Lead Opinion
Opinion by Judge MILAN D. SMITH, JR.; Dissent by Judge KOZINSKI.
Perfect 10, Inc. (Perfect 10) sued Visa International Service Association, MasterCard International Inc., and several affiliated banks and data processing services (collectively, the Defendants), alleging secondary liability under federal copyright and trademark law and liability under California statutory and common law. It sued because Defendants continue to process credit card payments to websites that infringe Perfect 10’s intellectual property rights after being notified by Perfect 10 of infringement by those websites. The district court dismissed all causes of action under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon
FACTS AND PRIOR PROCEEDINGS
Perfect 10 publishes the magazine “PERFECT10” and operates the subscription website www.perfectlO.com., both of which “feature tasteful copyrighted images of the world’s most beautiful natural models.” Appellant’s Opening Brief at 1. Perfect 10 claims copyrights in the photographs published in its magazine and on its website, federal registration of the “PERFECT 10” trademark and blanket publicity rights for many of the models appearing in the photographs. Perfect 10 alleges that numerous websites based in several countries have stolen its proprietary images, altered them, and illegally offered them for sale online.
Instead of suing the direct infringers in this case, Perfect 10 sued Defendants, financial institutions that process certain credit card payments to the allegedly infringing websites. The Visa and MasterCard entities are associations of member banks that issue credit cards to consumers, automatically process payments to merchants authorized to accept their cards, and provide information to the interested parties necessary to settle the resulting debits and credits. Defendants collect fees for their services in these transactions. Perfect 10 alleges that it sent Defendants repeated notices specifically identifying infringing websites and informing Defendants that some of their consumers use their payment cards to purchase infringing images. Defendants admit receiving some of these notices, but they took no action in response to the notices after receiving them.
Perfect 10 separately alleges that it formerly had a merchant account with defendant First Data Corporation (FDC) but that in the Spring of 2001 FDC terminated the account. FDC’s stated reason for the termination is that the percentage of Perfect 10’s customers who later disputed the charges attributed to them (the charge-back rate) exceeded contractual limits. Perfect 10 claims these chargeback rates were temporarily and substantially inflated because Perfect 10 was the “victim of hackers who were subsequently investigated by the Secret Service.” Appellant’s Opening Brief at 13. Perfect 10 claims that FDC was aware of this and was also aware that Perfect 10’s chargeback rate dropped to within association limits once the hacking ceased, but that FDC nevertheless placed Perfect 10 on an industry-wide “black list” of terminated accounts.
Perfect 10 filed suit against Defendants on January 28, 2004 alleging contributory and vicarious copyright and trademark infringement as well as violations of California laws proscribing unfair competition and false advertising, violation of the statutory and common law right of publicity, libel, and intentional interference with prospective economic advantage. Defendants moved to dismiss the initial complaint under FRCP 12(b)(6). The district court granted the motion, dismissing the libel and intentional interference claims with prejudice but granting leave to amend the remaining claims. In its first amended complaint, Perfect 10 essentially repeated the allegations in its original complaint concerning the surviving causes of action and Defendants again moved to dismiss under FRCP 12(b)(6). The district court granted the Defendants’ second motion in full, dismissing all remaining causes of action with prejudice. Perfect 10 appealed to this court.
JURISDICTION
The district court had original jurisdiction over the copyright and trademark claims pursuant to 28 U.S.C. §§ 1331 and
STANDARDS OF REVIEW
We review de novo the district court’s dismissal for failure to state a claim upon which relief can be granted pursuant to FRCP 12(b)(6). Rodriguez v. Panayiotou,
Although a plaintiffs allegations are generally taken as true, the court need not accept conclusory allegations of law or unwarranted inferences, and dismissal is required if the facts are insufficient to support a cognizable claim. City of Arcadia v. U.S. Envtl. Prot. Agency,
We review de novo the district court’s interpretation of state law. Rodriguez,
DISCUSSION
SECONDARY LIABILITY UNDER FEDERAL COPYRIGHT AND TRADEMARK LAW
A. Secondary Liability for Copyright Infringement
Perfect 10 alleges that numerous websites based in several countries—and their paying customers—have directly infringed its rights under the Copyright Act, 17 U.S.C. § 101, et seq.
We evaluate Perfect 10’s claims with an awareness that credit cards serve as the primary engine of electronic commerce and that Congress has determined it to be the “policy of the United States—(1) to promote the continued development of the Internet and other interactive computer services and other interactive media [and] (2) to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.” 47 U.S.C. §§ 230(b)(1), (2).
1. Contributory Copyright Infringement
Contributory copyright infringement is a form of secondary liability with
We understand these several criteria to be non-contradictory variations on the same basic test, i.e., that one contribu-torily infringes when he (1) has knowledge of another’s infringement and (2) either (a) materially contributes to or (b) induces that infringement. Viewed in isolation, the language of the tests described is quite broad, but when one reviews the details of the actual “eases and controversies” before the relevant court in each of the test-defining cases and the actual holdings in those cases, it is clear that the factual circumstances in this case are not analogous. To find that Defendants’ activities fall within the scope of such tests would require a radical and inappropriate expansion of existing principles of secondary liability and would violate the public policy of the United States.
a. Knowledge of the Infringing Activity
Because we find that Perfect 10 has not pled facts sufficient to establish that Defendants induce or materially contribute to the infringing activity, Perfect 10’s contributory copyright infringement claim fails and we need not address the Defendants’ knowledge of the infringing activity.
To state a claim of contributory infringement, Perfect 10 must allege facts showing that Defendants induce, cause, or materially contribute to the infringing conduct. See, e.g., Ellison,
1. Material Contribution
The credit card companies cannot be said to materially contribute to the infringement in this case because they have no direct connection to that infringement. Here, the infringement rests on the reproduction, alteration, display and distribution of Perfect 10’s images over the Internet. Perfect 10 has not alleged that any infringing material passes over Defendants’ payment networks or through their payment processing systems, or that Defendants’ systems are used to alter or display the infringing images. In Fonovisa, the infringing material was physically located in and traded at the defendant’s market. Here, it is not. Nor are Defendants’ systems used to locate the infringing images. The search engines in Amazon.com provided links to specific infringing images, and the services in Napster and Grokster allowed users to locate and obtain infringing material. Here, in contrast, the services provided by the credit card companies do not help locate and are not used to distribute the infringing images. While Perfect 10 has alleged that Defendants make it easier for websites to profit from this infringing activity, the issue here is reproduction, alteration, display and distribution, which can occur without payment. Even if infringing images were not paid for, there would still be infringement. See Napster,
Our analysis is fully consistent with this court’s recent decision in Perfect 10 v. Amazon.com, where we found that “Google could be held contributorily liable if it had knowledge that infringing Perfect 10 images were available using its search engine, could take simple measures to prevent further damage to Perfect 10’s copyrighted works, and failed to take such steps.”
