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

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

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TOWNSEND AND TOWNSEND AND CREW LLP DANIEL J. FURNISS (State Bar No. 73531) MARK T. JANSEN (State Bar No. 114896) JOHN C. BAUM (State Bar No. 167570) ANTHONY J. MALUTTA (State Bar No. 193587) Two Embarcadero Center, Eighth Floor San Francisco, California 94111 Telephone: [phone] Facsimile: [phone] Attorneys for Defendant VISA INTERNATIONAL SERVICE ASSOCIATION

UNITED STATES DISTRICT COURT FOR THE 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. CV 04 00371 JW (PVT)

DEFENDANT VISA INTERNATIONAL SERVICE ASSOCIATION'S MOTION FOR AWARD OF ATTORNEYS' FEES AND COSTS Date: January 31, 2005 Time: 9:00 a.m. The Hon. James Ware Courtroom 8, 4th Floor

DEFENDANT VISA'S MOTION FOR AWARD OF ATTORNEYS' FEES AND COSTS CASE NO. CV 04 00371 JW (PVT)

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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 IV. V. VI. I. II. III.

TABLE OF CONTENTS Page INTRODUCTION ........................................................................................................................... 1 RELEVANT PROCEDURAL BACKGROUND ........................................................................... 1 ARGUMENT .................................................................................................................................. 2 A. B. C. Standards Applicable To An Award Of Defense Attorneys' Fees ...................................... 2 Visa is Entitled To Its Expenses Incurred Defending Plaintiff's Copyright Claim .................................................................................................................. 3 Defense Fees Should Be Awarded Since Plaintiff's Trademark Case Was "Exceptional"...............................................................................................................6

THE COPYRIGHT AND TRADEMARK CLAIMS DOMINATED THE ACTION AND OVERLAPPED THE STATE LAW CLAIMS ASSERTED..............................10 THE ATTORNEYS' FEES INCURRED BY VISA WERE REASONABLE ............................. 14 CONCLUSION ............................................................................................................................. 15

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TABLE OF AUTHORITIES Page

A & M Records, Inc. v. Napster, Inc. 239 F.3d 1004 (9th Cir. 2001) ............................................................................................................. 9 Adobe Systems Inc. v. Canus Productions, Inc. 173 F.Supp.2d 1044 (C.D. Cal. 2001)................................................................................................. 6 Apple Computer Inc. v. Microsoft Corp. 35 F.3d 1435 (9th Cir. 1994), cert. den., 513 U.S. 1184, 115 S. Ct. 1176 (1995) .............................. 3 Aromatique, Inc. v. Gold Seal, Inc. 28 F.3d 863 (8th Cir. 1994) ............................................................................................................. 3, 6 Baltimore Orioles, Inc. v. Major League Baseball Player's Ass'n 805 F.2d 663 (7th Cir. 1986) ............................................................................................................. 13 Chazen v. Centennial Bank 61 Cal.App.4th 532 (1998)................................................................................................................ 10 Conley v. Gibson 355 U.S. 41 (1957) .............................................................................................................................. 5 Denbicare U.S.A., Inc. v. Toys "R" Us, Inc. 84 F.3d 1143 (9th Cir. 1996) ............................................................................................................. 13 Duggan's Funeral Service, Inc. v. Duggan's Serra Mortuary, Inc. 49 U.S.P.Q.2d 1797, 1998 WL 998965 (Cal. Super. Ct. 1998), aff'd, 80 Cal.App.4th 151 (2000)..................................................................................................................... 10 Ellison v. Robertson 357 F.3d 1072 (9th Cir. 2004) ............................................................................................................. 5 Emery v. Visa International Service Association 95 Cal.App.4th 952 (2002)...................................................................................................... 2, 10, 14 Entertainment Research Group, Inc. v. Genesis Creative Group, Inc. 122 F.3d 1211 (9th Cir. 1997), cert. denied, 523 U.S. 1021, 118 S.Ct. 1302 (1998) ....................... 11 Fantasy, Inc. v. Fogerty 94 F.3d 553 (9th Cir. 1996) ................................................................................................................. 3 Federal Deposit Ins. Corp. v. Imperial Bank 859 F.2d 101 (9th Cir. 1988) ............................................................................................................. 10 Fleet v. CBS, Inc. 50 Cal.App.4th 1911 (1996).............................................................................................................. 12 Fogerty v. Fantasy, Inc. 510 U.S. 517 (1994) .................................................................................................................. 3, 4, 13

