Perfect 10 Scores A Not-So-Perfect Rating By The Ninth Circuit
On May 16, 2007, the Ninth Circuit ruled in two very closely-watched cases, Perfect 10, Inc. v. Google Inc. and Perfect 10, Inc. v. Amazon.com, Inc., that involved the potential liability of search engine companies for (1) providing copyrighted images to users, and (2) linking to third-party websites where infringing images might be found. The Ninth Circuit vacated a preliminary injunction barring Google from displaying thumbnail copies of Perfect 10's nude models in Google search results.
The Ninth Circuit's opinion is very complex, and is very much tied to the particular facts presented by these two cases. In addition, it is an appeal of the granting of a preliminary injunction, and not on the final merits after a trial, so the case will likely continue and be the subject of future decisions and commentary. Although not a total victory, the search engine industry came out ahead in a decision that helps define the limits of liability of search engines for (1) posting copyrighted images as part of their search services, and (2) linking to third-party websites where one can find the infringing images. The Court refined the tests for fair use in the search engine context, made it harder for plaintiffs to make a case of direct infringement against search engine companies, and articulated a new test for establishing contributory liability in such cases. If Perfect 10, and copyright owners generally, got anything from this decision, it is likely in the Court's ruling on Perfect 10's contributory and vicarious liability claims.
Perfect 10 markets copyrighted images of nude models. It sells a magazine containing the images, operates a subscription website where members can view them, and licenses a third party to sell reduced-size images for use on cell phones. In the Google case, Perfect 10 argued that Google violates its copyrights by providing thumbnail images to users, linking to infringing sites where full-sized images can be found, and encouraging and inducing others to infringe Perfect 10's rights. The Amazon.com suit arose from an agreement between Amazon.com and Google whereby Google provided image search results to Amazon.com users that included thumbnails of Perfect 10 images.
Google has a search tool called "Google Image Search" that indexes third-party websites and images stored in them. In response to a user's search request, Google provides small, low-resolution thumbnails of full-sized images stored on third-party computers. When a user clicks on the thumbnail image in Google's search results, Google's software instructs the user's computer to open a window where text and graphics from Google, including the thumbnail image, appear, and provides a computer address that tells the user's computer where a full-sized version of the image can be found on a third-party website. The user's computer can then download that full-size image from that third-party website and it will appear in the bottom section of the window on the user's screen. This is called "in-line linking". Google does not store the full-size images and does not communicate them to the user. Google simply provides the instructions that direct the user's computer to the third-party website where it can get the image.
In the course of its website searching and indexing activities, Google's software stores webpage content in its cache (computer memory). This is done to facilitate Google's search engine's organization and indexing of web pages. The information stored reflects the webpage as it appeared at the time Google indexed the page, but does not store any images from the third-party webpages.
Google also generates revenue through a program called "AdSense". A website owner can register as a Google AdSense partner, which allows Google to place content-relevant advertising on a user's screen when his or her computer accesses particular websites. Perfect 10 argued that if an AdSense partner infringes a Perfect 10 copyright, then Google benefits because it received revenue from the AdSense partner.
The Proceedings In The District Court
Perfect 10 sought a preliminary injunction barring Google and Amazon.com from copying, distributing, displaying or otherwise infringing, or contributing to the infringement of, the copyrights in Perfect 10's photographs, and from linking to websites that provide full-size versions of those photographs. The District Court enjoined Google from displaying the thumbnail versions of Perfect 10's images, but did not enjoin Google from linking to third-party websites that displayed full-sizes versions, nor did it enjoin Amazon.com from giving users access to information provided by Google. Both Perfect 10 and Google appealed.
The Ninth Circuit Decision
The District Court's injunction against Google's use of the thumbnails generated a lot of press and commentary when it was issued, and caused a lot of hand-wringing from search engine companies and ISPs over the chilling effect such an injunction would have on their activities and on innovations by them and others in the cyberspace world. The Ninth Circuit has now given them cause for a sigh of relief, and has vacated that injunction.
