Credit card companies get green light to profit from, enable Internet piracy

Reuters reports that in Perfect 10, Inc. v. Visa Intl. Serv. Assn., 494 F.3d 788, 793 (9th Cir. 2007) the Ninth Circuit has affirmed (opinion here), 2-1, a ruling that there is no third-party copyright or trademark liability for credit card companies such as Visa and MasterCard or the banks that process their transactions, arising from their central — essential, really — role in the sale of counterfeit merchandise (including, as in this case, unauthorized copies of dirty pictures) on the Internet:

Writing for the majority, Judge Milan Smith Jr. said credit card processors, unlike Web search providers, do not direct online traffic. “They in no way assist or enable Internet users to locate infringing material, and they do not distribute it,” Smith wrote.

“Here, the infringement rests on the reproduction, alteration, display and distribution of Perfect 10’s images over the Internet,” Smith wrote.

If you didn’t guess from the title, I disagree with this. Why do judges keep missing this? The credit card companies are very much in the profit chain of infringing websites — websites that do nothing but sell counterfeit goods — and they make no serious effort, even when notified, to prevent this activity from occurring.

I am not just shooting from the hip here. I researched this issue extensively for a Very Important Client, and came to the conclusion that, under the right circumstances, liability should, indeed, attach. I cannot understand, for example, why the Ninth Circuit spends so much time focusing on the fact that the credit card companies do not themselves operate the infringing websites the way flea market operators (who have been held contributorily liable) operate the markets where counterfeit items are sold. That is besides the point. I find this language particularly frustrating:

[T]he ability to exert financial pressure does not give Defendants the right or ability to control the actual infringing activity at issue in this case [as would be required to find liabilty]. . . Defendants can only refuse to process credit card payments to the offending merchant within their payment network, or they can threaten to do so if the merchant does not comply with a request to alter content. While either option would likely have some indirect effect on the infringing activity, as we discuss at greater length in our analysis of the Grokster “stop or limit” standard below, so might any number of actions by any number of actors.

Since when is the fact that other things would also work mean that the law will not require a party in a position to prevent illegality — and which is profiting from the transactions — to do what is in its power?

I’m not alone; not by a long shot. The dissenter? Only Alex Kozinski, who also recognizes that the majority errs — really, in my view, demonstrates real intellectual dishonesty — in that they

recognize, as they must, that helping consumers locate infringing content can constitute contributory infringement but they consign the means of payment to secondary status. … But why is locating infringing images more central to infringement than paying for them? If infringing images can’t be found, there can be no infringement; but if infringing images can’t be paid for, there can be no infringement either. Location services and payment services are equally central to infringement; the majority’s contrary assertion is supported largely by disparaging use of “merely,” “simply” and “only.” …

If cards don’t process payment, pirates don’t deliver booty. The credit cards, in fact, control distribution of the infringing material… It does not serve the interests of a free market, or a free society, to abet marauders who pilfer the property of law-abiding, tax-paying rights holders, and who turn consumers into recipients of stolen property.

Now, this is the Ninth Circuit. So this is by no means over.  [UPDATE:  Here, read all contributory trademark infringement — Jane Coleman wrote everything you need to know about it.]

UPDATE: Great title by Rebecca Tushnet: “Visa: It’s everywhere you want to infringe.” My I add a suggestion for your “Mastercard card”? “Crime never pays, but Internet crime? Priceless.”

UPDATE:  Analysis from the New York Law Journal.

NU:  From the Chicago-Kent Journal of Intellectual Property:

In sum, the court failed to correctly align the facts with similarly situated cases. The majority takes an outdated look at infringement, failing to comprehend the complexity and practicality associated with ever-changing technology. While the tests for secondary liability for copyright infringement are somewhat open for interpretation, cases such as Fonovisa, Grokster, and Google provide guidance, which the majority failed to interpret and apply properly. In granting Visa’s motion to dismiss, the court left Perfect 10 and other similar companies that depend on copyright-protected photographs with an uphill battle in the struggle to preserve their digitally-driven businesses. The court should have denied Visa’s motion to dismiss and granted Perfect 10 with the opportunity to prove its case during trial.

8 Chi.-Kent J. Intell. Prop. 85, 98 (2008).

UPDATE:  Oh, this is good.  This is good!