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

Filing 68

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

Doc. 68

Case 5:04-cv-00371-JW

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Filed 01/10/2005

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1 KING, HOLMES, PATERNO & BERLINER LLP 2 STEPHEN D. ROTHSCHILD, ESQ., STATE BAR NO. 132514 3 LOS ANGELES, CALIFORNIA 90067-4506 4 TELEPHONE: [phone]

HOWARD E. KING, ESQ., STATE BAR NO. 077012 E-MAIL:

1900 AVENUE OF THE STARS, 25TH FLOOR FACSIMILE: [phone]

[e-mail]

6 JOHN R. YATES (State Bar No. 120344) 7 11601 Wilshire Boulevard, Suite 600 8 E-MAIL:

JEFFREY N. MAUSNER (State Bar No. 122385) BERMAN, MAUSNER & RESSER

Los Angeles, California 90025-1742 [e-mail] TELEPHONE: [phone] FACSIMILE: [phone]
10 DANIEL J. COOPER (State Bar No. 198460) 11 12 13 14 15 16

General Counsel, Perfect 10, Inc.

Attorneys for Plaintiff PERFECT 10, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA - SAN FRANCISCO DIVISION PERFECT 10, INC., a California Plaintiff, vs. CASE NO. C 04-00371 JW (PVT) [Assigned for all purposes to Judge James Ware] Action Commenced: January 28, 2004

17 corporation,, 18 19

20 VISA INTERNATIONAL SERVICE 21 22 23 24 25 26 27 28
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PLAINTIFF'S COMBINED OPPOSITION TO DEFENDANTS' ASSOCIATION; FIRST DATA CORP, a MOTIONS FOR ATTORNEYS' corporation; CARDSERVICE FEES; MEMORANDUM OF INTERNATIONAL, INC., a corporation; POINTS AND AUTHORITIES MASTERCARD INTERNATIONAL INCORPORATED, a corporation; Date: January 31, 2005 HUMBOLDT BANK, a national banking Time: 9:00 a.m. association; and DOES 1 through 100, Ctrm: 8 inclusive, Defendants.

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1

Plaintiff Perfect 10, Inc. ("Plaintiff") respectfully submits the following

2 memorandum of points and authorities in support of its combined opposition to: (a) 3 Defendant Visa International Service Association's ("Visa") Motion for Award of 4 Attorneys' Fees and Costs; and (b) the Motion for Award of Attorney's Fees of 5 Defendants MasterCard International Incorporated ("MasterCard") and First Data 6 Corp., Cardservice International, Inc., and Humboldt Bank (collectively,"First 7 Data"). 8 9 10

MEMORANDUM OF POINTS AND AUTHORITIES I. INTRODUCTION Defendants request an astonishing $731,816.86 in attorneys' fees and costs in

11 a case that never progressed past the initial pleading stage, involved no discovery, 12 and entailed only two, largely similar motions to dismiss under Rule 12(b)(6). 13 Defendants' fee requests are beyond the pale under any standards. The exorbitant 14 fees Defendants seek can only be viewed as an improper attempt to penalize 15 Plaintiff for its legitimate efforts, reasonably and in good faith. to protect its 16 intellectual property rights against admitted rampant infringement by Internet 17 merchants who rely upon Defendants' payment processing services in order to carry 18 out their infringing conduct. 19

Not only is the amount egregious, but the request for fees itself lacks merit.

20 Plaintiff did not act in bad faith or assert frivolous claims, and hence the usual 21 factors that might mitigate in favor of a fee award are not present. To the contrary, 22 the copyright and trademark issues at the heart of this case are novel, and the law is 23 unsettled. One of the leading cases cited in this Court's ruling and discussed in the 24 parties' arguments, Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 380 F.3d 25 1154 (9th Cir. 2004), cert. granted, 2004 WL 2289054, now is on appeal to the 26 Supreme Court.1 The legal issues here relating to the parameters of contributory 27 28
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Grokster is discussed in Visa's Memorandum of Points and Authorities in Support of Motion to 1

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1 infringement and vicarious liability may well change. New appellate precedent may 2 alter the legal landscape before Plaintiff's appeal of this Court's ruling is decided. 3 The Ninth Circuit also may come to a different conclusion on these issues than this 4 Court did. As the Court noted, this case presents a "fascinating issue." [Jansen 5 Decl, Exh. A (Transcript of July 9, 2004, hearing), 35:20-21.] 6

Even though it may have lost this round, Plaintiff's claims are reasonable and

7 in good faith. There is no dispute that the infringing merchants ("Stolen Content 8 Websites") rely heavily upon Defendants' credit card services in order to carry out 9 their unlawful conduct and have infringed and continue to infringe Plaintiff's 10 copyrights. There is no dispute that Plaintiff has suffered and continues to suffer 11 damage as a result of that infringement, and that prosecution of claims against the 12 Stolen Content Websites is practically impossible given their "virtual existence" and 13 location overseas in many cases. It is undisputed that Defendants have refused to 14 exercise their contractual rights to halt the infringing conduct after being given 15 explicit notice of infringing sites by Plaintiff. The only issue is whether Defendants' 16 involvement in the ongoing infringement is sufficient to expose them to liability 17 under the Copyright and Lanham Acts. Plaintiff contends that it is, relying on 18 Grokster and other authorities. The Court disagreed. The final resolution will rest 19 with a higher court, and possibly the Supreme Court itself. Plaintiff had a 20 reasonable legal and factual basis to pursue its claims against the credit card 21 companies that made the admitted infringements possible and had the express 22 contractual right to supervise and control that infringing conduct. Plaintiff's pursuit 23 of those claims in the face of undisputed infringement furthers the primary purpose 24 of the Copyright Act. There is no basis for the Court to award attorneys' fees. 25 26 Dismiss First Amended Complaint, at 5-7, 9 fn. 4, 11, MasterCard/First Data's Memorandum of Points and Authorities in Support of Motion to Dismiss First Amended Complaint, at 6, 9, 27 Plaintiff's Combined Opposition to Motions to Dismiss, at 12-14, 17, and in the Court's Order Granting Defendants' Motion to Dismiss the First Amended Complaint, at 6-7. 28
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1

