence of direct infringement by a third party."); Grokster, 259 F. Supp. 2d at 1035 (C.D. Cal. 2003); Fonovisa, 76 F.3d at 262-63. 11 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) 7 330585.01 Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 20 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 (emphasis in original). Perfect 10's allegations do not meet either of these two elements. For purposes of this motion, Defendants focus on the second prong.8 Perfect 10's assertion that Defendants "provide critical support" for merchants that operate allegedly infringing websites falls far short of alleging facts that demonstrate a "material contribution" by Defendants to infringing activity. As one court recently explained: Participation sufficient to establish a claim of contributory infringement may not consist of merely providing the "means to accomplish an infringing activity ..." Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 435 n.17 (1984). In order for liability to be imposed, the alleged contributory infringer must make more than a "mere quantitative contribution" to the primary infringement. Gershwin, 443 F.2d at 1162. Participation in the infringement must be "substantial." Demetriades v. Kaufmann, 690 F. Supp. 289, 294 (S.D.N.Y. 1988). The authorization or assistance must bear a direct relationship to the infringing acts, and the contributory infringer must have acted in concert with the direct infringer. Livnat v. Lavi, 46 U.S.P.Q. 2d (BNA) 1300, 1303 (S.D.N.Y. 1998) (emphasis added) (citations omitted). The "material contribution" requirement is rooted in the notion that "one who directly contributes to another's infringement should be held accountable." Fonovisa, 76 F.3d at 264. Material contribution may be found only when the defendant "engages in personal conduct that encourages or assists the infringement." Napster, 239 F.3d at 1019 (emphasis added); Grokster, 259 F. Supp. 2d at 1038. "Material contribution" is more than passive participation. See Fonovisa, 76 F.3d at 264. Material contribution has been found only where the defendant was actively involved in supporting and enabling the infringing activity. It has also been found where the defendant has provided hosting services that are engaged in distribution of the infringing material. See Religious Tech. Ctr. v. Netcom On-Line Communication Services, Inc., 907 F. Supp. 1361, 1375 (N.D. Cal. 1995). In that case, Judge Whyte explained that "[w]here a defendant has knowledge The Court should dismiss the copyright infringement claim also because Perfect 10 has failed adequately to allege particular direct infringements upon which the claim for contributory infringement liability rests. Perfect 10 also fails to identify which Defendants are responsible for which infringements. To the extent the Court is inclined to deny the motion to dismiss with respect to copyright infringement, Defendants request that the Court, in the alternative, require a more definite statement and order Perfect 10 to identify (a) the underlying infringements, (b) the merchants allegedly involved with each, (c) the Defendant(s) associated with each infringement, 12 8 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 21 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 of the primary infringer's infringing activities, it will be liable if it `induces, causes or materially contributes to the infringing conduct of' the primary infringer. Such participation must be substantial." Netcom, 907 F. Supp. at 1375 (emphasis added) (quoting Gershwin, 443 F.2d at 1162). Here, Perfect 10 alleges that Defendants provide critical support (by "facilitating" transactions) for the businesses it challenges, but it does not allege (and cannot allege) that Defendants substantially participate in the infringing activity. This distinction is critical. Copyright law does not demand a blockade of companies that are alleged to engage in infringing activity by imposing contributory infringement liability on vendors that do business with those companies. Copyright law merely forbids the substantial participation by others in infringing activity. Because Perfect 10 cannot allege substantial participation by any Defendant in any infringing activity of third parties, the copyright claim must be dismissed. 2. Perfect 10 cannot adequately plead a basis for Defendants' vicarious liability for copyright infringement. For a defendant to be vicariously liable for copyright infringement, the plaintiff must prove (1) that the defendant possesses the right and ability to supervise the infringing conduct and (2) that the defendant has an obvious and direct financial interest in the infringing activity. Ellison, 357 F.3d at 1078; Adobe Systems, 173 F. Supp. 2d at 1049; 3 Nimmer on Copyright � 12.04(A)(1). "Vicarious copyright liability is an "outgrowth" of the common law doctrine of respondeat superior, which holds the employer liable for the acts of its agents." Adobe Systems, 173 F. Supp. 2d at 1049 (quoting Fonovisa, 76 F.3d at 262). Finding a third party vicariously liable is appropriate only "[w]hen the right and ability to supervise coalesce with an obvious and direct financial interest in the exploitation of copyrighted materials." Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963). and (d) the assistance allegedly furnished by the Defendant(s) to each underlying infringement. 