RECORDING INDUSTRY ASSOCIATION OF AMERICA, a New York not for profit corporation; ALLIANCE OF ARTISTS AND RECORDING COMPANIES, a Pennsylvania not for profit corporation, Plaintiffs-Appellants,
v.
DIAMOND MULTIMEDIA SYSTEMS INC., a California corporation, Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Audrey B. Collins, District Judge, Presiding
Argued and Submitted
April 15, 1999–Pasadena, California
Filed June 15, 1999
Before: Diarmuid F. O’Scannlain and A. Wallace Tashima,
Circuit Judges, and Edward C. Reed, Jr.,* District Judge.
Opinion by Judge O’Scannlain

COUNSEL

Hadrian R. Katz (argued), Lawrence J. Hutt, Arnold & Porter, Washington, D.C., for the plaintiffs-appellants.
Andrew P. Bridges (argued), Wilson Sonsini Goodrich & Rosati, Palo Alto, California, for the defendant-appellee.
John B. Wyss, Wiley, Rein & Fielding, Washington, D.C., for the amicus Consumer Electronics Manufacturers Association.

OPINION

O’SCANNLAIN, Circuit Judge:
In this case involving the intersection of computer technology, the Internet, and music listening, we must decide whether the Rio portable music player is a digital audio recording device subject to the restrictions of the Audio Home Recording Act of 1992.

I) This appeal arises from the efforts of the Recording Industry Association of America and the Alliance of Artists and Recording Companies (collectively, “RIAA”) to enjoin the manufacture and distribution by Diamond Multimedia Systems (“Diamond”) of the Rio portable music player. The Rio is a small device (roughly the size of an audio cassette) with headphones that allows a user to download MP3 audio files from a computer and to listen to them elsewhere. The dispute over the Rio’s design and function is difficult to comprehend without an understanding of the revolutionary new method of music distribution made possible by digital recording and the Internet; thus, we will explain in some detail the brave new world of Internet music distribution.

(A) The introduction of digital audio recording to the consumer electronics market in the 1980’s is at the root of this litigation. Before then, a person wishing to copy an original music recording — e.g., wishing to make a cassette tape of a record or compact disc — was limited to analog, rather than digital, recording technology. With analog recording, each successive generation of copies suffers from an increasingly pronounced degradation in sound quality. For example, when an analog cassette copy of a record or compact disc is itself copied by analog technology, the resulting “second-generation” copy of the original will most likely suffer from the hiss and lack of clarity characteristic of older recordings. With digital recording, by contrast, there is almost no degradation in sound quality, no matter how many generations of copies are made. Digital copying thus allows thousands of perfect or near perfect copies (and copies of copies) to be made from a single original recording. Music “pirates” use digital recording technology to make and to distribute near perfect copies of commercially prepared recordings for which they have not licensed the copyrights.
Until recently, the Internet was of little use for the distribution of music because the average music computer file was simply too big: the digital information on a single compact disc of music required hundreds of computer floppy discs to store, and downloading even a single song from the Internet took hours. However, various compression algorithms (which make an audio file “smaller” by limiting the audio bandwidth) now allow digital audio files to be transferred more quickly and stored more efficiently. MPEG-1 Audio Layer 3 (commonly known as “MP3″) is the most popular digital audio compression algorithm in use on the Internet, and the compression it provides makes an audio file “smaller” by a factor of twelve to one without significantly reducing sound quality.
MP3’s popularity is due in large part to the fact that it is a standard, non-proprietary compression algorithm freely available for use by anyone, unlike various proprietary (and copyright-secure) competitor algorithms. Coupled with the use of cable modems, compression algorithms like MP3 may soon allow an hour of music to be downloaded from the Internet to a personal computer in just a few minutes.
These technological advances have occurred, at least in part, to the traditional music industry’s disadvantage. By most accounts, the predominant use of MP3 is the trafficking in illicit audio recordings, presumably because MP3 files do not contain codes identifying whether the compressed audio material is copyright protected. Various pirate websites offer free downloads of copyrighted material, and a single pirate site on the Internet may contain thousands of pirated audio computer files.
RIAA represents the roughly half-dozen major record companies (and the artists on their labels) that control approximately ninety percent of the distribution of recorded music in the United States. RIAA asserts that Internet distribution of serial digital copies of pirated copyrighted material will discourage the purchase of legitimate recordings, and predicts that losses to digital Internet piracy will soon surpass the $300 million that is allegedly lost annually to other more traditional forms of piracy.1 RIAA fights a well-nigh constant battle against Internet piracy, monitoring the Internet daily, and routinely shutting down pirate websites by sending cease-and-desist letters and bringing lawsuits. There are conflicting
views on RIAA’s success — RIAA asserts that it can barely keep up with the pirate traffic, while others assert that few, if any, pirate sites remain in operation in the United States and illicit files are difficult to find and download from anywhere online.
In contrast to piracy, the Internet also supports a burgeoning traffic in legitimate audio computer files. Independent and wholly Internet record labels routinely sell and provide free samples of their artists’ work online, while many unsigned artists distribute their own material from their own websites.