Moreover, even if the Court is inclined to award fees, the nearly $750,000

2 sought by Defendants is plainly absurd. The legal issues -- at least according to 3 Defendants ­supposedly were frivolous, and Defendants' lawyers purport to be 4 experts in this field. Surely, Defendants could have analyzed the complaint and 5 drafted and argued their two motions to dismiss for a fraction of the fees claimed. 6 Defendants fail to submit any detailed timesheets to support their excessive fee 7 award and instead ask this Court to accept at face value their conclusory attorney 8 declarations, which fail to explain how so much was spent on this case. Defendants 9 have failed to make the requisite showing for the exorbitant fees they claim. 10

The Court should deny the Motion in its entirety or, at most, should award II. ARGUMENT: DEFENDANTS ARE NOT ENTITLED TO FEES A. Defendants Are Not Entitled to Fees Under the Copyright Act Under the Copyright Act of 1976, the court in its discretion "may allow the

11 Defendants only a fraction of the excessive fees they claim to have incurred. 12 13 14 15

16 recovery of full costs by or against any party .. [and] may also award a reasonable 17 attorney's fee to the prevailing party as part of the costs." 17 U.S.C. § 505. The 18 attorney fees provisions of the Copyright Act apply equally to prevailing defendants. 19 Jackson v. Axton, 25 F.3d 884, 890 (9th Cir. 1994) (citing Fogerty v. Fantasy, Inc., 20 510 U.S. 517, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994)). 21

In Fogerty, supra, the Supreme Court set forth a list of nonexclusive factors

22 that may be used to guide the trial court's discretion in determining fee awards. 510 23 U.S. at 534, fn. 19. Those factors include, but are not limited to, the degree of 24 success obtained, frivolousness, motivation, objective unreasonableness in both 25 factual and legal arguments, and "the need in particular circumstances to advance 26 considerations of compensation and deterrence." Jackson, supra, 25 F.3d at 89. 27 The trial court should consider the purposes of the Copyright Act in awarding any 28 fees. Id.
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1

As discussed below, because Plaintiff's claims further the purposes of the

2 Copyright Act in protecting against infringement and are not unreasonable or in bad 3 faith, an award of fees is not merited. The Fogerty factors mitigate against awarding 4 any fees to Defendants. 5 6 7 1.

Plaintiff's Copyright Claims Are Not Unreasonable Or Frivolous

This is not a case where the copyright claims were objectively unreasonable,

8 such as where the plaintiff had no evidence to support its claims or alleged claims 9 that were factually unreasonable. In those situations, courts properly award fees. 10 See Maljack Productions, Inc. v. GoodTimes Home Video Corp., 81 F.3d 881, 890 11 (9th Cir. 1996) (claims that were "completely contradicted" by language of parties' 12 contract were factually unreasonable, if not frivolous); Entertainment Research 13 Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1228-29 (9th Cir 1997) 14 (affirming fee award where plaintiff had no evidence to support its copyright claim); 15 Hughes v. North American, Inc. 724 F.2d 122, 125 (Fed. Cir. 1984) (fee award 16 merited where plaintiff's lawyer knew claim was not valid); Diamond v. Am-Law 17 Pub. Corp., 745 F.2d. 142, 148 (2d Cir. 1984) (affirming fee award where copyright 18 claim lacked reasonable legal basis). 19

Here, the ongoing infringement by the Stolen Content Websites is undisputed,

20 as is Defendants' knowledge of that infringement. The Stolen Content Merchants 21 continue to infringe Plaintiff's copyrights, and Defendants continue to make a profit 22 off of those infringements. While this Court has determined that Defendants' 23 connection to the infringement does not give rise to liability under the Copyright 24 Act (a determination with which Plaintiff respectfully disagrees), the fact of 25 infringement and continuing harm to Plaintiff arising, in part, from Defendants' 26 conduct is beyond dispute. In short, this is not a case where the plaintiff does not 27 own a valid copyright, or the defendant has a fair use or other undeniable defense to 28 infringement. See id.
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1

The issue in this case, rather, is whether Defendants' role in providing credit

2 card services to known infringers gives rise to contributory or vicarious liability. 3 Plaintiff contends that it does, and its position is reasonable and well-founded in 4 light of applicable law and the facts alleged. While the Court found that Plaintiff 5 failed to state a claim, the legal issues are novel and still not settled (e.g., the 6 pending Grokster appeal). Fees are not warranted under these circumstances. 7 8 9 (a)

Plaintiff's Claims for Vicarious Infringement Are Not Frivolous

To state a claim for vicarious liability for copyright infringement, a plaintiff is

10 only required to show: (1) direct infringement by a primary infringer; (2) a direct 11 financial benefit to the defendant; and (3) the right and ability to supervise the 12 infringers. Grokster, 380 F.3d at 1164. The first two elements are undisputed here. 13 Plaintiff alleges in its First Amended Complaint ("FAC") that the Stolen Content 14 Websites infringe Plaintiff's copyrighted works, and that Plaintiff informed 15 Defendants of the direct infringements. [FAC, in Court's file, ¶¶ 6, 36.] The 16 dispute here is whether Plaintiff adequately alleged the right and ability to supervise 17 the infringing websites. 18

As discussed in opposing the motion to dismiss, right and ability to supervise

19 may be shown by a variety of factors, not all of which need be present in each case. 20 See, e.g., Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996) 21 (vicarious liability shown where defendant swap meet operator controlled the 22 premises where vendors sold infringing records, had the ability to control the 23 vendors because it had the right to terminate them for any reason, promoted the 24 swap meet, and controlled customers' access); A&M Records, Inc. v. Napster, 239 25 F.3d 1004 (9th Cir. 2001)(defendant had right to control access and ability to police 26 its system and ability to locate infringing material); UMG Recordings, Inc. v. 27 Sinnott, 300 F. Supp.2d 993 (C.D. Cal. 2004) (defendant flea market owner ran the 28 market, set its rules and regulations, had the right to inspect merchandise and to
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1 refuse or cancel rentals, and restricted the types of merchandise sold). 2