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TABLE OF AUTHORITIES (con't) Page Fonovisa, Inc. v. Cherry Auction, Inc. 76 F.3d 259 (9th Cir. 1996) ............................................................................................................. 5, 7 Gracie v. Gracie 217 F.3d 1060 (9th Cir. 2000) ........................................................................................................... 11 Hard Rock Cafe Licensing Corp. v. Concession Servs., Inc. 955 F.2d 1143 (7th Cir. 1992) ............................................................................................................. 8 Hartman v. Hallmark Cards , Inc. 833 F.2d 117 (8th Cir. 1987) ............................................................................................................... 7 Hensley v. Eckerhart 461 U.S. 424, 103 S. Ct. 1933 (1983) ......................................................................................... 13, 14 Holmes v. Lerner 74 Cal.App.4th 442 (1st Dist. 1999).................................................................................................... 9 Inwood Laboratories, Inc. v. Ives Laboratories, Inc. 456 U.S. 844 (1982) ............................................................................................................................ 7 Lockheed Martin Corp. v. Network Solutions, Inc. 194 F.3d 980 (9th Cir. 1999) ............................................................................................................... 7 Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd. 380 F.3d 1154 (9th Cir. August 19, 2004)) ....................................................................................... 10 Mid-Cal Nat'l Bank v. Federal Reserve Bank 590 F.2d 761 (9th Cir. 1979) ............................................................................................................. 10 Motown Productions, Inc. v. CaComm, Inc. 849 F.2d 781 (2d Cir. 1988) .............................................................................................................. 10 Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant 771 F.2d 521 (D.C. Cir. 1985)..................................................................................................... 3, 6, 7 Scotch Whisky Ass'n v. Majestic Distillinq Co. 958 F.2d 594 (4th Cir. 1992), cert. denied, 506 U.S. 862 (1992) ....................................................... 6 Sony Corp. of America v. Universal City Studios, Inc. 464 U.S. 417 (1984) ........................................................................................................................ 4, 7 Standard Terry Mills, Inc. v. Shen Manuf. Co. 803 F.2d 778 (3d Cir. 1986) ................................................................................................................ 7 Taj Mahal Enterprises, Ltd. v. Trump 745 F.Supp. 240 (D.N.J. 1990)............................................................................................................ 7 Toney v. L'Oreal U.S.A. Inc. 384 F.3d 486 (7th Cir. 2004) ............................................................................................................. 12

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TABLE OF AUTHORITIES (con't) Page Traditional Cat Association, Inc. v. Gilbreath 340 F.3d 829 (9th Cir. 2003) ....................................................................................................... 11, 14 Statutes 15 U.S.C. § 1117(a) ......................................................................................................................... 1, 3, 6 17 U.S.C. § 101 ..................................................................................................................................... 12 17 U.S.C. § 30 ....................................................................................................................................... 12 17 U.S.C. § 505 ................................................................................................................................... 1, 3 Cal. Corp. Code §§ 16100 et seq............................................................................................................. 8 Federal Rule of Civil Procedure 54(d)(2)................................................................................................ 2 Other Authorities 3 Nimmer on Copyright § 12.04(A)(1) ................................................................................................... 6

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I.

INTRODUCTION Plaintiff Perfect 10, Inc. ("Perfect 10") brought an unprecedented copyright and trademark

infringement action against Defendant Visa International Service Association ("Visa") and other defendants in this action. Defendants, however, were not accused of direct infringement, but were sued merely because they supplied their normal, content-neutral credit card transaction processing services to completely unrelated, independent merchants. Lacking any legal or factual support, Plaintiff's action was spectacularly unsuccessful. On August 6, 2004, the Court granted Defendants' first motion to dismiss with leave to amend (the "First Dismissal" or the "8/6/04 Order"). In its subsequent Order dated December 3, 2004, the Court dismissed the First Amended Complaint in its entirety with prejudice, after Plaintiff had failed to add any new factual allegations overcoming the numerous deficiencies identified in the 8/6/04 Order. (Order Granting Defendants' Motion to Dismiss First Amended Complaint (the "Final Dismissal" or the "12/3/04 Order"). Indeed, the Court concluded that "Plaintiff's First Amended Complaint suffers from the same infirmities as its original Complaint." (Id. at p. 4.) Visa and the other defendants were forced to defend against Plaintiff's litigation fantasies and are entitled to an award of their attorneys' fees and other expenses incurred in defending this action, under the Copyright Act, 17 U.S.C. § 505 and the Lanham Act, 15 U.S.C. § 1117(a). Counsel for the parties met and conferred prior to the bringing of this motion (L.R. 54-5(a)), but Plaintiff's counsel refused to acknowledge Plaintiff's liability to reimburse any part of Defendants' attorneys' fees as part of costs, necessitating this motion. (Mark T. Jansen Decl. ("Jansen Decl."), ¶ 10.) II. RELEVANT PROCEDURAL BACKGROUND Plaintiff filed this action January 28, 2004. Perfect 10's original complaint was unusually detailed and voluminous -- nearly 500 pages with exhibits. The principal claims raised by Perfect 10 were its first two federal claims for alleged copyright and trademark violations. Plaintiff did not allege that Visa or any other of the named defendants were themselves engaged in trademark, copyright or any other legal violations. Rather, Plaintiff's theory was the admittedly unsupported one (previously expressly rejected as to Visa in the context of California's Unfair Competition Law in Emery v. Visa International Service Association, 95 Cal.App.4th 952
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(2002)), that Visa and other institutions should have an obligation to police, and were liable as "aiders and abettors" or "virtual fences" for, the copyright infringements of completely unrelated merchants simply because those merchants utilize the defendants' credit transaction processing services through the banks from whom the alleged infringers obtain credit. Plaintiff's counsel who brought this action recognized in the press that this was a "seminal lawsuit; the first time someone has gone to the heart of the financial systems" and tried to sue credit card processors for the alleged wrongs of independent merchants. (Jansen Decl., ¶ 11, Ex. 5, 6/4/04 San Francisco Recorder at p. 1.) Well, not quite the first time; that theory of liability previously had been expressly rejected in Emery, supra, and in numerous published federal copyright and trademark cases holding that plaintiff's secondary liability theories could not extend to financial institutions and other businesses similarly unrelated to the alleged direct infringers. The Court heard Defendants' motion to dismiss Plaintiff's original complaint on July 9, 2004. The Court ruled from the bench that the alleged facts did not fit within any recognized theory of liability and questioned whether Plaintiff could possibly allege additional material facts that would support a claim for relief. (Jansen Decl., ¶ 7, Ex. 1, 7/9/04 RT at pp. 35-36.) On August 6, 2004, the Court issued its Order dismissing Plaintiff's complaint, but giving Plaintiff leave to amend its copyright, trademark and related state law claims if it desired. (Jansen Decl., ¶ 8, Ex. 2.) On September 7, 2004, plaintiff filed a First Amended Complaint. As anticipated, Plaintiff had not added any legally significant factual allegations. At the November 15, 2004 hearing on the motion to dismiss, the Court questioned why Plaintiff had bothered amending as no materially new facts had been added. (11/15/04 RT; Jansen Decl., ¶ 9.) The Court again ruled from the bench, dismissing the Complaint with prejudice (id. at ¶ 9), and followed that with a written opinion and decision on December 3, 2004. Judgment dismissing this action with prejudice was entered on December 3, 2004. III. ARGUMENT A. Standards Applicable To An Award Of Defense Attorneys' Fees