13 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) 330585.01 Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 22 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 a. Perfect 10 does not allege that Defendants have the requisite right and ability to control infringing activity by third party merchants. Defendants do not have the requisite right and ability to supervise and control the infringing conduct. "[T]he spectrum of control has, at one end, the landlord-tenant model, usually representing minimal ability of the premises owner to control the infringing activities of someone using his premises; and, at the other end, the employer-employee model, which represents maximum control by the premises owner." Adobe Systems, 173 F. Supp. 2d at 1053. Defendants are nowhere on this spectrum. Defendants are not employers or landlords at all. Defendants do not have any editorial or other control rights over the design, hosting or transmission of any graphical materials, or any ability to dictate content, services or product sold, or any aspect of operation. See Emery, 95 Cal. App. 4th at 960-61; Cislaw v. Southland Corp., 4 Cal. App. 4th at 1288, 1296 (1992). No facts are alleged that would allow the finding of any control over any alleged "Stolen Content Website." Moreover, the control must be related to the infringing activity to support vicarious liability. Even in the parent-subsidiary corporate context, "a parent corporation cannot be held liable for the infringing actions of its subsidiary unless there is a substantial and continuing connection between the two with respect to the infringing acts." Frank Music Corp. v. MetroGoldwyn-Mayer Inc., 886 F.2d 1545, 1553 (9th Cir. 1989) (emphasis added). "[T]here must be indicia beyond the mere legal relationship showing that the parent is actually involved with the decisions, processes, or personnel directly responsible for the infringing activity." Banff Ltd. v. Limited, Inc., 869 F. Supp. 1103, 1109 (S.D.N.Y. 1994) (emphasis added). In following Frank Music, the district court in Banff explained that "the parties' paths must cross on a daily basis, and the character of this intersection must be such that the party against whom liability is sought must be in a position to control the personnel and activities responsible for the direct infringement." Banff, 869 F. Supp. at 1109 (emphasis added); see also Demetriades, 690 F.Supp. at 293-94. "[P]ervasive participation" in the business of the infringing party is required to find the requisite "right and ability to control." Adobe Systems, 173 F. Supp. 2d at 1053. In Adobe 14 330585.01 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 23 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 Systems, the court determined that the trade show operator did not have sufficient control to support a finding of vicarious liability. The defendant trade show operator did "not possess the practical right and ability to control the sale of infringing products at its shows; and [defendant did] not act with `pervasive participation' in the business of the infringing vendors." Id. Although Perfect 10 puts forth conclusory allegations that Defendants have the "right and ability to supervise," the Court should not accept these conclusions, especially as they contradict the only specific fact alleged--that Defendants do nothing more than provide "back-end" transaction processing services, having nothing to do with, and no control over, website content preparation or editing.9 The facts alleged do not support a conclusion that Defendants have the right and ability to supervise the infringing activity. All that Defendants do is provide merchants' banks with a system for processing and clearing credit transactions. Complaint, �� 89, 46-48.10 As a result, the Complaint has not alleged facts supporting any conclusion that Defendants have the requisite "right and ability to control" the infringing activity sufficient to support a claim for vicarious copyright infringement liability. 9 For purposes of a motion to dismiss, the court construes the complaint in the light most favorable to the plaintiff, but the complaint must allege "specific wrongdoing sufficient to state a claim for relief." Groubert v. Spyglass Entm't Group, LLP, 63 U.S.P.Q.2d (BNA) 1764, 1765 (C.D. Cal. 2002). "Conclusory allegations are insufficient to preclude dismissal" and are ignored in considering a Rule 12(b)(6) motion to dismiss. Howard v. America Online, 208 F.3d 741, 750 (9th Cir. 2000). The only specific factual allegations concerning Defendants are that they provided content-neutral financial services � "back-end" credit transaction processing � to completely unrelated and unidentified "Stolen Content Websites." See e.g. Complaint, 55(b), 56, 59. This is the same content-neutral service that Defendants supply millions of times per day for millions of merchants in the United States and globally--as Perfect 10 admits. Complaint, � 8. These completely neutral arms-length service functions cannot create liability, or the "right and ability to supervise," nor has Perfect 10 alleged specific facts that support that--or other-- improper conclusions alleged in its Complaint. The case law is clear that Perfect 10 may not rely on allegations of "aiding and abetting," "conspiracy," alleged provision of "critical support," or other conclusory allegations as a substitute for the required specific factual allegations to support its copyright and other claims. 10 The closest allegation of any control is the statement (one that is in fact false but which must be treated as true for purposes of the present motion) that Visa reviews and approves content of the websites. Complaint, � 71. However, even if Visa initially reviewed the website content as alleged, Visa would have no control over the infringing activity. And, even if Visa were to review the sites prior to allowing the merchants to process Visa-branded cards, there is no allegation that Visa could identify the infringing materials if any existed. Importantly, without Visa's system the infringing activity would continue to take place. (Perfect 10 makes no similar allegations against the other Defendants.) 15 ALL DEFENDANTS' CONSOLIDATED MEMO. OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION TO DISMISS CASE NO. C 04 0371 JW (PVT) 330585.01 Case 5:04-cv-00371-JW Document 23 Filed 04/19/2004 Page 24 of 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 b. Perfect 10 does not allege facts to show that Defendants receive a direct financial benefit from any infringement. Perfect 10 has failed t

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