Some free samples are provided for marketing purposes or for simple exposure, while others are teasers intended to entice listeners to purchase either mail order recordings or recordings available for direct download (along with album cover art, lyrics, and artist biographies). Diamond cites a 1998 “Music Industry and the Internet” report by Jupiter Communications which predicts that online sales for pre-recorded music will exceed $1.4 billion by 2002 in the United States alone.
Prior to the invention of devices like the Rio, MP3 users had little option other than to listen to their downloaded digital audio files through headphones or speakers at their computers, playing them from their hard drives. The Rio renders these files portable. More precisely, once an audio file has been downloaded onto a computer hard drive from the Internet or some other source (such as a compact disc player or digital audio tape machine), separate computer software pro vided with the Rio (called “Rio Manager”) allows the user further to download the file to the Rio itself via a parallel port cable that plugs the Rio into the computer. The Rio device is incapable of effecting such a transfer, and is incapable of receiving audio files from anything other than a personal computer equipped with Rio Manager.
Generally, the Rio can store approximately one hour of music, or sixteen hours of spoken material (e.g., downloaded newscasts or books on tape). With the addition of flash memory cards, the Rio can store an additional half-hour or hour of music. The Rio’s sole output is an analog audio signal sent to the user via headphones. The Rio cannot make duplicates of any digital audio file it stores, nor can it transfer or upload such a file to a computer, to another device, or to the Internet. However, a flash memory card to which a digital audio file has been downloaded can be removed from one Rio and played back in another.

(B) RIAA brought suit to enjoin the manufacture and distribution of the Rio, alleging that the Rio does not meet the requirements for digital audio recording devices under the Audio Home Recording Act of 1992, 17 U.S.C. S 1001 et seq. (the “Act”), because it does not employ a Serial Copyright Management System (“SCMS”) that sends, receives, and acts upon information about the generation and copyright status of the files that it plays. See id. S 1002(a)(2).2 RIAA also sought payment of the royalties owed by Diamond as the manufacturer and distributor of a digital audio recording device. See id. S 1003.
The district court denied RIAA’s motion for a preliminary injunction, holding that RIAA’s likelihood of success on the merits was mixed and the balance of hardships did not tip in RIAA’s favor. See generally Recording Indus. Ass’n of America, Inc. v. Diamond Multimedia Sys., Inc., 29 F. Supp. 2d 624 (C.D. Cal. 1998) (“RIAA I”). RIAA brought this appeal.

II) (A) The initial question presented is whether the Rio falls within the ambit of the Act. The Act does not broadly prohibit digital serial copying of copyright protected audio recordings. Instead, the Act places restrictions only upon a specific type of recording device. Most relevant here, the Act provides that “[n]o person shall import, manufacture, or distribute any digital audio recording device . . . that does not conform to the Serial Copy Management System ["SCMS"] [or] a system that has the same functional characteristics.” 17 U.S.C. S 1002(a)(1), (2) (emphasis added). The Act further provides that “[n]o person shall import into and distribute, or manufacture and distribute, any digital audio recording device . . . unless such person records the notice specified by this section and subsequently deposits the statements of account and applicable royalty payments.” Id. S 1003(a) (emphasis added). Thus, to fall within the SCMS and royalty requirements in question, the Rio must be a “digital audio recording device,” which the Act defines through a set of nested definitions.
The Act defines a “digital audio recording device ” as:
Any machine or device of a type commonly distributed to individuals for use by individuals, whether or not included with or as part of some other machine or device, the digital recording function of which is designed or marketed for the primary purpose of, and that is capable of, making a digital audio copied recording for private use . . . .
Id. S 1001(3) (emphasis added).
A “digital audio copied recording” is defined as:
A reproduction in a digital recording format of a digital musical recording, whether that reproduction is made directly from another digital musical recording or indirectly from a transmission.
Id. S 1001(1) (emphasis added).
A “digital musical recording” is defined as:
A material object-

(i) in which are fixed, in a digital recording format, only sounds, and material, statements, or instructions incidental to those fixed sounds, if any,
and
(ii) from which the sounds and material can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.
Id. S 1001(5)(A) (emphasis added).