The dissent disagrees with our reading of Amazon.com and charges us with wishful thinking, dissent at 811, and with “drawing] a series of ephemeral distinctions,” dissent at 825. We respectfully disagree and assert that our construction of the relevant statutes and case law is completely consistent with existing federal law, is firmly grounded in both commercial and technical reality and conforms to the public policy of the United States. Helping users to locate an image might substantially assist users to download infringing images, but processing payments does not. If users couldn’t pay for images with credit cards, infringement could continue on a large scale because other viable funding mechanisms are available. For example, a website might decide to allow users to download some images for free and to make its profits from advertising, or it might develop other payment mechanisms that do not depend on the credit card companies.
Our holding is also fully consistent with and supported by this court’s previous holdings in Fonovisa and Napster. While there are some limited similarities between the factual scenarios in Fonovisa and Napster and the facts in this case, the differences in those scenarios are substantial, and, in our view, dispositive. In Fonovisa, we held a flea market proprietor liable as a contributory infringer when it provided the facilities for and benefitted from the sale of pirated works.
In Napster, this court found the designer and distributor of a software program liable for contributory infringement.
Seeking to draw an analogy to Fonovisa and, by extension, Napster, Perfect 10 pleads that Defendants materially contribute to the infringement by offering services that allow it to happen on a larger scale than would otherwise be possible. Specifically, bеcause the swap meet in Fo-novisa created a commercial environment which allowed the frequency of that infringement to increase, and the Napster program increased the frequency of infringement by making it easy, Perfect 10 argues that the Defendants have made available a payment system that allows third-party infringement to be profitable, and, consequently, more widespread than it otherwise might be. This analogy fails.
The swap meet operator in Fonovisa and the administrators of the Napster and Grokster programs increased the level of infringement by providing a centralized place, whether physical or virtual, where infringing works could be collected, sorted, found, and bought, sold, or exchanged.
Defendants, in contrast, do no such thing. While Perfect 10 has alleged that it is easy to locate images that infringe its copyrights, the Defendants’ payment systems do not cause this. Perfect 10’s images are easy to locate because of the very nature of the Internet — the website format, software allowing for the easy alteration of images, high-speed connections allowing for the rapid transfer of high-resolution image files, and perhaps most importantly, powerful search engines that can aggregate and display those images in a useful and efficient manner, without charge, and with astounding speed. Defendants play no role in any of these functions.
Perfect 10 asserts otherwise by arguing for an extremely broad conception of the term “site and facilities” that bears no relationship to the holdings in the actual “cases and controversies” decided in Fo-novisa and Napster. Taken literally, Perfect 10’s theory appears to include any tangible or intangible component related to any transaction in which infringing material is bought and sold. But Fonovisa and Napster do not require or lend themselves to such a construction. The actual display, location, and distribution of infringing images in this case occurs on websites that organize, display, and transmit information over the wires and wireless instruments that make up the Internet. The websites are the “site” of the infringement, not Defendants’ payment networks. Defendants do not create, op
Perfect 10 seeks to side-step this reality by alleging that Defendants are still contributory infringers because they could refuse to process payments to the infringing websites and thereby undermine their commercial viability.
2. Inducement
In Grokster, the Supreme Court applied the patent law concept of “inducement” to a claim of contributory infringement against a file-sharing program.
The Grokster court announced that the standard for inducement liability is providing a service “with the object of promoting its use to infringe copyright.” Id. “[M]ere knowledge of infringing potential or actual infringing uses would not be enough here to subject [a defendant] to liability.” Id. at 937,
In sum, where an article is good for nothing else but infringement, there is no legitimate public interest in its unlicensed availability, and there is no injustice in presuming or imputing an intent to infringe. Conversely, the doctrine absolves the equivocal conduct of selling an item with substantial lawful as well as unlawful uses, and limits liability to instances of more acute fault than the mere understanding that some of one’s products will be misused. It leaves breathing room for innovation and a vigorous commerce.
Perfect 10 has not alleged that any of these standards are met or that any of these considerations are present here. Defendants do, of course, market their credit cards as a means to pay for goods and serviсes, online and elsewhere. But it does not follow that Defendants affirmatively promote each product that their cards are used to purchase. The software systems in Napster and Grokster were engineered, disseminated, and promoted explicitly for the purpose of facilitating piracy of copyrighted music and reducing legitimate sales of such music to that extent. Most Napster and Grokster users understood this and primarily used those systems to purloin copyrighted music. Further, the Grokster operators explicitly targeted then-current users of the Napster program by sending them ads for its OpenNap program. Id. at 925-26,
The Amazon.com court recognized this distinction and applied it in a matter fully consistent with our analysis in this case. While the Amazon.com court did not bifurcate its analysis of contributory liability into “material contribution” liability and “inducement” liability, it did recognize that contributory liability “may be predicated on actively encouraging (or inducing) infringement through specific acts.” Amazon.com,
Finally, we must take as true the allegations that Defendants lend their names and logos to the offending websites and continue to allow their cards to be used to purchase infringing images despite actual knowledge of the infringement — and perhaps even bending their association rules to do so. But we do not and need not, on this factual basis, take as true that Defendants “induce” consumers to buy pirated content with their cards. “Inducement” is a legal determination, and dismissal may not be avoided by characterizing a legal determination as a factual one. We must determine whether the facts as pled constitute a “clear expression” of a specific intent to foster infringement, and, for the reasons above noted, we hold that they do not.
2. Vicarious Copyright Infringement
Vicarious infringement is a concept related to, but distinct from, contributory infringement. Whereas contributory infringement is based on tort-law prinei-pies of enterprise liability and imputed intent, vicarious infringement’s roots lie in the agency principles of respondeat superior. See Fonovisa,
a. Right and Ability to Supervise the Infringing Activity
In order to join a Defendant’s payment network, merchants and member banks must agree to follow that Defendant’s rules and regulations. These rules, among other things, prohibit member banks from providing services to merchants engaging in certain illegal activities and require the members and member banks to investigate merchants suspected of engaging in such illegal activity аnd to terminate their participation in the payment network if certain illegal activity is
In reasoning closely analogous to the present case, the Amazon.com court held that Google was not vicariously liable for third-party infringement that its search engine facilitates. In so holding, the court found that Google’s ability to control its own index, search results, and webpages does not give Google the right to control the infringing acts of third parties even though that ability would allow Google to affect those infringing acts to some degree. Amazon.com,
Google’s right to terminate an AdSense partnership does not give Google the right to stop direct infringement by third-party websites. An infringing third-party website can continue to reproduce, display, and distribute its infringing copies of Perfect 10 images after its participation in the AdSense program has ended.
Id. This reasoning is equally applicable to the Defendants in this case. Just like Google, Defendants could likely take certain steps that may have the indirect effect of reducing infringing activity on the Internet at large. However, neither Google nor Defendants has any ability to directly control that activity, and the mere ability to withdraw a financial “carrot” does not create the “stick” of “right and ability to control” that vicarious infringement requires. A finding of vicarious liability here, under the theories advocаted by the dissent, would also require a finding that Google is vicariously liable for infringement — a conflict we need not create, and radical step we do not take.
Perfect 10 argues that this court’s decision in Napster compels a contrary result. The Napster court found a likelihood of vicarious liability because Napster “had the right and ability to police its system and failed to exercise that right to prevent the exchange of copyrighted material.”