Federal Rule of Civil Procedure 54(d)(2) and Civil Local Rule 54-5 provide for an award of attorneys' fees upon making of a timely motion for the requested award. Visa and the other
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defendants here are entitled to an award of all attorneys' fees, not just costs, incurred in defending the copyright law claims against them. 17 U.S.C. § 505; Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994); Fantasy, Inc. v. Fogerty, 94 F.3d 553 (9th Cir. 1996) (affirming $1.3 million award to defendant on remand). In addition, an award of attorneys' fees is to be made to a prevailing trademark/Lanham Act defendant, if the Plaintiff's case lacks merit, is "groundless," "unreasonable," or otherwise "exceptional." 15 U.S.C. § 1117(a); Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863, 867 (8th Cir. 1994); Noxell Corp. v. Firehouse No. 1 Bar-B-Que Restaurant, 771 F.2d 521 (D.C. Cir. 1985). Certainly in this case, the trademark claims are groundless and therefore "exceptional" as the Court already ruled on August 6, 2004, that Perfect 10 was "pleading to the wrong legal standard" (8/6/04 Order at pp. 9-10), and Perfect 10's First Amended Complaint, filed September 7, 2004, did not in any way alter or correct the clearly deficient trademark claim allegations. Defendants also are entitled to fees incurred defending the tag along state law claims because of the substantial overlap between those claims and the copyright and trademark claims. B. Visa is Entitled To Its Expenses Incurred Defending Plaintiff's Copyright Claim

