With respect to the material contribution requirement, the court ruled the plaintiff’s
allegations that the defendants provided access to USENET, a system that was widely known to
be a source of pirated content, and that the defendants’ storage of USENET content on their
servers facilitated the exchange of pirated works among the defendants’ subscribers and other
USENET users, were sufficient to allege that the defendants materially contributed to the
infringement. Accordingly, the court denied the defendants’ motion to dismiss the contributory
infringement claim with respect to Giganews, but dismissed the contributory infringement claim
against Livewire with leave to amend.^2097
Turning to the claims of vicarious liability, the court denied the defendants’ motion to
dismiss those claims. With respect to the direct financial benefit prong, the court held that the
plaintiff’s allegations that interest in USENET is now largely centered around alt.binaries
newsgroups and that the defendants’ ability to generate monthly subscriptions and revenues was
based almost exclusively on the demand for pirated copyrighted works contained in the
alt.binaries hierarchies were sufficient to establish that the defendants enjoyed a direct financial
benefit from the infringing content on their servers.^2098 The court rejected the defendants’
invitation to interpret the Netcom and Ellison cases as establishing a categorical rule that fixed
fees preclude a finding of a direct financial benefit as a matter of law. Rather, those cases found
no causal relationship between the fixed fee charged by the defendants and the infringing activity
of their subscribers.^2099
With respect to the control element of vicarious liability, the court found sufficient
control on the part of Giganews from the fact that its Terms of Use clearly stated that it had the
power to suspend and cancel the accounts of its users, and the fact that the plaintiff had alleged
that Giganews could easily find unauthorized Perfect 10 images on its servers by using its search
function. The plaintiff had not, however, alleged any facts showing what control Giganews
exerted over USENET users who were not Giganews subscribers. Nor had the plaintiff alleged
any facts that Livewire had any power over third party infringers. Accordingly, the court ruled
that the plaintiff had stated a claim for vicarious liability against Giganews for copyright
infringement by Giganews subscribers only, but the vicarious liability claim against Livewire
must be dismissed with leave to amend.^2100
The plaintiffs amended the complaint and the defendants again moved to dismiss.
Giganews contended that the new allegations concerning the plaintiff’s notices demonstrated that
its secondary infringement claims failed. A different judge (Judge Collins) disagreed and found
it unnecessary to revisit Judge Matz’s conclusion that the secondary infringement allegations
against Giganews were adequate. Accordingly, the court considered only whether the plaintiff
had now adequately pled secondary infringement claims against Livewire.^2101
(^2097) Id. at 33.
(^2098) Id. at 34-35.
(^2099) Id. at 34-36.
(^2100) Id. at 38-40.
(^2101) Perfect 10, Inc. v. Giganews, Inc., 2013 U.S. Dist. LEXIS 98997 at *10 (C.D. Cal. July 10, 2013).