Perfect 10, Inc. v. Giganews, Inc.

847 F.3d 657

PERFECT 10, INC., Plaintiff–Appellant,

v.GIGANEWS, INC.; Livewire Services, Inc., Defendants–Appellees.

Perfect 10, Inc., a California corporation, Plaintiff–Counter–Defendant–Appellant,

v.Giganews, Inc., a Texas corporation; Livewire Services, Inc., a Nevada corporation, Defendants–Counter–Claimants–Appellees.

Perfect 10, Inc., a California corporation, Plaintiff–Counter–Defendant–Appellee,

v.Dr. Norman Zada, Third Party–Appellee,Giganews, Inc., a Texas corporation; Livewire Services, Inc., a Nevada corporation, Defendants–Counter–Claimants–Appellants.

No. 15-55500

No. 15-55523

No. 15-56026

United States Court of Appeals, Ninth Circuit.

Argued and Submitted December 5, 2016 Pasadena, California

Filed January 23, 2017

David N. Schultz (argued), Law Offices of David N. Schultz, Los Angeles, California; Eric J. Benink, Krause Kalfayan Benink & Slavens LLP, San Diego, California; for Plaintiff–Counter–Defendant–Appellant/Cross–Appellee and Third Party–Appellee.

Andrew Phillip Bridges (argued), Jedediah Wakefield, Joseph S. Belichick, and Todd R. Gregorian, Fenwick & West LLP, San Francisco, California, for Defendants–Appellees/Cross–Appellants.

Thomas G. Hentoff (argued) and Nicholas G. Gamse, Williams & Connolly LLP, Washington, D.C.; George M. Borkowski, Recording Industry Association of America Inc., Washington, D.C.; for Amicus Curiae Recording Industry Association of America, Inc.

Kelly A. Woodruff, Deepak Gupta, and Anthony P. Schoenberg, Farella Braun + Martel LLP, San Francisco, California, for Amici Curiae Electronic Frontier Foundation, Public Knowledge, American Library Association, Association of College and Research Libraries, and Association of Research Libraries.

Corynne McSherry, Electronic Frontier Foundation, San Francisco, California, Of Counsel to Amicus Curiae Electronic Frontier Foundation.

Jonathan Band, Policybandwidth, Washington, D.C., Of Counsel to Amici Curiae American Library Association, Association of College and Research Libraries, and Association of Research Libraries.

Charles Duan, Public Knowledge, Washington, D.C., Of Counsel to Amicus Curiae Public Knowledge.

Seth D. Greenstein, Robert S. Schwartz, and Leigh O. LaMartina, Constantine Cannon LLP, Washington, D.C., for Amici Curiae i2Coalition, Internet Association and Computer & Communications Industry Association.

Before: Harry Pregerson, Dorothy W. Nelson, and John B. Owens, Circuit Judges.

OPINION

D.W. NELSON, Senior Circuit Judge:

Appellant Perfect 10, Inc. ("Perfect 10" or "P10") challenges the district court's partial dismissal of its direct copyright infringement claim and grant of summary judgment in favor of Appellees Giganews, Inc. ("Giganews") and Livewire Services, Inc. ("Livewire") as to all remaining claims. Perfect 10 also appeals the district court's award of attorney's fees and costs under the Copyright Act. On cross-appeal, Giganews and Livewire contend the district court erred by denying their request for supplemental fees and failing to add Perfect 10's sole shareholder and founder, Norman Zada ("Zada"), to the judgment as Perfect 10's alter ego. For the reasons set forth below, we affirm the district court.

BACKGROUND

1. The Usenet and Appellees' Operations

The heart of this complex copyright dispute revolves around the Usenet (or "USENET"), "an international collection of organizations and individuals (known as ‘peers') whose computers connect to one another and exchange messages posted by USENET users." Ellison v. Robertson , 357 F.3d 1072, 1074, n.1 (9th Cir. 2004). "To obtain access to the USENET, a user must gain access through a commercial USENET provider, such as Defendant [Giganews], or an internet service provider." Arista Records LLC v. Usenet.com, Inc. , 633 F.Supp.2d 124, 130 (S.D.N.Y. 2009). Giganews owns and operates several Usenet servers and provides its subscribers with fee-based access to content that Giganews stores on its own servers as well as content stored on the servers of other Usenet providers. Unlike Giganews, Livewire does not own any Usenet servers, but instead provides its subscribers with access to the Usenet content stored on Giganews's servers.