In Grokster, the Court found that "salient characteristics" of the right and

3 ability to supervise often include a formal licensing agreement with the direct 4 infringer, the right to block access to users, the requirement that users register in 5 order to access the system, promoting the infringers, the ability to block access to 6 customers of the infringers, the ability to control infringers through rules and 7 regulations, and maintenance of central indices or files. 380 F.3d at 1164-65. 8 9 that: 10 11 12 13 14 15 16 17 18 19 20 21

The FAC here adequately alleges the right and ability to supervise, including · Defendants agreements with infringing merchants are formal licenses; · Defendants have an express policy reserving the right to block an infringing merchant's access, including for illegal conduct; · The merchant agreements effectively function as a form of registration; · Defendants require merchants to display their logos; · Defendants can block customer access to infringers by declining charges; · Defendants can prevent Stolen Content Websites from receiving payment; · Defendants control merchants through rules and regulations; and · Defendants maintain records of all transactions and can know from those records each time an illegal transaction occurs.

22 See Plaintiff's Combined Opposition to Motions to Dismiss, 12-16; FAC, ¶¶ 14-29 23 and Exh.1. 24

Thus, the FAC met all of the "salient characteristics" discussed in the

25 Grokster opinion. While the Court disagreed with Plaintiff and found that the 26 allegations of the FAC did not state a claim, Plaintiff's allegations of vicarious 27 liability clearly are not objectively unreasonable, let alone frivolous or motivated by 28 an improper purpose. Jackson, supra, 29 F.3d at 89. To award fees simply because
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1 Plaintiff lost the motions would eviscerate the Fogerty factors and convert the 2 Court's discretion to award fees into an automatic right to the prevailing party, 3 which is not the law. Id. Because Plaintiff acted reasonably and in good faith in 4 asserting its claim for vicarious liability, there is no reason to award fees. 5 6 7 (b)

Plaintiff's Claims for Contributory Infringement Are Not Frivolous

To state a claim for contributory copyright infringement, a plaintiff is

8 required to show: (1) direct infringement by a primary infringer; (2) knowledge by 9 the defendant of that infringement; and (3) material contribution to the infringement. 10 Grokster, 380 F.3d at 1160. The first two elements are undisputed here. Plaintiff 11 alleges that the Stolen Content Websites infringe Plaintiff's copyrighted works, and 12 that Plaintiff informed Defendants of the direct infringements. [FAC, in Court's 13 file, ¶¶ 6, 31, and Exh. 2.] The motions focused only on Defendants' "material 14 contribution" to the infringement. Plaintiff alleges that the Stolen Content Websites 15 could not exist without Defendants' services to process payments. [FAC, ¶ 7.] 16 Plaintiff also alleges that the Stolen Content Websites were required to comply with 17 all applicable laws, and that Defendants had the right to investigate and terminate 18 any merchants for illegal conduct, to inspect their websites, and to approve all 19 products sold, [FAC, ¶¶ 19-22, 24, 26.] Plaintiff contends that these facts are 20 sufficient to establish "material contribution" to the direct infringement. See 21 Grokster, 380 F.3d at 1163 (grounds for liability may exist where an access provider 22 fails to disable access or to delete infringing files after notice of a direct 23 infringement). While this Court disagreed, the assertion of that claim was not 24 objectively unreasonable or in bad faith. See Plaintiffs' Combined Opposition to 25 Motions to Dismiss, 16-18. Again, there is no basis for a fee award. Jackson, 26 supra, 29 F.3d at 89. 27 28
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1 2 3

2.

Plaintiff's Claims Further the Purpose of the Copyright Act

The pivotal criterion for awarding attorney's fees is whether the successful

4 claim or defense furthers the purposes of the Copyright Act." Fantasy, Inc., v. 5 Fogerty, 94 F.3d 553, 558 (9th Cir. 1996). The Copyright Act's primary objective is 6 "'to encourage the production of original literary, artistic, and musical expression 7 for the good of the public.'" Id. at 557. 8

Defendants here have not furthered the purposes of the Copyright Act, since

9 they produce no new works. For example, in Fogerty, the defendant, musician John 10 Fogerty, was defending his copyright claim to his song "Old Man Down the Road" 11 against claims by his former record company Fantasy, which owned the rights to 12 another song of Fogerty's, "Run Through the Jungle." As the Supreme Court noted, 13 Mr. Fogerty's "successful defense of `The Old Man Down the Road' increased 14 public exposure to a musical work that could, as a result, lead to further creative 15 pieces." Fogerty, supra, 510 U.S. at 527. If Mr. Fogerty had not defended his right 16 to create and obtain the rights to other non-infringing songs, the public would not 17 have heard them. 18

By contrast, in the present case, Plaintiff owns its copyrighted photographs

19 and seeks to stem the ongoing theft of its images facilitated by Defendants. Given 20 that it is practically impossible to seek redress against the infringing websites 21 themselves, which are usually located outside the U.S., Plaintiff justifiably chose to 22 seek legal redress against Defendants, who facilitate the illegal activities of the 23 Stolen Content Websites and profit from them. Although this Court disagreed with 24 Plaintiff, the issues here were well-grounded in existing law, supported by fact, and 25 raised as a legitimate exercise of Plaintiff's intellectual property rights. Nothing 26 about this action was frivolous, or even out of the mainstream of litigation 27 concerning these issues. Plaintiff's claims directly further the Act's primary 28 purpose of encouraging the production of original works in seeking to protect the
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1 author's rights in those works. Defendants' arguments concerning their "ability to 2 enable commerce" through their payment systems and the alleged "social 3 importance" of the defense of the action [Visa Motion, 4] are inapposite, as any 4 policy concerns about the impact of rulings on the financial system are beyond the 5 scope of the Copyright Act. 6 7 3.