(B) In sum, to be a digital audio recording device, the Rio must be able to reproduce, either “directly” or “from a
transmission,” a “digital music recording.”

UNIVERSAL CITY STUDIOS, INC.;
PARAMOUNT PICTURES CORPORATION;
METRO-GOLDWYN-MAYER STUDIOS, INC.;
TRISTAR PICTURES, INC.; COLUMBIA
PICTURES INDUSTRIES, INC.; TIME WARNER
ENTERTAINMENT CO., L.P.; DISNEY
ENTERPRISES, INC.; AND TWENTIETH
CENTURY FOX FILM CORPORATION,
Plaintiffs,
v.
SHAWN C. REIMERDES; ERIC CORLEY A/K/A
“EMMANUEL GOLDSTEIN”; and ROMAN KAZAN,

Defendants

WHEREAS, this action was commenced on January 14, 2000 with the filing of a complaint alleging violations of the circumvention provisions of the United States Copyright Act, 17 U.S.C. $1201 et seq. The Plaintiffs are the major motion picture studios in the United States. Defendant Roman Kazan represents that he is the president of Kazan Corporation which operates the Internet Service Provider (“ISP”) Escape.com, which, in turn, operates the domain servers escape.com and free.escape.com. Escape.com, escape.com and free.escape.com are collectively referred herein as “Escape.” Roman Kazan, Kazan Corporation and Escape are collectively referred herein as “Kazan.” Kazan’s principal place of business is at 16 East 55th Street, New York, New York 10022. This court has jurisdiction over Kazan, and venue is proper in this district;
WHEREAS, when this action was commenced the web site www.krackdown.com (the “Krackdown site”) had on a software utility referred to as “DeCSS,” which decrypts the CSS encryption system that protects against unauthorized access and copying of Plaintiffs’ copyrighted motion pictures released in the Digital Versatile Disc (“DVD”) format. Roman Kazan was listed as the technical contact for the Krackdown site on the registration statement with Network Solutions, based on its then applicable practices, and the Krackdown site was hosted by Escape.com;
WHEREAS, on January 20, 2000, after full briefing and a hearing, the Court issued a preliminary injunction enjoining Roman Kazan and the other defendants, as well as their respective officers, agents, servants, employees and attorneys, from posting on any Internet web site (or in any other way manufacturing, importing or offering to the public, providing, or otherwise trafficking in) DeCSS or any other unauthorized circumvention device within the meaning of 17 U.S.C. $ 1201(a)(2);
WHEREAS, Roman represents that Escape is an ISP and that neither he nor his company, Kazan Corporation, had any participation in, or prior knowledge of, the posting of DeCSS at the Krackdown site appearing on the domain servers owned and operated by Kazan;

WHEREAS Roman Kazan wishes to reach a consensual resolution of this matter without the cost, disruption, and uncertainty associated with further litigation; and WHEREAS Plaintiffs are willing to enter into this Consent Judgment based upon the truthfulness of Roman Kazan’s representation and his entry into, and full compliance with, this Consent Judgment; THEREFORE, Plaintiffs and Kazan hereby stipulate and agree, and the Court hereby ORDERS, that:

1. Kazan, their agents, servants, employees, and all other persons in active concert or privity or in participation with them are hereby permanently enjoined from:

(a) posting on any Internet web site, linking to, or in any other way manufacturing, importing, offering to the public, providing, or otherwise trafficking in DeCSS, and
(b) posting on any Internet web site, linking to, or in any other way manufacturing, importing, offering to the public, providing, or otherwise trafficking in any technology, product, service, device, component, or part thereof, that:

(i) is primarily designed for the purpose of circumventing, or circumventing the protection afforded by, the Contents Scramble System (“CSS”), or any other technological measure adopted by Plaintiffs that effectively controls access to Plaintiffs’ copyrighted works or effectively protects the Plaintiffs’ rights to control whether an end user can reproduce, manufacture, adapt, publicly perform and/or distribute unauthorized copies of their copyrighted works or portions thereof,
(ii) has only limited commercially significant purpose or use other than to circumvent, or to circumvent the protection afforded by, CSS, or any other technological measure adopted by Plaintiffs that effectively controls access to Plaintiffs’ copyrighted works or effectively protects the Plaintiffs’ right to control whether an end use can reproduce, manufacture, adapt, publicly perform and/or distribute unauthorized copies of their copyrighted works or portions thereof, or
(iii) is marketed by Defendants and/or others acting in concert with the knowledge of its use in circumventing, or circumventing the protection afforded by, the Contents Scramble System (“CSS”), or any other technological measure adopted by Plaintiffs that effectively controls access to Plaintiffs’ copyrighted works or effectively protects the Plaintiffs’ rights to control whether an end user can reproduce, manufacture, adapt, publicly perform and/or distribute unauthorized copies of their copyrighted works or portions thereof.

2. (a) With respect to Kazan’s activities in the ownership or operation of any ISP, including but not limited to Escape, upon receiving written notice from or on behalf of any of the Plaintiffs in accordance with the provisions of paragraph 2(b) below, Kazan shall expeditiously disable access to or remove any of the matter prohibited by paragraph 1 above on any system, network, or domain server over which Kazan or any of the persons identified in paragraph 1 exercises control. For the purposes of this Consent Judgment, “expeditiously” disabling access to or removing prohibited matter shall mean immediately upon receipt of notice under this paragraph 2, and in no case later than the end of the business day upon which such notice is received, unless the notice specified herein is received after the end of the business day, in which case Kazan shall disable access or remove the prohibited matter before noon of the next business day. A “business day” shall mean any day on which Escape or any other ISP owned or operated by any of the parties identified in paragraph 1 above is conducting business, and includes weekends and holidays.

(b) Written notice to Kazan is deemed sufficiently made

(i) at the time sent by e-mail to Kazan at mpaanotice@escape.com,

(ii) at the time sent to Kazan by fax to (212) 888-5646, or

(iii) at 11:30 a.m. of the business day after it is sent by overnight mail to Kazan Corp., Attention: Legal Matters, 16 East 55th Street, New York, New York 10022. Kazan may designate a substitute email address, fax number, or overnight mail address by providing it in writing to counsel for Plaintiffs at the following address: Motion Picture Association of America, Inc., 15503 Ventura Boulevard, Encino, California 91436, attention: Mark D. Litvack, Esq.

3. Based upon Kazan’s representations and future compliance with this Consent Judgment, Plaintiffs shall refrain from seeking any monetary relief, including costs or attorneys’ fees, from Kazan in connection with this action; provide, however, Plaintiffs may reopen these proceedings and seek actual, statutory, or other damages, including costs and attorneys’ fees, incurred in this action, without limiting any other rights or remedies Plaintiffs may have, upon a showing by Plaintiffs that: (a) Kazan has violated this Consent Judgment, including but not limited to, by failing to disable access to or remove any of the matter prohibited by paragraph 1 in accordance with the provisions of this Consent Judgment, or (b) that Kazan’s representations are inaccurate.

4. Nothing in this Consent Judgment shall be construed to waive, limit, or affect any right, claim, or remedy Plaintiffs may have against any other person, including but not limited to any other defendants in this action or any other person who may be liable for posting DeCSS on the Krackdown web site. The complaint in this action shall be deemed amended by this Consent Judgment to include, as additional defendants, Kazan Corporation, Escape.com, and any d/b/a of Kazan.

5. Except to the extent modified herein as to Kazan, the preliminary injunction remains in full force and effect as to all remaining defendants.

6. Kazan has had the opportunity to engage independent legal counsel in connection with this matter and the entry of this Consent Judgment.

7. This Court shall retain jurisdiction to enforce, implement, or construe this Consent Judgment. Plaintiffs and Kazan consent to jurisdiction and venue in this Court for any related proceedings. Plaintiffs and Kazan waive their respective rights to notice and appeal of this Consent Judgment and consent to its immediate entry in accordance with its terms.