The prevailing party in a copyright infringement case is entitled to an award of its reasonable attorneys' fees and costs under the Copyright Act. 17 U.S.C. § 505 provides that "the court in its discretion may allow the recovery of full costs by or against any party...[and] the court may also award a reasonable attorneys' fee to the prevailing party as part of the costs." Prevailing defendants are treated the same as prevailing plaintiffs. "[A] successful defense of a copyright infringement action may further the policies of the Copyright Act every bit as much as a successful prosecution of an infringement claim by the holder of a copyright." Fogerty v. Fantasy, Inc., 510 U.S. 517, 527, 114 S. Ct. 1023, 1030 (1994). In Apple Computer Inc. v. Microsoft Corp., 35 F.3d 1435, 1448 (9th Cir. 1994), cert. den., 513 U.S. 1184, 115 S. Ct. 1176 (1995), the Ninth Circuit recognized that, after Fogerty, "the district court now has greater discretion to award attorneys' fees to prevailing defendants." Visa, as a prevailing defendant, is entitled to its reasonable attorneys' fees incurred. When making fee awards to a prevailing party, there are several nonexclusive factors that courts should consider. As the Supreme Court explained in Fogerty: These factors include 'frivolousness, motivation, objective
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unreasonableness (both in the factual and in the legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence.' We agree that such factors may be used to guide courts' discretion, so long as such factors are faithful to the purposes of the Copyright Act and are applied to prevailing plaintiffs and defendant in an evenhanded manner. Fogerty, 510 U.S. at 534 n.19 (citation omitted). Undeniably, when the forgoing factors are considered, Visa's defense of this action furthered the purposes of the Copyright Act by preventing an unsound expansion of copyright law by Plaintiff's objectively unreasonable claims. Defendants unquestionably furthered the purposes of the Copyright Act through their successful defense of Plaintiff's desire to improperly expand the scope of copyright infringement. Certainly, the public good is served by Defendants' ability to enable commerce through its payment systems without the risk of a perverse application of contributory and vicarious liability for the uncontrolled acts of others. Unfounded imposition of liability as sought by Plaintiff would have chilled commerce and unduly stretched the scope of copyright law. Visa's defense also furthered the goals of the Copyright Act by securing a ruling which better clarifies the limits of contributory and vicarious copyright liability. "Because copyright law ultimately serves the purpose of enriching the general public through access to creative works, it is peculiarly important that the boundaries of copyright law be demarcated as clearly as possible." Fogerty, 510 U.S. at 527. See also, Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 429 (1984) (rights under the Copyright Act are limited in nature and must ultimately serve the public good). Here, Plaintiff's misapplication of third party liability would have significantly damaged the public good by severely restricting and slowing not just commerce itself, but also the public's access to, and ability to purchase, creative works in general - not just those allegedly owned by Plaintiff. The social importance of Visa's defense is obvious, not just from Plaintiff's own public admissions that the case tested the outer limits of copyright liability (e.g., Jansen Decl., ¶ 13, Ex. 5), but from the intense interest the Court's decisions have generated in the relevant legal media. Indeed, there has been substantial media coverage not just locally but in national and international publications, both legal and lay. (See Jansen Decl., ¶¶ 12-14, Exs. 4, 5, and 6.) Further, Plaintiff's claims were objectively unreasonable. The weakness of Plaintiff's claims was demonstrated by the fact that the Court twice dismissed all of Plaintiff's claims pursuant to
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Federal Rule of Civil Procedure 12(b)(6). Indeed, the Court dismissed all plaintiff's claims with prejudice notwithstanding its recognition that Rule 12(b)(6) motions are disfavored and rarely granted. (12/3/04 Order at p.3; see also 8/6/04 Order at p. 3.) Despite this rarity, the Court ordered Plaintiff's claims dismissed with prejudice and noted that "Plaintiff has failed to plead that Defendants actually aided and abetted the Stolen Content Websites in their illicit activities in any way." (Final Dismissal at p. 11 (emphasis added).) To survive a Rule 12(b)(6) Motion to Dismiss, Plaintiff need only have alleged facts in support of its claims that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 4546 (1957). Clearly, after two tries, Plaintiff was unable to do so. If Plaintiff had conducted even a cursory and objectively reasonable investigation of the facts and law, it would have concluded that this case was without merit. Further, as discussed supra, when given the opportunity by the Court to amend the Complaint to aver the necessary facts to support its claims, Plaintiff, in its First Amended Complaint, once again failed to adduce sufficient facts -- despite having had over seven months to conduct additional investigation and research since the filing of the original Complaint. The objective unreasonableness of Plaintiff's contributory copyright infringement case was profound. To allege that Visa was liable for such infringement, Plaintiff needed to show that Visa materially contributed to the infringing activity. (8/6/04 Order at p. 4); Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir. 2004); Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir. 1996). Plaintiff could not meet this test. As the Court explained, "There is no reason to believe that the allegedly infringing websites could not continue to infringe and operate effectively if Visa and MasterCard were to terminate their financial services." (8/6/04 Order at p. 6); "[T]here is no factual basis for the allegation that they [defendants] materially contribute to the alleged infringing activities of the websites." (Id.); and "Plaintiff's would have this Court hold that mere economic influence over a copyright infringer constitutes contributory copyright infringement. To so hold would set a dangerous precedent." (12/3/04 Order at p. 5.) Clearly, Plaintiff's desire to attribute contributory liability to Visa was unreasonable and without basis in law or fact. Plaintiff's theory of vicarious copyright infringement was even more objectively unreasonable. To support this cause of action, Plaintiff needed to show that Visa had the right and ability to control the infringing activity. (8/6/04 Order at p. 7); Ellison, at 1078; Fonovisa, at 262; Adobe Systems Inc.
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v. Canus Productions, Inc., 173 F.Supp.2d 1044, 1049 (C.D. Cal. 2001); 3 Nimmer on Copyright § 12.04(A)(1). Once again, Plaintiff failed from the beginning to meet this burden, even under the lenient Rule 12(b)(6) standard: "Defendants' ability to rescind their services does not indicate control over the websites' alleged infringing actions." (8/6/04 Order at p. 7.); "Plaintiff has not pled any facts that indicate that the right or ability to control the alleged infringing conduct of the websites is present." (Id. at p. 8); and "Under the facts alleged in Plaintiff's First Amended Complaint, Defendants simply do not 'control' the infringing activity at issue." (12/3/04 Order at p. 7.). Plaintiff twice tried and twice failed to aver facts necessary to support its allegation that Visa had the right and ability to control the infringing activity. Mere economic influence does not equate to control. (Id. at pp. 6-7.) An objective and reasonable evaluation by Plaintiff and its counsel would have revealed these obvious flaws in their legal and factual argument. Defendant Visa has plainly met the burden under the Copyright Act of showing that it is entitled to recover its reasonable attorneys' fees incurred in defending the infirm copyright claims advanced by Plaintiff. C. Defense Fees Should Be Awarded Since Plaintiff's Trademark Case Was "Exceptional"

Lanham Act § 35 (a) provides: "The court in exceptional cases may award reasonable attorney fees to the prevailing party" in any action alleging either "violation of any right of the registration of a mark . . . or a violation under section 1125 (a) of this title [for unfair competition]." 15 U.S.C. § 1117(a). If a defendant is the prevailing party in a trademark case that is "groundless, unreasonable, vexatious or pursued in bad faith," the case is considered an exceptional one entitling the defendant to its attorney fees pursuant to 15 U. S. C. § 1117(a). It is sufficient if the case is groundless or unreasonable; a showing of "bad faith" or vexatiousness is not required to find the case "exceptional." Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863, 877 (8th Cir. 1994) (emphasis added); Scotch Whisky Ass'n v. Majestic Distillinq Co., 958 F.2d 594, 595- 600 (4th Cir. 1992), cert. denied, 506 U.S. 862 (1992); Noxell Corp. v. Firehouse No.1 Bar-B-Que Restaurant, 771 F.2d 521, 526-527 (D.C. Cir.