The Ninth Circuit's opinion is complex, but also very focused on the particular facts presented by the dispute raised in these two cases. So, it will remain to be seen just how it might be applied for precedential effect in other contexts. But the Court took the opportunity to clarify some of the infringement tests articulated in previous cases; heightened the importance of fair use, the safe harbor provisions of the Digital Millennium Copyright Act ("DMCA"), and other defenses raised in opposition to a preliminary injunction request; made it much more difficult to assert a case of direct infringement against search engine companies; and raised the specter of the potential for increased liability under theories of secondary liability for contributory and vicarious infringement. Overall, this was a moderately good win for the search engine and ISP industries.
Elevating The Procedural Burden On The Party Seeking An Injunction
At several points in the opinion, the Ninth Circuit pointed out that Perfect 10 had failed to introduce evidence showing that it was likely to prevail on the merits of a particular claim or element. With that in mind, it articulated exactly what burden a party who is seeking a preliminary injunction must meet.
Google asserted two primary defenses: (1) its use of the images was protected by the doctrine of fair use, as codified in 17 U.S.C. § 107; and (2) any liability it might have was limited by the safe harbor provisions in Section 512 of the DMCA. The Ninth Circuit noted a conflict of authority as to whether a party that bears the burden of showing a likelihood of success on the merits in order to obtain a preliminary injunction also bears the burden of demonstrating a likelihood of success in overcoming a fair use defense. The Court held that the party seeking the injunction bears both burdens: "In order to demonstrate its likely success on the merits, the moving party must necessarily demonstrate it will overcome defenses raised by the non-moving party." In the copyright context, this means that Perfect 10 had the burden of showing that it would overcome Google's fair use and DMCA defenses, making it more difficult for a plaintiff to obtain a preliminary injunction.
Perfect 10 asserted that Google directly infringed the display and distribution rights in the photographs (17 U.S.C. §§ 106(3) and (5)). The Ninth Circuit affirmed the District Court's finding that found that Perfect 10 had made a prima facie case of direct infringement of the display right arising from Google's use of the thumbnail images, but reversed the District Court's finding that Google would not prevail on its fair use defense. In other words, the Ninth Circuit, while agreeing that a direct infringement finding was likely, held that Google would likely prevail on a fair use defense, thereby shielding it from any liability. As to Google's links to the full-size images, the Ninth Circuit affirmed the District Court's finding that Perfect 10 was not likely to prevail in showing direct infringement of either the display or distribution right.
The Display Right
The thumbnail images: The Ninth Circuit stated that the issue of when a computer displays a copyrighted work for purposes of 17 U.S.C. §§ 106(5) was a matter of first impression in the Circuit. It found that "a person displays a photographic image by using a computer to fill a computer screen with a copy of the photographic image fixed in the computer's memory." There was no dispute that Google's computers stored thumbnail versions of Perfect 10's copyrighted images and communicated those images to Google's users. Therefore, Perfect 10 stated a prima facie case of direct infringement of the display right for the thumbnail images.
The full-sized images: The full-sized images were treated very differently. Because Google never stores or displays copies of them, and instead merely links to third-party websites where they can be found, the Court confirmed that Google cannot be guilty of direct infringement of the display right. Merely providing HTML instructions to a user's computer directing that computer to a third-party website that stores the image is not equivalent to showing a copy. Although it might lead to contributory infringement liability, as explained in more detail below, it is not enough to constitute direct infringement liability.
An open issue: In what could signal a fruitful area for future activity by litigants and the courts, the Ninth Circuit pointedly noted that Google actively initiates and controls the storage and communication of the thumbnail images. But it expressly left open the question of whether there would be infringement if someone who merely passively owns and manages an Internet bulletin board or similar system is guilty of direct infringement of the display and distribution rights when the users of the bulletin board post infringing works.
The Distribution Right
The Ninth Circuit then held that Google also does not infringe the distribution right by linking to the full-size images because it never actually disseminates a copy. The Court rejected Perfect 10's argument, based on Hotaling v. Church of Jesus of Latter-Day Saints, 118 F.3d 199 (4th Cir. 1997), and A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004 (9th Cir. 2001), that merely making images "available" violates the distribution right. Unlike the defendant in Hotaling, Google does not own a collection of Perfect 10 full-size images, and unlike the defendant in Napster, Google does not deliver the Perfect 10 full-size images to the computers of people using Google's search engine; it merely indexes them.
Google's Fair Use Defense
Returning to the Court's finding that Perfect 10 had stated a prima facie case of direct infringement of the display right arising from its use of the thumbnails, the Ninth Circuit then held that Google nevertheless was likely to win on its fair use defense, and thereby shield itself from any liability for direct infringement. It then vacated the District Court's injunction.