This argument fails. The Napster program’s involvement with — and hence its “policing” power over — the infringement was much more intimate and directly intertwined with it than Defendants’ payment systems are. Napster provided users with the tools to enable the easy reproduction and distribution of the actual infringing content and to readily search
Perfect 10 offers two counter-arguments. Perfect 10 first claims that Defendants’ rules and regulations permit them to require member merchants to cease illegal activity — presumably including copyright infringement — as a condition to their continuing right to receive credit card payments from the relevant Defendant entities. Perfect 10 argues that these contractual terms effectively give Defendants contractual control over the content of their merchants’ websites, and that contractual control over content is sufficient to establish the “right and ability” to control that content for purposes of vicarious liability. In the sense that economic considerations can influence behavior, these contractual rules and regulations do give Defendants some measure of control over the offending websites since it is reasonable to believe that fear of losing access to credit card payment processing services would be a sufficient incentive for at least some website operators to comply with a content-based suggestion from Defendants. But the ability to exert financial pressure does not give Defendants the right or ability to control the actual infringing activity at issue in this case. Defendants have no absolute right
Perfect 10 relies heavily on the reasoning of Fonovisa and Napster to support this argument, but that reliance is misplaced. The swap meet operator in Fonovi-sa and the software operator in Napster both had the right to remove individual infringers from the very place the infringement was happening. Defendants, like the defendants in Amazon.com, have no such right. As already discussed, Defendants cannot take away the software the offending websites use to copy, alter, and distribute the infringing images, cannot remove those websites from the Internet, and cannot themselves block the distribution of those images over the Internet. Defendants can refuse to process credit card payments for those images, but while this refusal would reduce the number of those sales, that reduction is the result of indirect economic pressure rather than an affirmative exercise of contractual rights.
Perfect 10 also argues that were infringing ’ websites barred from accepting the Defendants’ credit cards, it would be impossible for an online website selling adult images to compete and operate at a profit.
The Supreme Court’s recent decision in Grokster does not undermine the validity of this distinction. As we held in Amazon.com,
b. Obvious and Direct Financial Interest in the Infringing Activity
Because Perfect 10 has failed to show that Defendants have the right and ability to control the alleged infringing conduct, it has not pled a viable claim of vicarious liability. Accordingly, we need not reach the issue of direct financial interest.
B. Secondary Liability for Trademark Infringement
The tests for secondary trademark infringement are even more difficult to satisfy than those required to find secondary copyright infringement. See Sony Corp. v. Universal City Studios,
To be liable for contributory trademark infringement, a defendant must have (1) “intentionally induced” the primary infringer to infringe, or (2) continued to supply an infringing product to an in-fringer with knowledge that the infringer is mislabeling the particular product supplied. Inwood Labs., Inc. v. Ives Labs., Inc.,
Perfect 10 has failed to plead a viable claim under either prong of Inwood Labs—and, by extension, Lockheed Martin. First, it has not pled facts showing that Defendants “intentionally induced” infringement of Perfect 10’s mark. Perfect 10 has alleged that Defendants are providing critical support to websites that are using the PERFECT 10 mark in a manner that is likely to cause the public to believe that they are authorized by Perfect 10. Its factual allegations in support of this claim are identical to those it made in support of its copyright claims. These allegations, however, cite no affirmative acts by Defendants suggesting that third parties infringe Perfect 10’s mark, much less induce them to do so.
Second, Perfect 10 has failed to allege facts sufficient to show “[d]irect control and monitoring of the instrumentality used by a third party to infringe the plaintiffs mark.” Lockheed Martin,
2. Vicarious Trademark Infringement
Vicarious liability for trademark infringement requires “a finding that the defendant and the infringer have 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.” Hard Rock Café Licensing Corp. v. Concession Servs., Inc.,
Perfect 10 argues that Defendants are liable as follows: “Defendants and the
Perfect 10 further argues that “Defendants’ acceptance of a charge binds the Stolen Content Website to provide the infringing images to third parties.” Appellant’s Opening Brief at 40. Even if legally relevant, Perfect 10’s allegation is legally incorrect. It is the websites’ contracts with the consumers that bind the websites to provide the infringing images, not the websites’ relationship with Defendants.
CALIFORNIA STATUTORY AND COMMON LAW CLAIMS
In addition to its federal copyright and trademark claims, Perfect 10 pled causes of action for unfair competition, false advertising, violation of the right of publicity, libel, and intentional interference with economic relations. We hold that the district court properly dismissed all these claims with prejudice.
A. California State Law Claims of Unfair Competition hand False Advertising
Defendants do not dispute Perfect 10’s claims that the websites themselves are potentially violating California state and common law prohibiting unfair competition and false advertising. See Cal. Bus. & Prof.Code §§ 17200, et seq., and 17500, et seq. Defendants do, however, argue that Emery v. Visa International Service Association,
In Emery, a California appellate court affirmed a grant of summary judgment in favor of Visa, finding that Visa did not exercise the requisite control over merchants marketing foreign lottery tickets to impose secondary liability under the state’s unfair competition or false advertising laws. Id. at 959-964,
In an attempt to avoid the impact of Emery, Perfect 10 argues on appeal that it alleged aiding and abetting theories of liability in its complaints, and further, that the district court improperly dismissed these civil claims under a criminal standard of aiding and abetting. Perfect 10 fails to establish a viable claim on these theories as well. The only authority offered by Perfect 10 in support of such liability is an opinion which is now uncita-ble in California: Schulz v. Neovi Data Corporation,
Furthermore, even under the standards announced in the superceding Schulz opinion, Defendants would not be liable. The Schulz court found a credit card company potentially liable for its role in facilitating an illegal online lottery because that company “went far beyond merely processing credit cards.”
B. Aiding and Abetting the Websites’ Violations оf Perfect 10’s Right of Publicity
Perfect 10 alleges that Defendants aided and abetted the websites’ violations of Perfect 10’s rights of publicity, acquired by assignment from its models, in violation of Cal. Civil Code § 3344 and the common law right of publicity. This aiding and abetting claim fails for the same reasons as the aiding and abetting claims under unfair competition and false advertising. Even if such liability is possible under California law—a proposition for which Perfect 10 has provided no clear authority—Defendants lack sufficient control or personal involvement in the infringing activities to be so liable. See Schulz,
C. Libel and Intentional Interference with Prospective Economic Advantage
The district court dismissed Perfect 10’s claims of libel and intentional
CONCLUSION
We decline to create any of the radical new theories of liability advocated by Perfect 10 and the dissent and we affirm the district court’s dismissal with prejudice of all causes of action in Perfect 10’s complaint for failure to state a claim upon which relief can be granted.
AFFIRMED.
Notes
. While Perfect 10's complaint does not clearly specify which of Perfect 10's rights are being infringed, it appears that at least four such rights are potentially at issue: reproduction (17 U.S.C. § 106(1)); derivative works (17 U.S.C. § 106(2)); distribution of copies (17 U.S.C. § 106(3)); and public display (17 U.S.C. § 106(5)).
. Congress expressed similar sentiments when it enacted the Digital Millennium Copyright Act (DMCA), 17 U.S.C. § 512, one of the stated purposes of which was to “facilitate the robust development and worldwide expansion of electronic commerce, communications, research, development, and education in the digital age.” S. Rep. 105-190, at 1-2 (1998).
