Perfect 10 v. CCBill: "direct financial benefit" means infringing material must draw users, says Ninth Circuit

In its recent decision in Perfect 10 v. CCBill, the Ninth Circuit interprets a provision of the Digital Millenium Copyright Act that will be crucial to the outcome of Viacom v. YouTube. Per the Ninth Circuit, if the presence of infringing material is merely an "added benefit" for users and not a primary draw, a defendant should be immune from liability for the infringing acts of others. Of course the Second Circuit, where Viacom v. YouTube is pending, frequently disagrees with the Ninth Circuit's take on such things.

Late last month, the Ninth Circuit Court of Appeals came out with an important decision, Perfect 10 v. CCBill (PDF), that required it to interpret and apply both the Digital Millenium Copyright Act and Section 230 of the Communications Decency Act — two of the most important U.S. provisions governing conduct on the Live Web.  Jason Schultz, Professor Goldman, and Joe Gratz all have good summaries of the details.

First, see Jason's rundown of the parties and facts of the case:

Background: Perfect 10 publishes adult entertainment magazines and websites.  Many third-party websites post Perfect 10 images without permission.  CCBill et al provide hosting and credit card services to those sites.  Perfect 10 sued CCBill et al. for assisting in the infringement of their copyrights and associated state claims, such as violating the rights of publicity of Perfect 10 models.  CCBill raised, among other defenses, the DMCA Safe Harbors and Section 230 of the CDA.

Next, there's a lot of meat to the opinion and I encourage you to check out all three of the discussions linked above.  But the most interesting part of the decision to me, particularly in the context of the pending Viacom v. YouTube suit, is the court's take on what constitutes a "direct financial benefit" sufficient to preclude a defendant's successful invocation of the DMCA's safe harbor language.  Once again from Jason:

The Court held that a provider falls outside the protections of 512(c) if they receive "direct financial benefit" from infringing conduct, and that this term should be interpreted consistent with the "similarly-worded common law standard for vicarious copyright liability."  The Court then went on to state that the relevant inquiry was "whether the infringing activity constitutes a draw for subscribers, not just an added benefit."  Since CWIE (the hosting co-defendant) hosted sites for a fee unrelated to the amount of infringing material, the court found this did not qualify as a direct financial benefit.

The "direct financial benefit" exemption is one of the most crucial legal points at issue in Viacom v. YouTube, and here we have the Ninth Circuit saying that if the presence of infringing material is merely an "added benefit" and not a primary draw, a defendant should be immune under the DMCA from liability for the infringing acts of others.  As a practical matter, this requires parties and courts to classify and quantify the role of the infringing material, and thus imports a Sony v. Universal/substantial noninfringing use-esque anlaysis into interpreting and applying the DMCA.  Advantage YouTube/Google — though the Second Circuit (where Viacom v. YouTube is pending) is well known for departing from the reasoning of the Ninth. 

There's much more to tease out of the decision.  Professor Goldman wraps it up as follows:

This Ninth Circuit panel clearly understood the dangers that copyright and publicity rights lawsuits pose to Internet intermediaries, and they took a number of useful steps to push back on a very aggressive plaintiff's novel but expansive theories. Kudos to them. But with two other Perfect 10 cases pending with the Ninth Circuit, I strongly suspect that the most interesting and powerful aspects of this ruling soon will be reshaped by the subsequent opinions.