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1985) (Judge Ginsburg) (plaintiff' s ''bad faith" not required to establish an "exceptional" case entitling successful defendant to fee award).1 Thus, Visa is entitled to an award of fees for its defense since Perfect 10's trademark claims certainly were, as this Court already has determined, "groundless" and "unreasonable." A case is considered "exceptional" if it is "uncommon, not run-of-the mill." Noxell at 526. This case is clearly not a common or "run-of-the-mill" type of trademark case. Rather the case is without either factual or legal support as this Court has found -- twice. Not only was this trademark case highly uncommon because through it Perfect 10 sought to hold defendant credit transaction processing companies liable for alleged infringements by unrelated, largely unidentified allegedly infringing merchants, but also because it was pled with complete disregard for the applicable legal standards for vicarious and contributory trademark liability. As the Court recognized in its 8/6/04 Order dismissing the original Complaint, Perfect 10 and its counsel completely ignored the binding Supreme Court and Ninth Circuit precedent establishing that (1) liability for alleged secondary infringers is even narrower under trademark law than under copyright law; and (2) contributory trademark liability can result only if the defendant supplies goods or services that are used directly in the trademark infringing activity. 8/6/04 Order at p. 9; see Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 439 (1984); Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U.S. 844, 854-855 (1982); Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 983 (9th Cir. 1999); Fonovisa, Inc. v. Cherry Auction, 76 F.3d 259, 264 (9th Cir. 1996). As this Court recognized in dismissing the original Complaint, Plaintiff had made no effort whatsoever to plead any facts directed to the appropriate legal standard for trademark claims: Plaintiff has pled no facts indicating that Defendants induced the allegedly infringing websites to use Plaintiff's marks. In fact, the language of the complaint indicates that Plaintiff believed the standard for contributory trademark infringement to be the same as that for
1

In Noxell, the Federal Circuit affirmed an award of attorneys' fees where the plaintiff had improperly sued a small, San Francisco-based barbecue restaurant in an improper forum, Washington, D.C. See also, Hartman v. Hallmark Cards , Inc., 833 F.2d 117, 123 (8th Cir. 1987); Standard Terry Mills, Inc. v. Shen Manuf. Co., 803 F.2d 778, 782 (3d Cir. 1986); Taj Mahal Enterprises, Ltd. v. Trump, 745 F.Supp. 240, 253 (D.N.J. 1990).

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contributory copyright infringement. (Compl. ¶ 98 ("Defendants are knowingly inducing, causing, and materially contributing to the conduct of the Stolen Content Websites").) As the rule stated above indicates, however, this is not the case. Although the complaint contains the allegation that Defendants "are knowingly inducing" the alleged infringing conduct, Id., there are no facts presented in the complaint that support such an allegation. Likewise, Plaintiff has not pled facts indicating that Defendants supplied a product to the websites, knowing that the product would be used to infringe Plaintiff's mark. The only service Defendants supply is the ability to accept certain credit cards as payment, and this service has not apparent direct link to the alleged infringing activities. As a result, Plaintiff has not adequately pled a claim for contributory trademark infringement. 8/6/04 Order at 9 (emphasis added). This Court put the fundamental problem with Plaintiff's trademark claims even more bluntly in dismissing Perfect 10's vicarious trademark infringement theory, explaining that, "[o]nce again," Perfect 10 and its counsel were: "pleading to the wrong legal standard, including terms like 'control the infringing content' and 'direct financial benefit' (Compl. ¶ 98), which are important when considering vicarious copyright infringement but have no bearing on the existence of vicarious trademark infringement." Id. at p. 10 (emphasis added). In this regard, it should be stressed that any competent lawyer who presumes to take on unprecedented intellectual property litigation such as this should have done the basic legal research and therefore know that vicarious trademark liability cannot be supported except by facts establishing that Visa and the unidentified Stolen Content Websites had "an apparent or actual partnership, have authority to bind one another in transactions with third parties or exercise joint ownership or control over the infringing product." Id. at p.9; Hard Rock Cafe Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1150 (7th Cir. 1992) (emphasis added). Yet Plaintiff and its counsel, while finally recognizing that facts equivalent to "apparent or actual partnership" were required (see Plaintiff's Opp. to Motion to Dismiss First Amended Complaint, filed 10/18/04 at p.19), never pled any facts coming close to this standard.2 12/3/04 Order at pp. 6-7. Under the Uniform Partnership Act, a partnership or joint venture is established where two or more persons carry on as coowners of a business for profit. See, e.g., Cal. Corp. Code §§ 16100 et seq. The actual sharing of profits is prima facie evidence, which is to be
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Equally if not more significant is the fact that Plaintiff simply re-pled the exact same trademark infringement theories in its First Amended Complaint, even after the Court clearly enunciated to Plaintiff the appropriate legal standard. Astoundingly, as this Court recognized (12/3/04 Order at p. 4), Plaintiff made absolutely no additions or changes at all to its trademark claim in amending the Complaint. See also "redlined" or "compare-write" version of First Amended Complaint, at pp. 33-36 (attached as Exhibit A to MasterCard's Brief in Support of Motion to Dismiss First Amended Complaint, filed September 29, 2004).3 Finally, Plaintiff's counsel on numerous occasions and in numerous contexts acknowledged that this case lacked legal support. Even before the Court heard Defendants' motion to dismiss the Original Complaint, Plaintiff's counsel Howard King admitted to the press that this action was "a seminal lawsuit." (Jansen Decl., Ex. 5, San Francisco Recorder, June 4, 2004, p. 1.) Both in that reported press interview and at the July 9, 2004 hearing, Plaintiff's counsel relied on a clearly and easily distinguishable case, A & M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1019 (9th Cir. 2001) as Plaintiff's "best" support. (Id. at p. 2, see also Jansen Decl., ¶ 7, Ex. 1, 7/9/04 RT at pp. 7-9, 14, 24, 31-32.) After this Court's first ruling, Plaintiff's counsel acknowledged to the press that he "didn't see a lot of rays of hope" in the Court's 8/6/04 Order, and knew "knew it [the viability of Plaintiff's claims] would have to be decided by a higher court." (Jansen Decl., Ex. 4, San Francisco Recorder 8/16/04, p. 1.) Notwithstanding his recognition that he could not, in good faith, plead new facts meeting the legal standard enunciated by this Court (and affirmed as the correct standard by the Ninth