. In her concurring opinion in Grokster, Justice Ginsburg identified another strand of contributory liability in the Supreme Court’s jurisprudence, i.e., liability based on "distributing a product distributees use to infringe copyrights, if the product is not capable of 'substantia! or ‘commercially significant’ noninfringing uses.” Grokster,
. We note that an anomaly exists regarding the concept of notice in secondary copyright infringement cases outside a FRCP 12(b)(6) context. Congress addressed the issue of notice in the DMCA, which grants a safe harbor against liability to certain Internet service providers, even those with actual knowledge of infringement, if they have not received statutorily-compliant notice. See Perfect 10 v. CCBill LLC,
. Because the Grokster court focused primarily on an “inducement” theory rather than a "material contribution” theory, our primary discussion of Grokster is located below in the "inducement” section of this opinion.
. As discussed in note 11, infra, the dissent’s claims that payment processing is “an essential step in the infringement process,” dissent at 812, and that “Defendants are directly involved in every infringing transaction where payment is made by credit card,” dissent at 815, suggests that the dissent believes that the Defendants are directly infringing when they process these payments.
. As discussed more fully in the vicarious infringement sеction, infra, Perfect 10’s factual allegations are not to the contrary.
.We recognize that Google is not the only search engine available to Internet users, and that users do not necessarily need Google to locate infringing images. The distinction we draw, however, is not specific to Google; it is between location services and payment services. Because location services lead Internet users directly to infringing images and often display them on the website of the service itself, we find that location services are more important and more essential — indeed, more
. Our dissenting colleague assures us that we would not jeopardize Internet commerce by finding Defendants liable because he has "every confidence" that this court will simply find that other providers of essential services may contribute to infringement, but not materially so. Dissent at 816. We take little comfort in his assurances because the predicate of our colleague's optimistic view of future judicial refinement of his new world of secondary liability is a large number of expensive and drawn-out pieces of litigation that may, or may not, ever be filed. Meanwhile, what would stop a competitor of a web-site from sending bogus notices to a credit card company claiming infringement by its competitor in the hope of putting a competitor out of business, or, at least, requiring it to spend a great deal of money to clear its name? Threatened with significant potential secondary liability on a variety of fronts under the dissent's proposed expansion of existing secondary liability law, perhaps the credit card companies would soon decline to finance purchases that are more legally risky. They, after all, are as moved by Adam Smith’s “invisible hand” as the next set of merchants. If that happened, would First Amendment rights of consumers be trampled? Would Perfect 10 itself be adversely impacted because no credit card company would want to take a chance on becoming secondarily liable?
We similarly take little comfort in the dissent’s resurrection of the "dance-hall-owner/absentee-landlord'’ cases as a source of any principled distinction in this area. Dissent at 815-16. Thosе tests were developed for a brick-and-mortar world, and, as the Napster and Grolcster courts implicitly recognized by paying little attention to them, they do not lend themselves well to application in an electronic commerce context. In deciding this case, we are well-advised to follow the lead of the Supreme Court's and our own court's cases confronting online commerce issues.
. In fact, as virtually every interested college student knew — and as the program’s creator expressly admitted-the sole purpose of the Napster program was to provide a forum for easy copyright infringement. See Napster,
. Moreover, if the processing of payment for an infringing transaction were as central to the infringement as the dissent believes it to be — see, e.g., dissent at 811 (payment processing is "an essential step in the infringement process”), dissent at 815 ("Defendants are directly involved in every infringing transaction where payment is made by credit card”) — it is difficult to see why Defendants would be not be direct infringers of the distribution right. Not even Perfect 10 has gone so far as to allege that theory here — Perfect 10 would undoubtedly be quite surprised to learn, after years of litigation attempting to expand the scope of secondary liability, that Defendants are direct infringers after all.
. This allegation is considered below under vicarious infringement, but we also address it here in terms of contributory infringement.
. Fonovisa essentially viewed "supervision” in this context in terms of the swap meet operator’s ability to control the activities of the vendors,
. The same analysis of Defendants' role in any violation of the distribution right under 17 U.S.C. § 106(3), discussed in note 11, supra, is equally applicable here. While the Napster program allowed its operators to block users from violation of the distribution right, Defendants' “policing'' power is limited to refusing to process payments resulting from such violations and does not extend to directly stopping the violations themselves.
. The conclusion that the Defendants operate outside the scope of the Napster rule is further bolstered by consideration — though as persuasive authority only — of this court’s opinion in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster Ltd.,
.We do not, as the dissent suggests, hold that an absolute right to stop the infringement is a prerequisite for vicarious liability. Dissent at 818-19. Rather, we consider the Defendants' inability to directly control the actual infringing activities of third-party websites — reproduction, alteration, display, and distribution over the Internet, not over Defendants' payment systems — as evidence that they, much like Google, lack the right and ability to control those activities.
. We do not hold, as the dissent suggests, that the ability to exert financial pressure is categorically insufficient to establish sufficient control for vicarious liability. We recognize that financial pressure is often very powerful, but it is precisely for this reason that we hesitate to expand the law of vicarious liability to encompass the sort of financial pressure Defendants may exert. The dissent believes that the gravamen of “right and ability to control” is the "practical ability” to limit infringement. Dissent at 818-19. But if this were true, despite the dissent's protestations to the contrary, there are many providers of essential services who could limit infringement by refusing to offer those services. If "practical ability” is the test, it does not matter if software operators, network technicians, or even utility companies do not have a contractual right to affect the websites’ content. It is an articlе of faith of the free market that, subject to certain limited exceptions, one can refuse to deal with anyone for any reason, and by refusing to deal with the offending websites, these providers could limit infringement.
. Specifically, Perfect 10 defines “Stolen Content Websites” as "websites ... that routinely offer for sale to the public stolen [images],” First Am. Compl. at 2, ¶ 6 (emphasis added), and alleges that "Stolen Content Websites cannot exist without the knowledge and direct participation of the financial institutions that process the credit card transactions for such unlawful material,” id. at 2, ¶ 7. We do acknowledge that at this procedural stage, Perfect 10 is entitled to all reasonable inferences, but we understand this to be a factual allegation that the "Stolen Content
. The dissent claims that no contractual relationship arises between the infringers and consumers until Defendants process a payment. Dissent at 822-23. Even if true as a factual and legal matter — and given the absence of any citation, it is difficult to know whether this is true — this results from a decision of the websites to delay formation of the relationship, not from any requirement Defendants impose on the transaction.
. The dissent argues that Emery does not preclude Perfect 10’s claims because the only defendant in Emery was Visa International Service Association, whereas Perfect 10 has also sued the member merchant banks who issue cards and process payments from merchants. Dissent at 822-23. This distinction is only relevant if the activities of the member banks constitute personal participation in the infringing activity, and for all the reasons discussed above, those banks are not personally involved in the reproduction, alteration, or distribution of the infringing images. Rather, they merely process payments related to those activities.