Considerations of Deterrence Are Not Implicated

Considerations of deterrence also do not mitigate in favor of an award of

8 attorneys' fees. This is a case involving undisputed and ongoing infringement by 9 Stolen Content Websites that are substantially aided in their conduct by Defendants 10 (and, indeed, would not be able to operate without Defendant's services). 11 Defendants have the right and ability to control the Stolen Content Websites under 12 the terms of their agreements and could effectively stop the sales of infringing 13 content by enforcing their contractual rights and abilities. Nonetheless, Defendants 14 have refused to take any action to halt the repeated infringements even after written 15 notice from Plaintiff. Plaintiff continues to suffer considerable financial and other 16 harm from the ongoing acts of infringement. Plaintiff has no viable means of 17 pursuing claims against the vast majority of the Stolen Content Websites directly, 18 including because those websites are "virtual" businesses whose owners often are 19 located in remote parts of the world. 20

As a result, and in light of the ongoing and substantial infringement, Plaintiff

21 is well-justified in pursuing claims for third party liability against Defendants. 22 Those claims are not frivolous or abusive. The parameters of third party liability in 23 the quickly shifting world of high technology and Internet commerce are far from 24 settled and, no doubt, will be revised in the years to come. Plaintiff and others in its 25 situation should not be "deterred" from making good faith legal arguments to protect 26 intellectual property rights in situations where ongoing infringement is undisputed 27 and redress against direct infringers is impracticable, at best. 28
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1 2

B.

Defendants Are Not Entitled to Fees Under the Lanham Act

A prevailing defendant may recover fees under the Lanham Act only in

3 "exceptional cases." 15 U.S.C. § 1117; Mattel v. Walking Mountain Productions, 4 353 F.3d 792, 816 (9th Cir. 2003) Fees are appropriate under the Lanham Act only 5 when the plaintiff's case is "groundless, unreasonable, vexatious, or pursued in bad 6 faith." Mattel, supra, 353 F.3d at 816. 7

Here, none of those "exceptional" circumstances apply. Plaintiff's Lanham

8 Act claims were not groundless or unreasonable, let alone vexatious or in bad faith. 9 While the Court disagreed with Plaintiff, the mere dismissal of the action is not 10 enough to make this an "exceptional case." Otherwise, the "exception" would 11 swallow the rule, and every losing plaintiff would by definition be required to pay 12 fees. 13

Plaintiff's trademark claims here were reasonable based on the facts alleged

14 and applicable law. With respect to vicarious trademark infringement, Defendants 15 and the Stolen Content Websites have the ability to bind each other in transactions 16 with third parties. When Defendants accept a charge, their agreement with the 17 Website binds them to process the charge and likewise binds the merchant to 18 provide products to the customer. Hence, Defendants and the Stolen Content 19 Websites "have an apparent or actual partnership, having authority to bind one 20 another in transactions with third parties or exercise joint ... control over the 21 infringing product." Hard Rock Café Licensing Corp. v Concession Services, Inc., 22 95 F.2d 1143, 1150 (9th Cir. 1992). Plaintiff thus alleges a claim for vicarious 23 trademark infringement. See id. 24

Plaintiff also alleges a claim for contributory trademark infringement and has

25 alleged facts to show that Defendants (a) intentionally induce another to infringe a 26 trademark, or (b) continue to supply a product knowing that it will be used to 27 infringe a trademark. See Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 28 (9th Cir. 1996). As alleged in the FAC, Defendants provide the financial incentive
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1 for the Stolen Content Websites by purchasing the credit card charges for stolen 2 material and hence provide inducement for the infringement. Defendants also have 3 continued to supply services to the Stolen Content Websites after being notified by 4 Plaintiff of the infringement. While the Court disagreed with Plaintiff as to whether 5 it had stated a trademark claim, there is no question that the facts alleged fall within 6 the parameters of contributory and vicarious trademark infringement. The 7 trademark claims were not vexatious or in bad faith. This is not an "exceptional 8 case" meriting an award of fees. Mattel, supra, 353 F.3d at 816. 9 10 11

C.

There Is No Basis to Award Sanctions Under 28 U.S.C. § 1927

Contrary to Defendants' arguments, the First Amended Complaint was

12 neither "frivolous," pursued in bad faith, nor filed for any reason other than the 13 merit of the pleading itself. There are significant differences between the initial 14 Complaint and the FAC. [See red-lined comparison of both complaints attached to 15 MasterCard/First Data's Memorandum of Points and Authorities In Support of 16 Motion to Dismiss First Amended Complaint, in Court's file.] The differences in 17 the FAC include, for example., substantive new allegations concerning the scope of 18 Defendants' contractual right and ability to control the infringing conduct of the 19 Stolen Content Websites. The FAC thus added new, relevant facts. [See id., e.g., at 20 ¶¶ 14-29.] Plaintiff had solid legal, procedural, and factual grounds to amend its 21 pleading in order to address the defects the Court found in the original Complaint, as 22 well as to insure that the amended pleading included all necessary allegations in the 23 event that the second motion resulted in a dismissal with prejudice and hence an 24 appeal would be necessary. Since the Ninth Circuit will decide any appeal on the 25 basis of the record before it, Plaintiff had every right and reason to amend its 26 Complaint to include any additional factual allegations that might address the 27 Court's concerns the first time out and also that might be relevant to any later 28 appellate court ruling. The Court, after considering all the arguments, granted
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1 Plaintiff leave to amend to cure the defects in the original Complaint. 2

In light of the above, there is absolutely no basis for the Court to award

3 sanctions under 28 U.S.C. Section 1927. Section 1927 provides that any attorney 4 "who so multiplies the proceedings in any case unreasonably and vexatiously may 5 be required by the court to satisfy personally the excess costs, expenses, and 6 attorneys' fees reasonably incurred because of such conduct." 28 U.S.C. § 1927. 7 Section 1927 by its express terms does not apply to the filing of a lawsuit. In re 8 Keegan Management Co. Securities Litigation, 78 F.3d 431, 435 (9th Cir. 1996). 9 Section 1927 only applies to unreasonable and vexatious "multiplication" of a 10 proceeding. Id 11