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considered when determining if a partnership exists. See, e.g., Holmes v. Lerner, 74 Cal.App.4th 442, 457 (1st Dist. 1999). Further supporting a finding that Plaintiff's trademark claims are "baseless" and therefore "exceptional" is the fact that Plaintiff utterly failed, in both its Original and First Amended Complaint, to ever identify, specifically, even one third party that had used without permission, or infringed upon, any Perfect 10 trademark. Perfect 10 only generally and superficially averred that "Photographs containing a Perfect 10 copyright notice and/or a caption 'Perfect 10', 'P-10' or similar designation have been posted on the Stolen Content Websites." (Orig. Complaint, ¶ 97, FAC ¶ 109.) These vague allegations made it impossible for the Court, Visa or any other defendant to actually investigate Plaintiff's allegations and determine what, if any, relationship any defendant actually had with any one of thousands of unidentified websites that were alluded to, generally, as "Stolen Content Websites." -9
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Circuit Court of Appeals thereafter in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 380 F.3d 1154 (9th Cir. August 19, 2004), Plaintiff's counsel nonetheless filed a First Amended Complaint. When questioned about this by the Court, counsel quite candidly admitted that he had done so notwithstanding his better legal judgment, merely to accommodate the desires of his lay client! (See 11/15/04 RT; Jansen Decl., ¶ 9.)4 Plaintiff and its counsel persisted in prosecuting this baseless claim despite numerous requests that they drop the action, and being fully aware of not just the complete lack of authority supporting their claims, but a multitude of federal and state decisions, such as Emery v. Visa International Service Association, 95 Cal.App.4th 952 (2002) and Mid-Cal Nat'l Bank v. Federal Reserve Bank, 590 F.2d 761, 763 (9th Cir. 1979), clearly holding that banks, credit card transaction processing services like Visa and other financial institutions, cannot be liable to third parties for the civil misconduct of their depositors, borrowers, or other customers.5 (Jansen Decl., ¶ 11.) Plaintiff's case was not just factually baseless and legally unsupported but Plaintiff knew there was a mass of legal precedent forbidding its claims from proceeding. IV. THE COPYRIGHT AND TRADEMARK CLAIMS DOMINATED THE ACTION AND OVERLAPPED THE STATE LAW CLAIMS ASSERTED Because there is substantial overlap between the copyright and trademark claims on one hand and the state law claims asserted by Perfect 10 on the other, Defendants are entitled to be compensated for all attorneys fees incurred, on all of the claims. A party that is entitled to attorneys' fees as a prevailing party on a particular copyright claim can recover attorneys' fees for "related claims."

The award of attorney fees may be entered against both the plaintiff and its responsible attorney. Motown Productions, Inc. v. CaComm, Inc., 849 F.2d 781, 786 (2d Cir. 1988); Duggan's Funeral Service, Inc. v. Duggan's Serra Mortuary, Inc., 49 U.S.P.Q.2d 1797, 1998 WL 998965 (Cal. Super. Ct. 1998), aff'd, 80 Cal.App.4th 151 (2000) (trademark defense fees in excess of $350,000 awarded against both plaintiff and plaintiff's counsel, jointly). 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).
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Entertainment Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1230 (9th Cir. 1997), cert. denied, 523 U.S. 1021, 140 L. Ed. 2d 468, 118 S.Ct. 1302 (1998). Indeed, for copyright cases, the first step in the calculation of a reasonable attorneys' fee is to decide if the copyright and non-copyright claims are related. Traditional Cat Association, Inc. v. Gilbreath, 340 F.3d 829, 833 (9th Cir. 2003). Similarly, a prevailing party can recover attorneys' fees for non-trademark claims that are intertwined with trademark claims. See, Gracie v. Gracie, 217 F.3d 1060, 1069 (9th Cir. 2000). Here, the trademark and copyright claims quite clearly were closely "intertwined" and "related" to plaintiff's state law claims. The only conclusion that can be drawn from the record is that Plaintiff's "primary" claims were its contributory and vicarious copyright and trademark claims. Indeed, this Court noted in its Final Dismissal that "Plaintiff's arguments for trademark infringement parallel those for copyright infringement." (Final Dismissal at p. 7.)(citation omitted). The court went on to explain there was a complete overlap with the state law claims, as "Plaintiff supports its remaining claims [violation of right of publicity, unfair competition, and false and misleading advertising] by reiterating its theme. . ." (Id. at p. 10.) The parties devoted the vast bulk of their resources to litigating these primary claims. For example, in opposing Defendants' first motion to dismiss, Plaintiff devoted the first eleven pages of legal argument in its opposition brief to the copyright and trademark claims, two pages to the state's right of publicity claims; six pages to the California state law Unfair Competition and False Advertising claims, and eight pages to the libel and tortious interference claims. Argument at the hearing was devoted, virtually entirely, to arguing the copyright claims. (See Jansen Decl., ¶ 7, Ex. 1, 7/9/04 RT.) Moreover, the Court devoted the bulk of its written decision (10 of 14 pages) to Plaintiff's copyright and trademark claims. (First Dismissal at pp. 1-10.) Defending against the First Amended Complaint, the parties and the Court similarly devoted well in excess of 90% of their efforts, objectively measured, to the copyright and trademark claims. Defendants filed two opening briefs and a joint reply, running a cumulative 39 pages. Of those, only