Dissenting Opinion
dissenting for the most part:
Federal law gives copyright owners the exclusive right to “distribute copies [of their works] ... to the public by sale.” 17 U.S.C. § 106(3). Plaintiff alleges that certain third parties it refers to as the “Stolen Content Websites” unlawfully copy its protected images and sell them to the public, using defendants’ payment systems as financial intermediaries. According to plaintiff, the Stolen Content Websites “maintain no physical presence in the United States in order to evade criminal and civil liability for their illegal conduct.” First Am. Compl. at 8 ¶ 26. Plaintiff also claims that “Defendants do not enforce their own rules against [the] Stolen Content Websites because Defendants do not want to lose the substantial revenues and profits they receive from the websites.” Id. at 10 ¶ 35. Plaintiff has repeatedly notified defendants that they are abetting the sale of stolen merchandise by “knowingly providing crucial transactional support services for the sale of millions of stolen photos and film clips worth billions of dollars,” id. at 1 ¶ 5, but to no avail. Frustrated in its effort to protect the rights Congress has given it, plaintiff turns to the federal courts for redress. We should not slam the courthouse door in its face.
Accepting the truth of plaintiffs allegations, as we must on a motion to dismiss, the credit cards
Contributory Infringement
We have long held that a defendant is liable for contributory infringement if it “materially contributes to the infringing conduct.” A & M Records, Inc. v. Napster, Inc.,
The majority struggles to distinguish Amazon by positing an “additional step in the causal chain” between defendants’ activities and the infringing conduct. Id. at 797. According to the majority, “Google may materially contribute to infringement by making it fast and easy for third parties to locate and distribute infringing material, whereas Defendants make it easier for infringement to be profitable, which tends to increase financial incentives to infringe, which in turn tends to increase infringement.” Id. The majority is mistaken; there is no “additional step.” Defendants participate in every credit card sale of pirated images; the images are delivered to the buyer only after defendants approve the transaction and process the payment.
In any event, I don’t see why it matters whether there is an “additional step.” Materiality turns on how significantly the activity helps infringement, not on whether it’s characterized as one step or two steps removed from it. The majority recognizes that “Defendants make it easier for websites to profit from this infringing activity,” maj. op. at 796; that defendants’ conduct “tends to increase infringement,” id. at 797; that defendants “have the effect of increasing ... infringement,” id. at 798; that “Defendants have the power to undermine the commercial viability of’ the Stolen Content Websites and that they “make it easier for websites to profit from this infringing activity,” id. at 800; that “Defendants could likely take certain steps that may have the indirect effect of reducing infringing activity on the Internet,” id. at 803; and that defendants could “reduce the number of those [infringing] sales,” id. at 805. Taking the majority at its word, it sounds like defendants are providing very significant help to the direct infringers.
My colleagues recognize, as they must, that helping consumers locate infringing content can constitute contributory infringement,
The majority dismisses the significance of credit cards by arguing that “infringement could continue on a large scale [without them] because other viable funding mechanisms are available.” Maj. op. at 797.
If the test for contributory infringement really were whether “infringement could continue on a large scale[without the aid of the defendant] because other viable ... mechanisms are available,” Amazon should have absolved Google of liability because of the availability of such obvious alternatives. But Amazon held that Google could be liable for contributory infringement because it “substantially assists” users in finding infringing materials; the existence of other means of infringement was not even considered because no case has suggested this to be a relеvant consideration. The majority’s “other viable ... mechanisms” test conflicts with Amazon, Napster, Grokster and every other material assistance case that I know of.
The majority does even worse when it tries to describe the “other viable funding mechanisms” that could serve as alternatives to credit cards: According to the majority, the Stolen Content Websites “might ... make [their] profits from advertising” or “might develop other payment mechanisms that do not depend on the credit card companies.” Maj. op. at 797 (emphasis added). This shows that my colleagues have a healthy imagination but contravenes our responsibilities, the most fundamental of which is that we must work with the facts the parties presented below, not invent new facts on appeal. Defendants have presented no evidence that the pirates could survive without credit cards, nor could they, as the case is still at the motion to dismiss stage. Even if speculation as to what the Stolen Content Websites “might” do were admissible evidence, which I seriously doubt, we must still wait for one of the parties to present it, not conjure it up ourselves.
The majority’s attempt to distinguish location services from payment services by trying to show that there are viable alternatives for the latter but not the former cuts entirely against them. As plaintiff alleges, and experience tells us, there are numerous ways of locating infringing images on the Internet, but there are no adequate substitutes for credit cards when it comes to paying for them. A few consumers might use checks or money orders to pay for infringing images, but this would be far more cumbersome, time-consuming and risky than using credit cards. See pp. 817-18 & n. 14 infra. If it mattered whether search engines or credit cards are more important to peddling infringing content on the Internet, the cards would win hands down.
But it doesn’t matter. Material assistаnce turns on whether the activity in question “substantially assists” infringement. Amazon,
The majority also makes a slightly different argument: “While Perfect 10 has alleged that Defendants make it easier for websites to profit from this infringing activity, the issue here is reproduction, alteration, display and distribution, which can occur without payment. Even if infringing images were not paid for, there would still be infringement.” Maj. op. at 796. What the majority seems to be arguing here is that helping an infringer get paid cannot materially assist infringement because the actual process of infringement — “reproduction, alteration, display and distribution”— does not include payment. There are two problems with this argument. The first is that the Stolen Content Websites are alleged to infringe plaintiffs right of distribution “by sale.” 17 U.S.C. § 106(3). It’s not possible to distribute by sale without receiving compensation, so payment is in fact part of the infringement process. Second, this argument runs head-on into Amazon, where we held that helping to find infringing images materially assists infringement, even though locating infringing images also isn’t “reproduction, alteration, display [or] distribution.” To be sure, locating images, like paying for them, makes it a lot easier to infringe, but neither is intrinsic to the infringement process, as the majority conceives it.
Nor can today’s opinion be squared with Fonovisa, Inc. v. Cherry Auction, Inc.,
The majority rejects Fonovisa by pointing out that the swap meet there provided a “centralized place” for the infringement to take place, maj. op. at 799, whereas defendants here “have no direct connection to [the] infringement,” id. at 796.
Sure, a marketplace for pirated works (as in Fonovisa) or an index for such works (as in Napster and Grokster) is important to infringement, but so is a means of getting paid. Defendants are directly involved in every infringing transaction where payment is made by credit card, which (according to plaintiff) amounts to virtually every sale of pirated works. First Am. Compl. at 9 ¶ 35. Credit cards don’t provide some tangential service that marginally affects sales; they are the financial lifeblood of the Stolen Content Websites.
The majority’s concern that imposing liability oh defendants here would implicate vast numbers of other actors who provide incidental services to infringers, maj. op. at 800, is unfounded. Line-drawing is always a bit tricky, but courts have shown themselves adept at dealing with it from time out of mind, in resolving such issues as proximate causation and reasonable suspicion. Contributory infringement requires material assistance to the infringing activity, and those the majority worries about would doubtless be absolved of liability because their contribution to the infringing activity is insufficiently material.