The Usenet content offered through Giganews's servers is almost exclusively user-driven, in that Usenet users upload the majority of the content stored on a Usenet provider's server. This content is posted via text-based articles to online bulletin boards called newsgroups. Each article is associated with a unique Message–ID. Giganews and Livewire contend that the only way to accurately identify a specific Usenet message is with that Message–ID. Although these articles are posted as text files, other types of files such as images, songs, and movies may be encoded into the bodies of the articles as binary files. Through Giganews's browser application, known as "Mimo," or "the Mimo Reader," users can open the binary files, which are then decoded and displayed in their original format.

By using a "peering process," messages posted on one Usenet server can automatically propagate to other Usenet servers, which then propagate the messages to another Usenet server, and so on. More specifically,

when an individual user with access to a USENET server posts a message to a newsgroup, the message is automatically forwarded to all adjacent USENET servers that furnish access to the newsgroup, and it is then propagated to the servers adjacent to those servers, etc. The messages are temporarily stored on each receiving server, where they are available for review and response by individual users. The messages are automatically and periodically purged from each system after a time to make room for new messages. Responses to messages, like the original messages, are automatically distributed to all other computers receiving the newsgroup or forwarded to a moderator in the case of a moderated newsgroup. The dissemination of messages to USENET servers around the world is an automated process that does not require direct human intervention or review.

Am. Civil Liberties Union v. Reno , 929 F.Supp. 824, 835 (E.D. Pa. 1996). This peering process only occurs after two Usenet access providers enter into peering agreements to accept materials from each other. The servers are then able to synchronize their information so their content mirrors one another's. Thus, only after Giganews engages in a peering agreement can its servers exercise any control over the messages copied from other servers. However, this control is minimal.

As the district court explained, for example, Giganews servers "compare [ ] the unique Message–IDs of messages on peer servers to ensure that Giganews does not copy duplicate articles to its servers." Perfect 10, Inc. v. Giganews, Inc. , No. CV–11–07098 AB (SHx), 2014 WL 8628034, at *3 (C.D. Cal. Nov. 14, 2014). Similarly, "if a peer server contains an article with a Message–ID that Giganews has already deleted from its servers," the Giganews servers will not then copy that article. Id. In addition, because Giganews is a member of the Internet Watch Foundation, which tracks individual articles by Message–ID or entire newsgroups that contain child pornography, certain articles and newsgroups may automatically be deleted or blocked from peering from Giganews's servers. Id.

"Other than setting those basic parameters, Giganews does not select any of the content available on its servers." Id. Indeed, "Giganews itself did not post any of the articles at issue in this action ... to any Usenet server, and all such articles were posted by Usenet users. Nor does Giganews tell any third parties what to upload to the Usenet, including Giganews'[s] Usenet servers." Id. (internal citations omitted). Similarly, because Livewire "merely contracts with Giganews for access to [its] servers," Livewire also has no control over the uploaded, downloaded, transmitted, or stored content on Giganews's servers. Id. And Livewire itself has neither uploaded material onto the Usenet nor directed anyone else to do so.

2. Perfect 10 Images on the Usenet

Perfect 10 owns the exclusive copyrights to tens of thousands of adult images, many of which have been illegally distributed over Giganews's servers. Upon locating infringing materials on those servers, Perfect 10 sent Giganews numerous letters fashioned as takedown notices pursuant to the Digital Millennium Copyright Act ("DMCA"), 17 U.S.C. § 512, et seq. While some of these notices merely instructed Giganews to "locate all of the infringing messages and images ... by doing [a] mimo search" for a particular term, others attached screen shots of the Mimo application that displayed posts in which Perfect 10's copyrighted images were distributed. When Perfect 10 sent Giganews machine-readable Message–IDs, Giganews quickly removed those messages from its servers. When Perfect 10 faxed Giganews notices containing illegible Message–IDs, Giganews responded with a letter asking Perfect 10 to provide the Message–IDs in a legible, machine-readable format. Perfect 10 repeatedly declined to do so.

3. Procedural History

On April 28, 2011, Perfect 10 brought suit against Giganews and Livewire in the U.S. District Court for the Central District of California, alleging direct and indirect copyright infringement claims as well as trademark and state law claims. Only the copyright infringement claims are the subject of this appeal.

On March 8, 2013, the district court denied Appellees' motion to dismiss Perfect 10's indirect copyright infringement claims against Giganews and granted their motion to dismiss those claims against Livewire with leave to amend. The district court also granted the motion to dismiss the direct copyright infringement claims against both Giganews and Livewire with leave to amend, explaining that direct infringement requires "volitional conduct" and finding that Perfect 10 had not alleged that Appellees "were the direct cause of, or actively engaged in, [such] infringement." Perfect 10 v. Giganews, Inc ., No. CV–11–07098 AHM (SH...