Defendants seek sanctions here merely for the filing of the FAC. The FAC is

12 not a basis for sanctions, however, because the mere filing of an amended pleading 13 after leave to amend has been granted, as a standalone act, can hardly "so multipl[y] 14 the proceedings unreasonably and vexatiously" that sanctions are merited, regardless 15 of the merits of the amendment. See 28 U.S.C. § 1927. 16

Besides, an award of sanctions under Section 1927 "must be supported by a

17 finding of subjective bad faith." Keegan, supra, 78 F.3d at 436.; see also Goehring 18 v. Brophy, 94 F.3d 1294, 1306 (9th Cir. 1996) (imposition of sanctions under Section 19 1927 requires finding that attorney acted recklessly or in bad faith). "'Bad faith is 20 present when an attorney knowingly or recklessly raises a frivolous argument, or 21 argues a meritorious claim for the purpose of harassing an opponent.'" Id. (citing 22 cases). Here, Plaintiff contends that the amendments were not frivolous and assert 23 valid claims for relief. That the Court dismissed the claims does not equate to a 24 finding of "subjective bad faith" or intent to harass. There was none. Id. (reversing 25 sanctions award where there was no finding of subjective bad faith or intent to 26 harass). Section 1927 sanctions may be appropriate where the attorney's conduct 27 was truly egregious. See, e.g., Trulis v. Barton, 107 F.3d 685, 694 (9th Cir. 1997) 28 (sanctions justified under Section 1927 where the attorney disregarded his client's
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1 express instructions and continued to insist he represented persons he was not 2 authorized to represent, thus multiplying the proceedings). Attempting in good faith 3 to cure defects in a complaint after leave has been granted is hardly sanctionable. 4

The cases cited by Defendants [MasterCard Motion, 14] are inapposite. In

5 Estate of Blas, 792 F.2d 858, 860 (9th Cir. 1986), the court reversed the trial court's 6 sanctions award, finding that the motion for reconsideration arguing legal positions 7 that the district court may have overlooked "did not constitute an unreasonable and 8 vexatious multiplication of proceedings." In Hedges v. Resoltion Trust Corp., 32 9 F.3d 1360, 1363 (9th Cir. 1994), the court found that sanctions could not be awarded 10 under Section 1927 because there was no finding of recklessness or bad faith. 11 Finally, In re Peoro, 793 F.2d 1048, 1049 (9th Cir. 1986) involved a truly vexatious 12 litigant who relitigated an issue that had already been decided against him in a prior 13 proceeding, and thus was "a textbook example of the use of litigation to bludgeon 14 opponents into submission." None of these cases suggest that seeking to amend a 15 complaint after leave has been granted gives rise to sanctions. 16 17 18 19

D.

The Fees Sought by Defendants Are Unreasonable
1.

The Fees Claimed by Defendants Are Exorbitant

Section 505 of the Copyright Act of 1976 does not authorize an award of whatever the actual attorney's fees may be, but only of "reasonable" attorney's fees spent on litigation. By their respective Motions, Visa seeks $299,603.16 in fees and costs,

20 Fantasy, Inc. v. Fogerty, 1995 WL 261504 at *2 (N.D. Cal. May 2, 1995). 21

22 Mastercard seeks $232,554.70 in fees and costs, and the First Data defendants seek 23 $199,659.00 in fees and costs. In total, Defendants seek $731,816.86 in attorneys' 24 fees and costs. These fees are excessive, in bad faith, unreasonable, and nothing 25 more than a blatant effort to punish plaintiffs for seeking to protect their valuable 26 intellectual property rights based on good faith, reasonable legal claims. 27

In terms of hours, Visa seeks reimbursement for 846.50 hours of legal time

28 [Exh. 1 to Visa's Bill of Costs], Mastercard claims 567.30 hours of legal time [Exh.
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1 1 to Mastercard's Bill of Costs], and the First Data defendants claim 475.53 hours of 2 legal time [Exh. 1 to First Data's Bill of Costs]. In total, Defendants claim to have 3 spent 1,889.33 hours on this case in connection with briefing two similar motions to 4 dismiss on claims that defendants contend were "frivolous." It is abundantly clear 5 given the context that the nearly 1,900 hours of attorney time were unreasonable. 6

The Court should note that the only substantive activity in the case involving

7 Defendants was their two motions to dismiss under Rule 12(b)(6). There was no 8 discovery. The parties did not even conduct the initial Rule 2(f) meeting. [Jansen 9 Decl, ¶ 6.] Defendants also claim to have cooperated in the joint defense in order to 10 minimize costs. [Jansen Decl, ¶¶ 6-7.] Defendants filed a consolidated motion to 11 dismiss the initial Complaint and a consolidated reply, and they filed only three 12 short briefs with their motions to dismiss the FAC. In total, Defendants filed only 13 five legal memorandums in connection with the Rule 12(b)(6) motions consisting of 14 106 pages of total legal briefing. At 1,900 total billable hours, that works out to a 15 little under 19 hours for each page of legal briefing Defendants submitted. Their 16 claim for nearly1,900 hours of legal work at a cost of nearly $750,000 for a case that 17 resolved at the initial pleading stage is beyond the pale. 18 19 20 2.