Courts have, in fact, had no difficulty in distinguishing those who are materially involved in copyright infringement from those who are not. As Fonovisa explains, two lines of cases developed in the first part of the last century: the absentee landlord cases and the dance hall cases. The first line involved landlords who “lacked knowledge of the infringing acts of [their] tenant[s] and who exercised no control over the leased premises.” Fonovisa,
These cases show that courts are able to forestall the majority’s parade of horribles. But our case does not present a close or difficult question: Defendants here are alleged to provide an essential service to infringers, a service that enables infringement on a massive scale. Defendants know about the infringements; they profit from them; they are intimately and causally involved in a vast number of infringing transactions that could not be consummated if they refused to process the payments; they have ready means to stop the infringements. Were we to rule for plaintiff, as we should, I have every confidence that future courts would be able to distinguish this case when and if they are confronted with lawsuits against utility companies, software vendors and others who provide incidental services to infringers.
Vicarious Infringement
A party “infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it.” Amazon,
Defendants here also have a right to stop or limit the infringing activity, a right they have refused to exercise. As the majority recognizes, “Perfect 10 ... claims that Defendants’ rules and regulations permit them to require member merchants to cease illegal activity — presumably including copyright infringement — as a condition to their continuing right to receive credit card payments from the relevant Defendant entities.” Maj. op. at 804.
That the pirates might find some other way of doing business is of no consequence; our cases make this perfectly clear. It didn’t matter in Fonovisa that the infringers there could have continued their illegal sales by mail order or by hawking their unlawful merchandise on street corners. Nor did it matter in Napster or Grokster that the direct infringers might find some other means of illegally sharing their protected content with others. Indeed, there is no case involving secondary infringement, going back to the dance hall cases of the last century, where the secondary infringer’s refusal to do business with the direct infringer could have stopped infringement altogether and forever. Yet, courts have presumed that removing the particular means of infringement challenged in each case would make direct infringement more difficult and thereby diminish the scale of infringing activity.
Here, the Stolen Content Websites have chosen credit cards as a form of payment, and for good reason. Credit cards are ubiquitous and permit the transfer of funds electronically in a matter of seconds. Consumers need not wait days or weeks for a check to reach its destination and clear before gaining access to the salaciоus pictures they crave. Consumers also know that, if goods bought by credit card are not delivered, the cards will likely reverse the transaction.
The majority toils to resist this obvious conclusion but its arguments are not persuasive. For example, it makes no difference that defendants control only the means of payment, not the mechanics of transferring the material. Maj. op. at 802, 805, 806. In a commercial environment, distribution and payment are (to use a quaint anachronism) like love and marriage — you can’t have one without the other. If cards don’t process payment, pirates don’t deliver booty. The credit cards, in fact, control distribution of the infringing material.
The majority also disparages defendants’ ability to control the Stolen Content Websites as just “financial pressure” which doesn’t give them an “absolute right to stop [the infringing] activity — they cannot stop websites from reproducing, altering, or distributing infringing images.” Id. at 804-05 (footnote omitted).
It’s perfectly clear that the cards do have the “practical ability” to force websites that display their logos and use their payment systems to remove unlawful merchandise. As the majority admits, “Defendants can ... 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.” Maj. op. at 805 (disparaging “only” omitted). Commercial websites are dependent on credit cards as a form of payment, and the Stolen Content Websites are uniquely so, as virtually all of their illicit sales are paid for by card. First Am. Compl. at 9 ¶ 35. A threat by credit card companies to withdraw use of their payment systems couldn’t be ignored. After all, how many consumers would be willing to send a check or money order to a far-off jurisdiction in the hope that days or weeks later they will be allowed to download some saucy pictures? If the Stolen Content Websites cannot get paid for their unlaw
The majority also reads the complaint for less than it’s worth by “under-standfing]” plaintiff to allege “that the ‘Stolen Content Websites’ could not continue to exist as websites offering images for sale online should defendants withdraw their services, not [to allege] that the websites would completely vanish or that infringement by these sites in all its forms would necessarily cease.” Maj. op. at 805-06 n. 18. But plaintiff expressly alleges what the majority “understand^]” it not to allege, namely that the sites “cannot exist” without defendants, First Am. Compl. at 2 117, and that “the Stolen Content Websites would be eradicated” if they could not use credit cards, id. at 9-10 ¶ 35. It is horn-book law that we must construe complaints liberally on a motion to dismiss. See Glus
v. Brooklyn Eastern Dist. Terminal,
But let’s say the majority “understand[s]” plaintiffs allegations correctly: So what? To sustain a vicarious infringement claim, plaintiff need not allege that the Stolen Content Websites “would completely vanish or that infringement by these sites in all its forms would necessarily cease.” Maj. op. at 805-06 n. 18. The standard is “stop or limit” the infringing conduct. Amazon,
To resolve this case, however, we need not adopt a rule holding all credit cards responsible for all infringing Internet sales because plaintiff has alleged far more than the ordinary credit card/merehant relation
The majority claims that Amazon employs “reasoning closely analogous” to its own, maj. op. at 803, but it is mistaken. Amazon addressed two questions of vicarious infringement, one involving third-party websites whose images are picked up by Google’s search engine, the other involving websites that participate in its AdSense program. As to the first, Google could not be vicariously liable because “Perfect 10 ha[d] not shown that Google has contracts with third-party websites that empower Google to stop or limit them from reproducing, displaying, and distributing infringing copies of Perfect 10’s images on the Internet.”
Google’s relationship with websites that participate in its AdSense program presents a somewhat closer analogy because Google did have contracts that would have allowed it to kick websites out of AdSense for displaying infringing images. But that’s as far as the similarity goes: Ad-Sense is an advertising program; Google pays participating merchants to host third-party ads on their websites. This is the cyberspace analogue of renting out space on your land for a billboard. The ads have no effect on the operation of the host websites; users can download infringing content whether or not ads are present. Being excluded from AdSense would thus mean some loss of revenue, but would have no effect on the operation of the business itself. It is therefore far from certain that merchants would be induced to modify their businesses to avoid being excluded from AdSense.
Because plaintiff had not presented proof that any third-party websites would stop infringing if they were threatened
The majority’s attempt to distinguish Napster is equally thin. My colleagues argue that “[t]he Napster program’s involvement with ... the infringement was much more intimate and directly intertwined with it than Defendants’ payment systems are.” Maj. op. at 803. But I don’t see how much more “directly intertwined” you can get in a purchase transaction than carrying the payment from buyer to seller. If this were a drug deal, for example, we would never say that the guy entrusted with delivery of the purchase money is less involved in the transaction than the guy who helps find the seller.' Both would be held equally culpable.
Thus, the majority’s insistence that defendants “cannot themselves block access to the Internet, to any particular websites, or to search engines enabling the location of such websites,” maj. op. at 804, is beside the point. Physical control over the infringing activity is оne way to stop infring-ers, but it’s certainly not the only way. Withdrawing crucial services, such as financial support, can be just as effective, and sometimes more effective, than technical measures that can often be circumvented.