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three total pages addressed Plaintiff's claims other than the copyright and trademark claims.6 Perfect 10's Opposition Brief totaled 21 pages but only one page addressed Plaintiff's state law claims.7 At the hearing on November 15, 2004, the only claims discussed were Plaintiff's copyright claims. (See 11/15/04 RT; Jansen Decl., ¶ 9.) Thus, Plaintiff essentially conceded throughout that the viability of its state law claims -- and its entire case -- hinged on its Copyright Act claims. Not only did all parties recognize that the copyright claim was dispositive of Plaintiff's lawsuit, but the same common facts were alleged and relied upon in support of all the claims as pled. This was further recognized in the Court's Final Dismissal where only one page was devoted to the state law claims. (12/3/04 Order at pp. 10-11.) Indeed, Plaintiff's copyright and trademark claims substantially eclipsed and overlapped its state law claims. The state law claims were entirely subsumed by the facts and law supporting these primary claims. For example, because Perfect 10's claims for violation of the right of publicity were based entirely upon the alleged unpermitted republication of its model's photographs (see, e.g., FAC ¶¶ 85-91), the right of publicity claim was entirely preempted by the Copyright Act, 17 U.S.C. § 301. See, e.g., Toney v. L'Oreal U.S.A. Inc., 384 F.3d 486, 489-90 (7th Cir. 2004) ("photographs of plaintiff [model's] likeness are the subject matter of copyright," being "pictorial works" under 17 U.S.C. § 101; the model's claims for unauthorized reproduction of the photographs thus were preempted under the Copyright Act); Fleet v. CBS, Inc., 50 Cal.App.4th 1911, 1920-21 (1996) ("Appellants may choose to call their claims misappropriation of right to publicity, but if all they are seeking is to prevent a party from exhibiting a copyrighted work they are making a claim 'equivalent to an exclusive right within the general scope of copyright.'"); Baltimore Orioles, Inc. v. Major League Baseball Player's Ass'n,

Defendant Visa International Service Association's Memorandum of P&A ISO of Motion to Dismiss Plaintiff's First Amended Complaint (Docket No. 42, filed 9/24/04); Defendants MasterCard International Incorporated, First Data Corp., CardService International, Inc., and Humboldt Bank ISO of Motion to Dismiss First Amended Complaint (Docket No. 44, filed 9/24/04); and Consolidated Reply of All Defendants on Motions to Dismiss Amended Complaint (Docket No. 49, filed 11/01/04). Plaintiff's Combined Opposition to Motions to Dismiss; Memorandum of P&A (Docket No. 48, filed October 18, 2004).
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805 F.2d 663, 678-79 (7th Cir. 1986) (finding Copyright Act preemption in that both the right of publicity and "[t]he purpose of federal copyright protection is to benefit the public by encouraging works in which it is interested"). As the Plaintiff's right of publicity claim was entirely preempted by the Copyright Act, the relatedness of this claim is obvious. Further, in its Final Dismissal, the Court recognized that: Plaintiff supports its remaining claims [violation of right of publicity, unfair competition, and false and misleading advertising] by reiterating its theme: Defendants' contracts with the Stolen Content Websites, Defendants' internal rules and regulations, and Defendants' economic influence over the Stolen Content Websites render Defendants complicit in the Stolen Content Websites' illicit activities. 12/2/03 Order at p. 10 (emphasis added). As the Court recognized, the alleged facts, themes and theories presented by Plaintiff to support its copyright and trademark claims were identical to those it proffered in support of its related state law claims. In such cases, the Supreme Court has explained: In other cases the plaintiff's claims for relief will involve a common core of facts or will be based on related legal theories. Much of counsel's time will be devoted generally to the litigation as a whole, making it difficult to divide the hours expended on a claim-by-claim basis. Such a lawsuit cannot be viewed as a series of discrete claims. Instead the district court should focus on the significance of the overall relief [sought] by the plaintiff in relation to the hours reasonably expended on the litigation. Hensley v. Eckerhart, 461 U.S. 424, 435, 76 L. Ed. 2d 40, 103 S. Ct. 1933 (1983) (emphasis added). In applying Hensley to the award of defense fees and costs, the Court in Fogerty stated that "[p]revailing plaintiffs and prevailing defendants are to be treated alike." Fogerty, 510 U.S. at 534. Plaintiff's secondary state law claims were not only based on the same common core of facts, but also employed identical and untenable theory of contributory and vicarious liability as the primary copyright and trademark claims. Additionally, the Unfair Business Act claims were virtually governed by the Lanham Act under Denbicare U.S.A., Inc. v. Toys "R" Us, Inc., 84 F.3d 1143, 1152-53 (9th Cir. 1996), as Defendants explained in their first brief and in their reply in support of Defendants' Motion to Dismiss