Dated: March ___, 2000
SO ORDERED:

United States District Judge

Stipulated and Agreed:
UNIVERSAL CITY STUDIOS, INC.;
PARAMOUNT PICTURES CORPORATION;
METRO-GOLDWYN-MAYER STUDIOS, INC.;
TRISTAR PICTURES, INC.;
COLUMBIA PICTURES INDUSTRIES, INC.;
TIME WARNER ENTERTAINMENT CO., L.P.;
DISNEY ENTERPRISES, INC.; AND
TWENTIETH CENTURY FOX FILM CORPORATION,

by their attorneys, PROSKAUER ROSE LLP
William M. Hart, Esq.
PROSKAUER ROSE LLP
1585 Broadway
New York, New York 10036

ROMAN KAZAN, individually and in his capacity
as president of Kazan Corporation d/b/a Escape.com

Default Judgment

The summons and complaint in this action having been duly served on the above-named Defendant on July 31, 1998 and said Defendant having failed to plead or otherwise defend in this action, and said default having been duly noted, and upon the annexed Declaration of Default Judgment.
NOW, on motion of David Loundy, the attorney for the Plaintiffs, it is hereby ORDERED and ADJUDGED that, the Plaintiffs, do recover of Kevin Manena a/k/a “Bile”, the Defendant residing at 30 West 13th Road, Broad Channel, N.Y., as follows:

a. That Defendant be permanently enjoined from infringing or aiding in the infringement of Plaintiffs’ copyrighted and trademarked works as provided by 17 U.S.C. *502 and 15 U.S.C *1116.

b. That Defendant be required to provide to the Court and to Plaintiff’s attorneys within fourteen (14) days of this Judgement an accounting for all gains, profits and advantages that he has derived from infringing Plaintiffs’ copyrights and trademarks as provided by 17 U.S.C. *504 and 15 U.S.C *1117.

c. That Defendant be ordered to turn over to the Court and to Plaintiff’s attorneys within fourteen (14) days of this Judgment a list of all customers to which he has sold CD-ROMs containing Plaintiffs’ intellectual property.

d. That Defendant shall turn over to the Court and to Plaintiff’s attorneys within fourteen (14) days of the date of this Judgment any copies of Plaintiffs’ copyrighted and trademarked works in Defendant’s possession or over which he has control, along with any plates, molds, matrices, masters, tapes, or other articles by means of which such copies may be reproduced. Such items, including, but not limited to, CD-ROM recorders and blanks, personal computer(s) and modem(s), and hard disks and removable data storage devices of any kind shall be impounded and destroyed as provided by 17 U.S.C. *503 and 15 U.S.C *1118. Additionally, the Defendant’s domain name “bilesasylum.com” from which the CD-ROMs were sold and the CRC lists distributed shall have its registration cancelled within 5 business days of the delivery of this Judgement to Network Solutions, Inc., the domain name registrar.

e. The case is referred to the U.S. magistrate judge for an inquest on the issue of damages.

g. That Bile shall pay to Plaintiff interest at the legal rate in effect on the date of this judgment on the above damages, costs and fees.

h. That the Plaintiff have execution therefor.

Dated: Brooklyn, New York
February 8, 1999
By: /s/ Ed Korman
Ed Korman
U.S. District Judge

*****************************************************************************************

IN THE NAME OF THE QUEEN!

kv
Cause list number 96/1048
Judgment date: 9 June 1999

THE DISTRICT COURT OF THE HAGUE
Civil Law Sector, Chamber D

Ruling in the case with cause list number 96/1048 of:

1. The Church with a legal personality under foreign law CHURCH OF SPIRITUAL TECHNOLOGY,

established in Los Angeles, United States of America,

2. The Church with a legal personality under foreign law RELIGIOUS TECHNOLOGY CENTER, established

in Los Angeles, United States of America,

3. The legal personality under foreign law NEW ERA PUBLICATIONS INTERNATIONAL APS, established in Copenhagen, Denmark,

plaintiffs,
attorney: Mr. R. Laret,
counsel: Mr. R Hermans in Amsterdam,
versus:

1. The private company DATAWEB B.V., established in The Hague,

2. The foundation STICHTING XS4ALL, established in Amsterdam,

3. The foundation STICHTING DE DIGITALE STAD, established in Amsterdam,

4. The private company CISTRON INTERNET SERVICES BV, established in Alphen aan den Rijn,

5. The private companyINTERNET ACCESS EINDHOVEN B.V., established in Eindhoven,

6. The private company under foreign lawEURONET INTERNET INC. established in Wilmington, United States of America,

7. The private company WIREHUB INTERNET B.V., established in Rotterdam,

8. The foundation STICHTING INTERNET ACCESS, established in Slochteren,

9. RONALD WALTER VERGEER h.o.d.n. B-ART MIDDEN NEDERLAND B.V, I.O., residing in Leidschendam,

10. The company under the firm name of LUNATECH RESEARCH, established in Rotterdam,

11. MICHAEL DAVID PENTOWSKI, member of v.o.f. Lunatech Research, residing in Rotterdam,

12. PETER FIRTH MUNRO, member of v.o.f. Lunatech Research, residing in Workingham, United Kingdom,

13. STEFAN MARK ARENTZ, member of v.o.f. Lunatech Research, residing in Schagen,

14. PETER ALEXANDER KAAS, member of v.o.f. Lunatech Research, residing in Odijk, municipality of Bunnik,

15. The company under the firm name of SPIRIT INTERACTIEVE DIENSTEN B.V. I.0., residing in Rotterdam,

16. The limited liability company N.V. ENECO, member of Spirit Interactieve Diensten B.V. i.o., residing in Rotterdam,

17. The private company ROTTERDAMS DAGBLAD B.V., member of Spirit Interactieve Diensten B.V. i.o., residing in Rotterdam,

18. The GEMEENTE ROTTERDAM (ONTWIKKELINGSBEDRIJF ROTTERDAM), member of Spirit Interactieve Diensten BV i.o., based in Rotterdam,

19. The private company METROPOLIS INTERNET B.V., established in Dordrecht,

20. KARIN SPAINK, residing in Amsterdam, defendants, attorney: Mr J.C.H. van Manen, counsel: Mr Van Manen, aforementioned, and mr P.H. Bakker Schut in Amsterdam,
and

21. The private company B-ART NOORD NEDERLAND B.V., established in The Hague,

22. The foundation STICHTING TELEBYTE, established in Nijmegen,

23. The company under foreign law DUTCH CHANNEL LIMITED, acting under the name of GLOBAL XS, established in Margate, Kent, United Kingdom, defendants, not appearing.

The court has examined the following documents:

• The writs of summons;
• The statement of claim, with exhibits;
• The defense, with exhibits;
• The reply, with exhibits;
• The rejoinder, with exhibits;
• The deed submitting the exhibits of 8 March 1999 of the defendants.

In the session of this court and chamber of 8 March 1999 the parties argued the case through their respective counsels. The memoranda of these oral pleadings are among the exhibits.

LEGAL CONSIDERATIONS

1. Between the parties the following has been established on the one hand, and not contradicted (with sufficient reasons) on the other, as shown by the exhibits submitted.

1. L. Ron Hubbard is the founder of the Church of Scientology hereinafter CoS).

2. The doctrine of the CoS is described in various works. These works include the unpublished “Operating Thetan I” to “Operating Thetan VII” inclusive (hereinafter the OT works) and the published “The Scientologist Ability Major I” (hereinafter “Ability”).

3. Hubbard died in 1986. He passed on the copyright to his work by will to the Trustee of Author’s Family Trust B.

4. The Trustee granted a licence to the plaintiff under 2 (hereinafter RTC) relating (among others) to the OT II and OT III which form part of the OT works and to the plaintiff under 3 (hereinafter NEPI) relating (among others) to Ability.

5. According to the CoS doctrine, the OT works are only accessible to certain select members of the CoS and these members are bound to keep the OT works confidential on the grounds of a statement of confidentiality signed by them. The OT works are registered with the United States Copyright Office. With regard to the confidential nature of them, only masked copies have been deposited in accordance with requirements.

6. Ability is also registered with the United States Copyright Office under the name “Ability”. Ability is published by NEPI as part of the so-called “Technical Bulletins”.

7. In legal proceedings in the United States, the former CoS member, Fishman, submitted an affidavit (hereinafter: “the Fishman Affidavit”) which included (parts of) the OT works and Ability in appendix.

8. The defendants under 1 to 19 inclusive and 21 to 23 inclusive (hereinafter: “the Service Providers”) provide access to the Internet and offer services on the Internet, including enabling users to set up a home page and provide information on their servers.