Finally, the majority dismisses the Supreme Court’s opinion in Grokster by suggesting that the Court could not have meant what it said because the standard it announced (and which we adopted in Amazon ) would sweep in too many goods and services that contribute to infringing activity. See maj. op. at 806 (listing hardware manufacturers, software engineers, technical support companies and utilities). The majority misreads the Court’s opinion. Providing a crucial service to an infringer may give someone the practical ability to stop infringement, but that’s only half of what it takes to be a vicarious infringer. The other half is a right, found in contract, to control the infringer’s actions. See Amazon,
Trademark Infringement
For precisely the same reasons, I disagree with the majority when it claims that defendants do not contributorily infringe on Perfect 10’s trademark because they lack “[djirect control and monitoring of the instrumentality used by a third party to infringe the plaintiffs mark.” Maj. op. at 807 (internal quotation marks omitted). The Lanham Act forbids “use in commerce ... of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cаuse confusion.” 15 U.S.C. § 1114(l)(a). Plaintiff alleges that the Stolen Content Websites sell images marked with Perfect 10’s trademark. First Am. Compl. at 17 ¶ 65. Without defendants’ payment systems, the infring-ers would find it much harder to peddle their infringing goods. Plaintiff thus pled facts sufficient to state a claim for contributory trademark infringement.
The cases on which the majority relies are not to the contrary. Inwood Laboratories, Inc. v. Ives Laboratories, Inc.,
As to vicarious trademark infringement, the majority claims that there is neither a symbiotic partnership between the direct infringers and defendants, nor authority to bind one another in transactions with third parties. Maj. op. at 807 (citing Hard Rock Cafe Licensing Corp. v. Concession Servs., Inc.,
State Law Claims
The majority disposes of the state law claims on the same theory as the copyright claims, namely, that defendants are not directly involved in the infringing activity. Maj. op. at 808-09. But defendants are involved, because they provide the means to pay for the infringing content and thus make “massive quantities” of infringement possible. First Am. Compl. at 18 ¶ 73.
The case on which the majority relies, Emery v. Visa International Service Association,
It would certainly be much easier for us if plaintiff were suing the Stolen Content Websites rather than the credit cards. No doubt, they would if they could.
The weak link in the pirates’ nefarious scheme is their need to get paid; for this they must use the services of legitimate financial institutions. If plaintiffs allegations are to be believed, the financial institutions (defendants here) collect billions for sellers of stolen merchandise; in a very real sense, they profit from making piracy possible. I can see no reason they should not be held responsible.
The majority’s refrain that imposing liability on defendants here would violate “the public policy of the United States,” maj. op. at 795, 797, is equally off base. While the majority correctly identifies that
The majority’s solicitude for “credit cards ... as the primary engine of electronic commerce,” and for preserving “the vibrant and competitive free market that presently exists for the Internet,” maj. op. at 794, is understandable but misguided. 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. Requiring defendants to abide by their own rules, which “strictly prohibit members from servicing illegal businesses,” First Am. Compl. at 6 ¶ 20, will hardly impair the operation of a “vibrant and competitive free market,” any more than did the recent law prohibiting the use of credit cards for Internet gambling. See 31 U.S.C. § 5364.
Nor does plaintiff seek to hold the credit cards responsible for illegal activities of which they are unaware. Plaintiff claims that it has repeatedly written to defendants, “putting them on notice of more than 240 specifically identified Celebrity Porn Websites with obvious stolen content that they were supporting.” First Am. Compl. at 19 ¶ 75. Plaintiff has also sent defendants “[djeclarations from celebrities [such as Britney Spears, Christina Aguil-era, Anna Kournikova and Yasmine Bleeth] stating that they have not authorized the use of their name, likeness, or identity on pornographic websites arid that they do not want their images and names so used....” Id. at 19 ¶ 77. Credit cards already have the tools to police the activities of their merchants, which is why we don’t see credit card sales of illegal drugs or child pornography. According to plaintiff, “defendants inspect websites and business premises, and obtain and review merchants’ bank statements, tax returns, credit reports, and a merchant’s оther financial information.... ” Id. at 7 ¶ 26. Plaintiff is not asking for a huge change in the way credit cards do business; they ask only that defendants abide by their own rules and stop doing business with crooks. Granting plaintiff the relief it seeks would not, I am confident, be the end of Capitalism as we know it.
This is an easy case, squarely controlled by our precedent in all material respects. Fairly applying our cases to the facts alleged by Perfect 10, we should reverse the district court and give plaintiff an opportunity to prove its case through discovery and trial. In straining to escape the strie-
. I join part C of the "California Statutory and Common Law Claims" section of the opinion, dealing with plaintiff's libel and prospective economic advantage claims.
. Throughout this dissent, I refer to defendants collectively as credit card companies or credit cards. In so doing, I am adopting the same simplifying assumptions as the majority. I am aware that Visa and MasterCard don’t deal directly with merchants; rather, merchants obtain credit card accounts from banks, which are in turn authorized by Visa or MasterCard to use their respective payment systems. Some of the other defendants are involved in clearing these transactions. For a description of how the system works, see Emery v. Visa Int'l Serv. Ass’n,
. As the majority points out, maj. op. at 797 n. 6, 800 n. 11, plaintiffs allegations might also support a theory of direct infringement. See First Am. Compl. at 8 ¶ 30 ("Defendants, jointly with the Stolen Content Websites, are engaged in ... the willful and systematic infringement of the intellectual property rights of” plaintiff and others). Because plaintiff has not argued this theory on appeal, we have no occasion to address it. But the fact that defendants may also be committing direct infringement does not diminish their responsibility as indirect infringers for providing essential services to buyers and sellers of stolеn merchandise. A defendant can be liable for both direct and indirect infringement based on the same conduct. See, e.g., Alcatel USA, Inc. v. DGI Technologies, Inc.,
. Neither Google nor the credit cards here were designed for infringement. The majority tries to distinguish this case from Napster and Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.,
. Amazon, as well as Napster and Grolcster, hold as much.
. The majority argues that "[bjecause location services lead Internet users directly to infringing images, and often display them on the website of the service itself, we find that location services are more important and more essential — indeed, more 'material' — to infringement than payment services are.” Maj. op. at 797-98 n. 8. Skipping lightly over the fact that we lack the power to "find” anything, the majority admits that payment services are important, essential and material. That location services may — or may not — be more so, is of no consequence; this is not a race where there can be only one winner.
.The majority's claim that "Perfect 10’s factual allegations are not to the contrary,” maj. op. at 797 n. 7, is simply not accurate. Indeed, elsewhere in the opinion, the majority concedes that plaintiff has made "a factual allegation” that the Stolen Content Websites "could not continue to exist as websites offering images for sale online.” Id. at 805-06 n. 18. How then can the majority hold here, apparently as a matter of law, that defendants are absolved of liability because "other viable funding mechanisms are available”? Maj. op.
. I note in passing that, even if we were to accept the majority's speculations, they would be insufficient. That the Stolen Content Websites “might” change the way they do business or develop alternative payment mechanisms hardly proves that "other viable funding mechanisms are available.” Maj. op. at 797 (emphasis added). The majority's prognostication as to what "might” happen in the future leaves open the likelihood that it will not happen, and positively admits that there are no viable alternative payment mechanisms today.