The Lodestar Approach Does Not Justify the Fees Sought

Regardless of any fees that Defendants may have actually incurred, the

21 Court's duty here (assuming it is inclined to award fees at all, which it should not) is 22 to calculate a reasonable fee award based upon the reasonable hours spent multiplied 23 by a reasonable hourly rate. 24

Calculation of the amount of attorneys' fees properly awarded under the

25 Lanham Act or the Copyright Act begins with the calculation of a "lodestar" 26 amount. Nintendo of America, Inc. v. NTDEC, 822 F. Supp. 1462, 1466-67 (D. AZ 27 1993) The "lodestar" amount is "'the number of hours reasonably expended on the 28 litigation multiplied by a reasonable hourly rate.'" Id.
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1

The lodestar amount is presumptively reasonable, id. at 1467, but may be

2 adjusted based upon various factors, including the time and labor required, the 3 preclusion of other employment by the attorney due to acceptance of the case, time 4 limitations imposed by the client or the circumstances, the "undesirability" of the 5 client, and awards in similar cases. Id. at 1467 fn. 3 (citing Kerr v. Screen Extras 6 Guild, 526 F.2d 67, 70 (9th Cir. 1975)). Adjustments should be made only in rare 7 cases. Yahoo!, Inc. v. Net Games, Inc., 329 F. Supp.2d 1179, 1182 (N.D. Cal. 8 2004). 9

In short, "a reasonable attorney fee is the number of hours and the hourly rate

10 that would be billed by `reasonably competent counsel.'" Yahoo!, supra, 329 F. 11 Supp.2d at 1182. "Reasonably competent counsel bill a reasonable number of 12 hours," do not bill hours that are redundant, excessive, or otherwise unnecessary, 13 and "bill at a reasonable hourly rate based on the local legal community as a whole." 14 Id. at 1183 (citing Hensley v. Eckerhart, , 461 U.S. 424, 434, 103 S.Ct. 1933, 76 15 L.Ed.2d 40 (1983)).. 16 17 18 19

Here, the hours spent and hourly rates are not reasonable.
(a)

The Nearly 1,900 Hours Spent Are Not Reasonable

In determining the reasonable number of hours billed, the court must first ... whether the requested number of hours is greater than, less than or the same number of hours that reasonably competent counsel would have billed. If the requested number of hours is greater than the number of hours reasonably competent counsel would have billed, then the court should reduce the requested number of hours accordingly. Yahoo!, supra, 328 F. Supp.2d at 1184 (citing Hensley, supra, 461 U.S. at 434. Defendants claim to have spent nearly 1,900 hours defending this case. The only substantive work involved, however, was two motions to dismiss. The first motion involved two consolidated briefs filed by Defendants. The second motion
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1 involved only three short briefs where much of the legal research no doubt was 2 simply "cribbed" from the first motion. The legal briefing, in total, is barely 100 3 pages. Defendants claim to be experts in this field and claim that Plaintiff's claims 4 were so contrary to settled law as to be objectively unreasonable. Defendants, 5 tellingly, submit no timesheets or other billing detail. That is because there is no 6 way to justify the nearly 1,900 hours spent on two motions at the initial pleading 7 stage. The hours claimed by Defendants are excessive and unwarranted. To the 8 extent the Court is inclined to award fees, it should do so based on a reasonable 9 number of hours to draft two motions ­ a figure that would be only a small fraction 10 of the nearly 1,900 hours Defendants claim to have spent. 11 12 (b)

The Hourly Rates Claimed Are Not Reasonable

"A reasonable attorney fee is the fee that would be charged by reasonably

13 competent counsel, not counsel of unusual skill and experience." Yahoo!, supra, 329 14 F. Supp.2d. at 1184 (reasonable hourly rate is one "based on rates charged in the 15 local legal community as a whole, not particular segments of the bar"). An above16 average rate is not merited simply on the ground that "counsel of unusual skill or 17 experience increase the chance that a party will prevail." Id. at 1186. 18 19 20 21 22 23 24 25

Under the prevailing Supreme Court cases, fee applicants are entitled to an award sufficient to "enable them to secure reasonably competent counsel," but are not entitled to an award "necessary to secure counsel of their choice." ... Accordingly, courts award the fee that would be charged by reasonably competent counsel, not the fee due under the particular agreement between the fee applicant and its attorneys. Limiting the award to the fee charged by reasonably competent counsel fulfills the aim of fee-shifting provisions, which is to allow parties to employ reasonably competent counsel "without cost to themselves if they prevail." ... Thus, even if a party chooses to employ counsel of unusual skill and experience, the court awards only the fee necessary to secure reasonably competent counsel. In determining a reasonable rate, the court should compare the requested rates

26 Yahoo!, supra, 329 F. Supp.2d at 1183 (citations omitted). 27

28 with the "prevailing market rate," which is the rate "prevailing in the community for
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1 similar services of lawyers with reasonably comparable skill, experience, and 2 reputation." Yahoo!, supra, 329 F. Supp.2d. at 1185. A particular attorney's hourly 3 rate generally is relevant, but not dispositive evidence of a reasonable rate. Id. 4 (citing cases). "[T]he average market rate in the local legal community as a whole is 5 a better approximation of the hourly rate that would be charged by reasonably 6 competent counsel than the actual billing rate charged by a single attorney." Id. 7 "The losing party is obligated to pay only the rate charged by reasonably competent 8 counsel." Id. at 1186; Sealy, Inc. v. Easy Living, Inc., 743 F.2d 1378, 1385 (1984) 9 ("[t]he criterion for the court is not what the parties agreed but what is reasonable" 10 based on customary fees in the community). 11

In Yahoo!, supra, the trial court found in July 2004, based on information

12 from the Bureau of Labor Statistics, that the estimated average hourly rate for 13 attorneys in the San Francisco area was $190, and the hourly rate was $70 for 14 paralegals. Yahoo!, supra, 329 F. Supp.2d. at 1191. 15

Here, Defendants claim hourly rates as high as $700 (Robert A. Van Nest),

16 and over $500 for several other attorneys. Rates for associates are often over $300, 17 even for some junior attorneys. [See First Data's Bill of Costs, Exh. 1; Page Decl, ¶ 18 4; Jansen Decl, ¶ 18; Bridges Decl, ¶ 18.] Defendants provide no evidence other 19 than their attorneys' conclusory, self-serving declarations that these high rates 20 comport with market norms for reasonably competent counsel. The Court should 21 apply an hourly rate (if fees are to be awarded at all, which award Plaintiff contends 22 is unwarranted) that is consistent with the rate applied in Yahoo!, supra. 23 24 3.