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the Original Complaint.8 While Defendants' briefs raised this well-founded preemption issue, the Court did not need to reach it, since Emery v. Visa, supra, clearly prohibited Plaintiff from proceeding with those claims under a vicarious liability theory. Nonetheless, it is apparent from the record that Plaintiff's Unfair Business Act claims were undoubtedly intertwined with, and related to, its faulty Lanham Act claims. For the foregoing reasons and as the Court already has determined and ruled, Plaintiff's secondary state law claims are obviously related to, intertwined with, and dependant upon the same facts as Plaintiff's copyright and trademark claims. For that reason, Defendants should be awarded all fees incurred in defense of the entire case, and all claims asserted. V. THE ATTORNEYS' FEES INCURRED BY VISA WERE REASONABLE Once the Court determines that an award of attorneys' fees is proper, it must award the reasonable attorneys' fees incurred by the prevailing party. Traditional Cat Association, Inc. v. Gilbreath, 340 F.3d 829, 832 (9th Cir. 2003)("[D]istrict courts are charged with two tasks: first, deciding whether an award of attorneys' fees is appropriate, and second, calculating the amount of fees to be awarded.")(internal citations omitted). As discussed supra, these attorneys' fees should include those attributable to all related and intertwined claims. Indeed, "[t]he most useful starting point for determining the amount of a reasonable fee is the number of hours reasonably expended on the litigation multiplied by a reasonable hourly rate. This calculation provides an objective basis on which to make an initial estimate of the value of a lawyer's services." Hensley, 461 U.S. at 433. Given the nature of the claims and potential enormous exposure to Visa and the Visa system, as well as Plaintiff's tortured interpretation of the controlling intellectual property and unfair practices law, Visa was forced to engage specialized counsel to defend itself in this action. Visa's counsel reasonably spent substantial time investigating the detailed and lengthy factual allegations, and conducting thorough legal research. Visa's counsel wrote the first draft of the

All Defendants' Consolidated Memorandum of Points and Authorities in Support of Motion to Dismiss at p. 24; Reply Memorandum in Support of Defendants' Motion to Dismiss at p. 22.

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copyright, trademark, and unfair competition sections of Defendants' original consolidated brief, and also conducted substantial legal research, and drafted argument on the libel and tortuous interference claims. (Jansen Decl., ¶ 5.) As a result, Visa incurred $299,603.16 in reasonable attorney fees and costs since January 30, 2004 in defending this action. (Jansen Decl., ¶ 15, Ex. 7.) This sum includes $294,617.00 in attorney fees and $4,986.16 in costs. (Id.) Because the work done was required by the factually intense nature of Plaintiff's Complaint, by the unprecedented issues of law presented, by Plaintiff's attempt to expand the legal boundaries of copyright and trademark liability, and because Plaintiff insisted on engaging in a futile attempt to replead, the total defense expenses incurred by Visa were reasonable under the circumstances. The expenses and attorneys' fees incurred were entirely reasonable -- especially considering the extraordinary nature of Plaintiff's claims. Further, counsel's hourly rate fees are the usual and customary rates charged for handling intellectual property litigation matters, and are the rates normally charged to the law firm's clients. (Jansen Decl., ¶ 14, Ex. 9.) Visa accordingly requests an award of all of its attorneys' fees and costs incurred. VI. CONCLUSION For the reasons set forth above and in both of this Court's Orders granting Defendants' Motions to Dismiss, Visa is entitled to attorneys' fees under the Copyright Act, this case is exceptional under the Lanham Act, all of Plaintiff's claims are related and intertwined, and an award of Visa's attorneys' fees and costs in the total amount of $299,603.16 is respectfully requested. DATED: December 15, 2004 Respectfully submitted, TOWNSEND AND TOWNSEND AND CREW LLP By: /s/ DANIEL J. FURNISS MARK T. JANSEN JOHN C. BAUM ANTHONY J. MALUTTA Attorneys for Defendant VISA INTERNATIONAL SERVICE ASSOCIATION
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PROOF OF SERVICE CASE NO. CV 04 00371 JW (PVT)

PROOF OF SERVICE I, Linda M. Tan, declare: I am employed in the City and County of San Francisco, California in the office of a member of the bar of this court at whose direction this service was made. I am over the age of eighteen and not a party to this action. My business address is Townsend and Townsend and Crew LLP, Two Embarcadero Center, Eighth Floor, San Francisco, California, 94111. On December 15, 2004, I served the following documents exactly entitled: DEFENDANT VISA INTERNATIONAL SERVICE ASSOCIATION'S MOTION FOR AWARD OF ATTORNEYS' FEES on the interested parties in this action by: Howard E. King Stephen D. Rothschild KING, HOLMES, PATERNO & BERLINER LLP 1900 Avenue of the Stars, 25th Floor Los Angeles, CA 90067 [phone] (tel); [phone] (fax) email: [e-mail] Andrew P. Bridges, Esq. WINSTON & STRAWN LLP 101 California Street, Suite 3900 San Francisco, CA 94111 [phone] (tel); [phone] (fax) email: [e-mail] Jeffrey N. Mausner John R. Yates BERMAN, MAUSNER & RESSER 11601 Wilshire Boulevard, Suite 600 Los Angeles, CA 90025-1742 [phone] (tel); [phone] (fax) email: [e-mail] Michael H. Page, Esq. R. James Slaughter, Esq. KEKER & VAN NEST LLP 710 Sansome Street San Francisco, CA 94111-1704 [phone] (tel); [phone] (fax) email [e-mail]; [e-mail]

E-FILING AND/OR E-MAILING DOCUMENT [] ELECTRONIC TRANSMISSION: I caused said document to be sent by electronic transmission to the e-mail address indicated for the party(ies) listed above. The transmitting terminal address [e-mail]. ONLY E-FILING DOCUMENT [x] ELECTRONIC TRANSMISSION: I declare that a copy of said document(s) was filed electronically on December 15, 2004. Notice of this filing will be sent to all parties by operation of the Court's electronic filing system. I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct, and that this declaration was executed on December 15, 2004, at San Francisco, California. /s/ Linda M. Tan
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