. The majority seeks to distinguish Napster and Grokster on similar grounds by arguing that the defendants do not provide the "tools to locate infringing material,” id. at 800, and that the infringing material "[n]ever reside[s] on or pass[es] through any network or computer Defendants operate,” id.
.The majority consigns the dance hall/absentee landlord cases to oblivion by holding that they have no relevance to the Internet. Maj. op. at 798 n. 9. It is true that these cases were developed in a brick and mortar world, but the distinction they draw between those who materially assist infringement (and are therefore liable) and those who are more remotely involved (and are therefore not liable) is equally important — perhaps even more important — in cyberspace than in real space. That Napster and Grokster did not consider these cases is hardly significant. The defendants there were centrally involved in the infringing transactions — indeed, as the majority reminds us, their systems were created solely to promote infringement, maj. op. at 799 n. 10, 801 — and thus there could be no argument that their involvement in the infringing transactions was too peripheral to give rise to a claim of secondary infringement. The Seventh Circuit managed to apply the dance hall cases to the Internet, see In re Aimster Copyright Litig.,
. Amazon interprets the "stop or limit” language as requiring "a legal right to stop or limit the allegedly infringing conduct, as well as the practical ability to do so.” Amazon,
. Plaintiff’s allegation on this point, as on many others, is very specific:
When MasterCard or Visa learns of a merchant engaged in illegal, fraudulent, or otherwise improper business practices, their own regulations require them to cause member banks to investigate and, depending on the nature of the misconduct, terminate the merchants from the Visa and MasterCard systems. The rules of both associations strictly prohibit members from servicing illegal businesses.
First Am. Compl. at 6 ¶ 20.
. In fact, there can be no doubt that it’s true. For exаmple, the MasterCard Merchant Rules Manual provides that "[a] Payment Transaction may not be effected for any of the following reasons: ... to transfer gambling winnings or funds related to chips, currency, or other value usable for gambling that were purchased in connection with gambling; for any illegal purpose or any other purpose deemed by MasterCard to be impermissible.” MasterCard International, Merchant Rules Manual § 2.1.11.3(6) (2006) (emphasis added), available at http://www.mastercard.com/ us/wce/PDF/12999 — MERC-Entire—Manual, pdf.
. Visa's website, for example, explains that "Visa and its card issuers and acquirers have in place an efficient dispute resolution process.” Visa USA, Chargebacks & Dispute Resolution, http://www.usa.visa.conV merchants/operations/chargebacks — dispute— resohitiorVindex.html (last visited March 24, 2007). It also notes that "[cjhargebacks arise for many reasons, primary among which are customer disputes, fraud, processing errors, authorization issues, and non-fulfillment of copy requests.” Id. (emphasis added).
.The majority tries to take back in a footnote what it says in text by claiming that an “absolute right to stop” is not "a prerequisite” to vicarious liability, but that its absence is "evidence that[defendants], much like Google, lack the right and ability to control those [infringing] activities.” Maj. op. at 804 n. 16. Alas, it won’t work. If not having an “absolute right to stop” is merely "evidence” that defendants lack sufficient control for vicarious infringement, then this can be offset by other evidence that they do have such control. Conflicts in the evidence must be resolved after discovery and trial, not on a motion to dismiss.
"Practical ability,” the standard announced in Amazon, is a capacious concept, far broader than "absolute right to stop.” Even if the majority were right that defendants lack the "absolute right to stop” the infringements, plaintiff would be entitled to show that defendants have the "practical ability” to do so. If the majority means what it says in its footnote, then what it says in text is beside the point. In fact, there can be no doubt that the majority means what it says in text, because it upholds dismissal of the complaint on the ground that defendants lack the "absolute right to stop” the infringers; the footnote is merely an unpersuasive attempt to sweep the conflict with Amazon under the rug.
.The conflict with Amazon is clearly drawn in footnote 17, where the majority explicitly disavows "praсtical ability” as the standard for vicarious infringement. Maj. op. at 805 n. 17.The majority is free to disagree with the standard adopted by our caselaw, but it is not free to reject it.
. Those customers may take their patronage to plaintiff's website.
. The majority disparages this as mere "financial pressure,” but I am aware of no prior case holding that the legal right to exercise "financial pressure" over infringing activity is insufficient to support a finding of vicarious infringement. This is a dangerous precedent. We live in a commercial world and economic incentives are often the strongest possible motivators — far stronger than the often empty threat of litigation. As this case demonstrates, litigation can be costly and protracted, and its results uncertain. By contrast, the threat of stopping an essential service can be implemented at once, without hiring an army of lawyers or persuading judges and juries of the rightness of one's cause. In an economy marked by competition, financial pressure which raises costs or diminishes patronage can be a powerful weapon. By holding that the legal right to exercise financial pressure is an insufficient basis for establishing vicarious infringement, my colleagues take a hasty and unwise step in the development of the law.
. Amazon also relied on the district court’s finding that Google "lacks the practical ability to police the third-party websites' infringing conduct” because the technical means for doing so suggested by plaintiff "were not workable.” Id. at 731 (citing district court’s opinion, Perfect 10 v. Google, Inc.,
. Anecdotal evidence suggests that the Ad-Sense program produces vastly less revenue for most program members than what they earn through their businesses. One poll found that 45% of AdSense members surveyed earned less than $30 per month from the program, and only a small percentage earned a substantial amount. Darren Rowse, AdSense Earnings for November-Poll Results, Problogger (Dec. 19, 2005), http://www. problogger.net/archives/ 2005/12/19/adsense-earnings-for-november-poll-results/.
. Providing financial support has long been held to be a basis for vicarious infringement, where that financial support carries with it the contractuаl right to approve the infringing activity. See Davis v. E.I. DuPont de Nemours & Co.,
. See, e.g., Rules and General Orders of the Vermont Public Service Board § 3.302, available at http://www.state.vt.us/psb/rules/Official AdoptedRules/RulesComplete.pdf (last visited May 14, 2007) ("[N]o utility shall disconnect residential service of gas, electric, or water unless payment of a valid bill or charge is delinquent.”); State of New Hampshire, Consumer Rights and Responsibilities, at 5 (1996), available at http://services.unitil.com/ content/info/consumer — rights.html.
. The majority is also mistaken when it suggests that parties would be held vicariously liable for infringement simply because, in a market economy, they are free not to deal with one another. Maj. op. at 805 n. 17. Our cases have been very clear that more is required for vicarious infringement; defendant must have a formal contractual or principal-agent relationship with the infringer. It is that contract or relationship that forms the predicate for vicarious liability, and plaintiff must point to some term in the contract or formal relationship that gives defendant a right to stop the infringing activity. See, e.g., Aimster,
. In fact, Perfect 10 has brought suit against some direct infringers. See Perfect 10, Inc. v. CCBill, LLC,
. The majority finds it "anomalous” to hold credit cards liable without DMCA-compliant notice, while ISPs are immune unless they receive such a notice. Maj. op. at 795-96 n. 4. But there is no anomaly in treating parties that are covered by the statute differently from those that are not. Plaintiff here did give ample notice to the credit cards, see p. 824 infra, and should not have its claim dismissed for failing to allege compliance with a statute that does not apply to them.