Defendants Have Not Made the Required Showing

The party seeking fees bears the burden of showing the time spent and that it

25 was reasonably necessary to obtain a successful result. See Fogerty, supra, 1995 26 WL 261504 at *2; Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 886 F.2d 27 1545, 1557 (9th Cir. 1989). 28
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Generally, the prevailing party is required to document the hours expended
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1 and to submit detailed invoices or timesheets reflecting the tasks performed. 2 Fantasy, Inc., supra, 1995 WL 261504 at * 2 (fees adequately documented by 3 contemporaneous billing statements and invoices sent to the client); Frank, supra, 4 886 F.2d at 1556-57 (vacating fee award, including in light of counsel's failure to 5 provide contemporaneous time records); Hensley, supra, 461 U.S. at 437 fn. 12 6 (prevailing party's counsel "should identify the general nature of his time 7 expenditures"). 8

In the absence of contemporaneous time records, the hours claimed "should

9 be credited only if reasonable under the circumstances and supported by other 10 evidence such as testimony or secondary documentation." Frank, supra, 886 F.2d at 11 1557. The trial court "can abuse its discretion in certain circumstances by not 12 requiring the party requesting attorney's fees to submit any materials besides 13 summaries of the time expended to litigate a matter." Entertainment Research 14 Group, supra, 122 F.3d at 1231. 15

Moreover, the prevailing party's counsel "should make a good faith effort to

16 exclude from a fee request hours that are excessive, redundant, or otherwise 17 unnecessary." Sealy, supra, 743 F.2d at 1385 (vacating fee award where trial court 18 accepted wholesale findings prepared by prevailing party and no effort was made to 19 exclude unnecessary hours). 20

Here, defendants have made no showing of time spent other than conclusory

21 attorney declarations summarizing in only the broadest possible strokes the nearly 22 1,900 hours allegedly expended on this case. No timesheets or any detail has been 23 submitted. Clearly, no effort was made by Defendants to eliminate any hours that 24 may have been excessive, unnecessary, or redundant. Sealy, supra, 743 F.2d at 25 1385. The nearly 1,900 hours are plainly excessive, particularly given Defendants' 26 claim that they have cooperated to keep costs down. The Court cannot accept 27 defendants' claims of time spent wholesale, Sealy, supra, 743 F.2d at 1385, yet no 28 basis is provided for the Court to ascertain what portion of those 1,900 hours were
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1 reasonable. 2 3 4.

Defendants Have Not Apportioned Between Claims

A prevailing defendant on a copyright claim may recover its attorneys' fees

4 incurred defending against the copyright claim and any closely related claims. The 5 Traditional Cat Ass'n, Inc. v. Gilbreath, 340 F.3d 829, 833 (9th Cir. 2003). A 6 prevailing party on a Lanham Act claim may recover attorneys' fees relating to the 7 Lanham Act claim and any other claims that are so intertwined that it is impossible 8 to differentiate between work done on the other claims. Id.; Gracie v. Gracie, 217 9 F.3d 1060, 1069-70 (9th Cir. 2003). Claims are related if they arise from a common 10 core of facts and involve related legal theories. See Sorenson v. Mink, 239 F.3d 11 1140, 1147 (9th Cir. 2001); Odima v. Westin Tuscon Hotel, 53 F.3d 1484, 1499 (9th 12 Cir. 1995); Entertainment Research Group, supra, 122 F.3d at 1230. 13

Where copyright and non-copyright claims are not related, fees are not

14 recoverable for the non-copyright claims, and hence the court has a duty to make 15 some attempt to apportion fees, even if an exact apportionment is impossible. 16 Traditional Cat, supra, 340 F.3d at 834. 17

Here, the state law claims are not related to or intertwined with the copyright

18 and Lanham Act claims. This case never progressed to the discovery stage. The 19 only "facts" are those alleged in the complaints. The legal claims based on those 20 alleged facts involve distinctly different theories (tort versus copyright, etc.), and 21 there is no overlap in the legal research relevant to the two motions to dismiss (the 22 only substantive work in the case). Nonetheless, Defendants have made no effort to 23 apportion fees between the copyright and trademark claims, for which fees may be 24 recoverable, and the state law claims, for which there is no statutory or other right to 25 fees. Plaintiff asserted a variety of state law claims for wrongful use of a registered 26 mark, violation of right of publicity, unfair competition, false advertising, libel, 27 injunctive relief, and intentional interference with prospective economic advantage. 28 [See generally Complaint and FAC, in Court's file.]
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1

While Defendants claim to be unable to apportion any time spent only on the

2 state law claims, apportionment should be simple here since there was no discovery, 3 and the only work involved was legal research and drafting. Defendants' billing 4 records (which were not provided) should reflect which legal research and drafting 5 hours related to the state law claims. The state law claims involve separate and 6 distinct legal issues from the copyright and trademark claims. These claims are not 7 related. The Court has a duty to apportion. Id. Defendants' request for fees, if 8 granted, should be reduced for any work related to the state law claims. 9

Likewise, Defendants have not identified time spent defending the copyright

10 claims as opposed to Lanham Act claims. Those two claims involve separate and 11 distinct statutory schemes and legal issues and are not "related." The standards for 12 awarding fees for copyright claims (Fogerty factors) and Lanham Act claims 13 ("exceptional circumstances") differ. To the extent the Court awards fees for only 14 one of these two statutory claims, the Court should apportion fees accordingly. 15 16

III.

CONCLUSION

For each of the foregoing reasons, Plaintiff respectfully requests that this

17 Court deny the Defendants' motions for attorneys' fees and costs, in their entirety. 18 In the alternative, to the extent the Court determines that an award of fees is merited, 19 the Court should award fees in a reasonable amount that is only a small fraction of 20 the nearly $750,000 sought by Defendants. The Court should also issue such other 21 and further relief as the Court deems just and proper. 22 23 DATED: 24 25 26 27 28
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January 10, 2005

KING, HOLMES, PATERNO & BERLINER, LLP By: /s/

SETH MILLER Attorneys for Plaintiff PERFECT 10, INC.