Before going through a detailed examination of the four fair use factors set forth in 17 U.S.C. § 107, the Court reiterated at some length the public policy behind the fair use doctrine. It was that public policy that primarily informed its decision on Google's fair use defense.
The Court noted that the primary purpose behind the fair use doctrine is to encourage the development of new ideas that build on earlier ideas. It noted that courts are required to avoid a rigid application of the copyright laws when doing so would stifle the very creativity the law is designed to foster. Rather, the courts must be flexible in applying a fair use analysis, and must do so with the goal of serving the public interest.
In its fair use analysis, the Court heavily relied on its earlier decision in Kelly v. Arriba Soft Corp., 336 F.3d 811 (9th Cir. 2003), where it held that an Internet search engine's use of thumbnail images of a photographer's work, provided in response to user search queries, was a fair use, based on the transformative nature of a search engine and its benefit to the public, and the fact that providing the thumbnails did not harm the photographer's market for his images. In going through the four fair use factors, the Court found the situation presented by Google's use of the thumbnail images to be very similar.
(1) The purpose and character of the use
The Court stated that the central purpose of this inquiry is to determine whether and to what extent the new work is transformative: "A work is 'transformative' when it does not 'merely supersede the objects of the original creation' but rather 'adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message.'" If the new work supersedes the use of the original, then it is likely not a fair use.
The Court rejected Perfect 10's argument that providing access to infringing websites cannot be deemed transformative and is inherently not fair use. It found that Google operates a comprehensive search engine that only incidentally indexes infringing websites. That does not amount to an abuse of the good faith and fair dealing underpinnings of the fair use doctrine.
It also found that Google's use of thumbnails is "highly transformative". A search engine transforms an image into a pointer directing a user to a source of information. It provides a social benefit by incorporating an original work into a new work, namely an electronic reference tool. This is true even though Google incorporates an entire Perfect 10 image in the search engine results, because the copy serves a different function than the original work.
The District Court had discounted the transformative nature of Google's use because Google's thumbnails might supersede Perfect 10's ability to sell its reduced-size images for use on cell phones, and because Google's use was commercial in the sense that it might have led users to Google AdSense partners whose websites contained infringing images. The Ninth Circuit weighed these concerns against Google's transformation of the thumbnails into a comprehensive search engine use and the extent to which Google's search engine promotes the purposes of copyright and serves the public interest. It found that the two concerns raised by Perfect 10 did not override the highly transformative nature of Google's use: "[W]e conclude that the transformative nature of Google's use is more significant than any incidental superseding use or the minor commercial aspects of Google's search engine and website." The Court found that the District Court erred in determining this factor in favor of Perfect 10.
(2) The nature of the copyrighted work.
The Court recognized that authors have a significant right to determine when and where to first publish their work, but exhaust that right when the work is first published in any medium. Here, Perfect 10 had previously made the images available on the Internet to subscribers. It therefore was no longer entitled to enhanced protection available for an unpublished work. As a result, this factor only weighed slightly in favor of Perfect 10.
(3) The amount and substantiality of the portion used.
Relying on Arriba, the Court held that the use of the entire photograph was reasonable in light of the purpose of a search engine. It is necessary to copy the entire image in order to allow users to recognize the image and decide whether to pursue more information about it or the originating website. This factor was neutral and did not favor either party.
(4) The effect of the use on the market.
The Court held that even if the intended use of an image is for commercial gain, a presumption of a likelihood of market harm does not arise when a work is transformative because market substitution is at least less certain and market harm may not be so readily inferred. Without that presumption, Perfect 10 could not prove market harm because it did not introduce any evidence that Google's thumbnails would harm Perfect 10's market for full-size images, nor any evidence that Google users had downloaded thumbnail images for cell phone use. Therefore, the harm to Perfect 10's market was hypothetical. This factor was neutral and did not favor either party.
Weighing all of the factors against the purposes of copyright, the Court found that Google provides a significant benefit to the public, and has put the images to a fundamentally different use than the use intended by Perfect 10. Because Perfect 10 is unlikely to be able to overcome Google's fair use defense, the Court vacated the injunction against Google's use of the thumbnails.