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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
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TABLE OF CONTENTS Page I. II. INTRODUCTION................................................................................................................. 1 ARGUMENT: DEFENDANTS ARE NOT ENTITLED TO FEES.................................... 3 A. Defendants Are Not Entitled to Fees Under the Copyright Act................................ 3 1. Plaintiff's Copyright Claims Are Not Unreasonable Or Frivolous .................................................................................................. 4 (a) Plaintiff's Claims for Vicarious Infringement Are Not Frivolous.............................................................................. 5 (b) Plaintiff's Claims for Contributory Infringement Are Not Frivolous.............................................................................. 7 2. 3. B. C. D. Plaintiff's Claims Further the Purpose of the Copyright Act........................ 8 Considerations of Deterrence Are Not Implicated........................................ 9

Defendants Are Not Entitled to Fees Under the Lanham Act................................. 10 There Is No Basis to Award Sanctions Under 28 U.S.C. § 1927............................ 11 The Fees Sought by Defendants Are Unreasonable................................................ 13 1. 2. The Fees Claimed by Defendants Are Exorbitant....................................... 13 The Lodestar Approach Does Not Justify the Fees Sought ........................ 14 (a) (b) 3. 4. The Nearly 1,900 Hours Spent Are Not Reasonable ...................... 15 The Hourly Rates Claimed Are Not Reasonable ............................ 16

Defendants Have Not Made the Required Showing ................................... 17 Defendants Have Not Apportioned Between Claims.................................. 19

III.

CONCLUSION ................................................................................................................... 20

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1 2 3 4 CASES

TABLE OF AUTHORITIES Page

5 A&M Records, Inc. v. Napster, 239 F.3d 1004 (9th Cir. 2001) ........................................................ 5 6 Diamond v. Am-Law Pub. Corp., 745 F.2d. 142, 148 (2d Cir. 1984) ............................................... 4 7 Entertainment Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1228-29 (9th Cir 1997)............................................................................................... 4, 18, 19 8 Estate of Blas, 792 F.2d 858, 860 (9th Cir. 1986)............................................................................ 13 9 Fantasy, Inc., v. Fogerty, 94 F.3d 553, 558 (9th Cir. 1996) .............................................................. 8 10 Fantasy, Inc., v. Fogerty, 1995 WL 261504 ....................................................................... 13, 17, 18 11 Fogerty v. Fantasy, Inc., 510 U.S. 517, 114 S.Ct. 1023, 127 L.Ed.2d 455 (1994)............................................................................................3, 4, 7, 8 12 13 Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996) ........................................... 5, 10 14 Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc., 886 F.2d 1545, 1557 (9th Cir. 1989)....... 17, 18 15 Goehring v. Brophy, 94 F.3d 1294, 1306 (9th Cir. 1996) ................................................................ 12 16 Gracie v. Gracie, 217 F.3d 1060, 1069-70 (9th Cir. 2003).............................................................. 19 17 Hard Rock Café Licensing Corp. v Concession Services, Inc., 95 F.2d 1143, 1150 (9th Cir. 1992).................................................................................................................................... 10 18 Hedges v. Resoltion Trust Corp., 32 F.3d 1360, 1363 (9th Cir. 1994) ............................................ 13 19 Hensley v. Eckerhart, 461 U.S. 424, 434, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983).................... 15, 18 20 Hughes v. North American, Inc. 724 F.2d 122, 125 (Fed. Cir. 1984) ............................................... 4 21 In re Keegan Management Co. Securities Litigation, 78 F.3d 431, 435 (9th Cir. 1996)................. 12 22 In re Peoro, 793 F.2d 1048, 1049 (9th Cir. 1986) ........................................................................... 13 23 Jackson v. Axton, 25 F.3d 884, 890 (9th Cir. 1994)................................................................... 3, 6, 7 24 Kerr v. Screen Extras Guild, 526 F.2d 67, 70 (9th Cir. 1975) ......................................................... 15 25 Maljack Productions, Inc. v. GoodTimes Home Video Corp., 81 F.3d 881, 890 (9th Cir. 1996)...................................................................................................................................... 4 26 27 Mattel v. Walking Mountain Productions, 353 F.3d 792, 816 (9th Cir. 2003) ......................... 10, 11 28
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1 Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 380 F.3d 1154 (9th Cir. 2004), cert. granted, 2004 WL 2289054 ......................................................................................... passim 2 Nintendo of America, Inc. v. NTDEC, 822 F. Supp. 1462, 1466-67 (D. AZ 1993) ........................ 14 3 Odima v. Westin Tuscon Hotel, 53 F.3d 1484, 1499 (9th Cir. 1995)............................................... 19 4 Sealy, Inc. v. Easy Living, Inc., 743 F.2d 1378, 1385 (1984) ............................................. 17, 18, 19 5 Sorenson v. Mink, 239 F.3d 1140, 1147 (9th Cir. 2001) .................................................................. 19 6 The Traditional Cat Ass'n, Inc. v. Gilbreath, 340 F.3d 829, 833 (9th Cir. 2003) ........................... 19 7 Trulis v. Barton, 107 F.3d 685, 694 (9th Cir. 1997) ........................................................................ 12 8 UMG Recordings, Inc. v. Sinnott, 300 F. Supp.2d 993 (C.D. Cal. 2004) ......................................... 5 9 Yahoo!, Inc. v. Net Games, Inc., 329 F. Supp.2d 1179, 1182 (N.D. Cal. 2004) ................. 15, 16, 17 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
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STATUTES 15 U.S.C. § 1117 ............................................................................................................................. 10 17 U.S.C. § 505 ................................................................................................................................. 3 28 U.S.C. § 1927 ....................................................................................................................... 11, 12

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