Contributory Or Vicarious Liability For A Third Party's Direct Infringement
The Ninth Circuit raised the stakes for potential increased liability for contributory and vicarious infringement. A requirement for liability under either theory is direct infringement by a third party. It was undisputed that third-party websites directly infringed by reproducing, displaying, and distributing unauthorized copies of Perfect 10 images. The Court, however, rejected Perfect 10's arguments that (1) Google's search engine users directly infringed by storing full-size infringing images on their computers, finding that Perfect 10 failed to provide evidence to support this claim, and (2) users who link to infringing websites automatically make cache copies of full-size images, finding that such local caching was a fair use. The Court then refined the tests for determining whether there could be liability for contributing to or profiting from and failing to stop such direct infringement in the search engine context.
The Court focused on two types of contributory liability described in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005): (1) actively encouraging or inducing direct infringement by third parties through specific acts; and (2) distributing a product that distributees use to infringe copyrights, if the product is not capable of "substantial" or "commercially significant" non-infringing uses. The Court first addressed the second type and held that Google could not be held liable for contributory infringement solely because the design of its search engine might facilitate infringement, nor because Google did not develop technology that would enable its search engine to automatically avoid infringing images.
Turning to the first type of contributory liability, the Court stated that Google could not be guilty of inducing infringement as it had not promoted its service as a way to infringe copyrights. As to actively encouraging infringement, the Court focused on the intent requirement.
Intent can be imputed. Under Grokster, "an actor may be contributorily liable for intentionally encouraging direct infringement if the actor knowingly takes steps that are substantially certain to result in such direct infringement." The Court carefully examined Grokster, Napster, and Religious Technology Center v. Netcom On-Line Communication Services, Inc., 907 F. Supp. 12361 (N.D. Cal. 1995), to refine the test in the cyberspace context, and announced the following:
"[A] computer system operator can be held contributorily liable if it 'has actual knowledge that specific infringing material is available using its system', and can 'take simple measures to prevent further damage' to copyrighted works, yet continues to provide access to infringing works."
(Citations omitted.) The Court found that Google could be contributorily liable if it had knowledge that infringing images were available using its search engine and could have taken simple measures to prevent further damage to Perfect 10's copyrighted works, yet failed to take such steps. It remanded to the District Court for further proceedings directed at the adequacy of Perfect 10's notices to Google and Google's responses, and a determination of whether there were reasonable and feasible means for Google to refrain from providing access to infringing images.
One infringes vicariously by profiting from direct infringement by third parties while declining to exercise a right to stop or limit it. The Court stated that, to succeed on a claim for vicarious liability, "a plaintiff must establish that the defendant exercises the requisite control over the direct infringer and that the defendant derives a direct financial benefit from the direct infringement." As to the control element, the Court stated that "a defendant exercises control over a direct infringer when he has both a legal right to stop or limit the directly infringing conduct, as well as the practical ability to do so." Therefore, in order to prevail Perfect 10 had to demonstrate that it was likely to establish that Google has the right and ability to stop or limit the infringing activities of third-party websites, and that Google derives a direct financial benefit from such activities. The Court found that Perfect 10 had not met that burden.
Google's DMCA Defense
The Court noted that the limitations on liability in Title II of the DMCA, 17 U.S.C. § 512, protect direct infringers, as well as secondary infringers under contributory and vicarious liability theories. The parties disputed whether Perfect 10's DMCA notices were adequate. The Court remanded back to the District Court to determine whether Perfect 10 could overcome Google's DMCA defense.
The Ninth Circuit confirmed that Perfect 10 had failed to show a likelihood of success in establishing any liability on Amazon.com's part for direct or vicarious infringement, for essentially the same reasons Perfect 10 would not likely prevail against Google, with the exception that Amazon.com was further removed from any direct infringement liability because it did not index and store the thumbnails, and only linked to Google's database that contained those images.
Like Google, however, Amazon.com might be liable for contributory infringement, but the District had failed to consider whether Amazon.com had actual knowledge that specific infringing material is available using its system, whether it could have taken simple measures to prevent further damage to copyrighted works yet continued to provide access to infringing works, and whether Amazon.com could assert a DMCA defense. The Court remanded for further consideration on these points.
Overall score: Perfect 10: 3; Search Engines: 7.