9. The defendant under 20 (hereinafter “Spaink”) has two Internet connections. To this end it uses the services of the defendant under 1 and of Planet Internet BV (no longer a party in this action). Spaink has two home pages on the Internet which displayed the Fishman Affidavit until 23 February 1996. On this date Spaink changed its home pages and the appendices to the Fishman Affidavit were removed from it. Since then there have indeed been quotations from this appendix.

10. According to a comparison made at the request of the plaintiff by notary J.F. Renes in Amsterdam and junior notary J.L.M van Erp, between the original OT II and OT III works and the text of the parts of OT II and OT III in the printouts from the Internet relating to Web site http://www.xs4all.nl/~kspaink, these respective texts are largely identical.

2. The plaintiffs demand, phrased concisely,

1. To rule that the Service Providers, by placing a copy of the works that the CST has copyright to on their computer systems that is accessible to third parties, without the consent of the plaintiffs, are infringing this copyright and/or acting unlawfully if they have been informed of the presence of them;

2. To rule that the Service Providers, by placing a link on their computer systems that is accessible to third parties, without the consent of the plaintiffs, which when activated displays a copy of the works that the CST has copyright to on the computer screen of the user, are infringing this copyright and/or acting unlawfully if they have been informed of the presence of this;

3. To rule that the OT works have not been lawfully published, at least not in the sense of art; 15a, sub 1 of the 1912 Copyright Act;

4. To order Spaink to suspend all infringements of the copyright of CST, on penalty of a fine;

5. To order the Service Providers, principally, to suspend all infringements of the copyright of CST, and alternatively, as soon as the presence of documents on their computer systems has been pointed out to them, to immediately see to the removal of them, and as a second alternative, as soon as the presence of infringing documents on their computer systems has been pointed out to them, to request the user concerned to immediately remove them and in the absence of complying with this request to deny the user concerned further access to their computer system, all on penalty of a fine;

6. To order the Service Providers, within three days of the judgement or a request to this effect by the plaintiffs, to inform the plaintiffs of the names of third parties who have published and/or reproduced these infringing documents via their computer systems or who will publish and/or reproduce them after the judgement, again on penalty of a fine.

3. To this end they state that Hubbard is the author of the OT works and Ability, and that the CST has received the copyright to these works, transferred from the Trustee. They state, moreover, that Spaink, and a number of anonymous users of the Service Providers, are publishing and/or reproducing the Fishman Affidavit in their home pages on the Internet, without the consent of the plaintiffs, and this Affidavit includes substantial parts of these works. As copies of the home pages with the Fishman Affidavit are stored in the computer system of the Service Providers concerned and as these Service Providers provide a copy to third parties who consult these home pages, whether or not by using a link in these home pages, it is also a case of an infringing publication and/or reproduction by the Service Providers.
The defendants are thus acting unlawfully with respect to the plaintiffs, as a result of which the plaintiffs have suffered and are in danger of suffering damage, according to the plaintiffs.

4. The defendants have provided a reasoned defence.

5. The defendants dispute that CST has the copyright to the OT works and Ability.

6. To this end they state in the first place that these works do not have any copyright because they are banal texts without any coherence, story line, or structure. The court presupposes that the assessment of whether the works are copyright protected in the Netherlands – the place where the said infringement is taking place – must be done according to Dutch law. According to the Bern Convention that both the Netherlands and the United States (the country that Hubbard was a subject of) are parties to, the author has a right in each country that is a signatory to the convention, irrespective of whether or not there is protection in the country of origin, that is equal in extent and effect to that which the domestic legislation of that country gives to its own subjects in direct application of this legislation. Solely in view on the quotations from the OT works and Ability on the home page of Spaink, the Court believes that these works have a unique original, character bearing the personal mark of the author. They are thus subject to copyright protection.

7. The defendants further deny, in particular by citing the memorandum opinion of Judge J. Kane (District Court or the District of Colorado) of 5 November 1998, that Hubbard is the author of the works.
The court will pass over this argument. On the title page of the Technical Bulletins submitted by the plaintiffs, L. Ron Hubbard is stated as the author. Pursuant to article 15, paragraph 1 of the Bern Convention, Hubbard must be considered as the author of this work, unless the defendants provide proof to the contrary. Insofar that Hubbard’s name is not mentioned in the OT works, it follows from the consideration under 13 that CST has published these works (apparently in its own name), such that it represents the author pursuant to art. 15 paragraph 3 of the Bern Convention.

8. The defendants further adopt the position that Attachment B of the deed with which the Trustee transferred the copyright to CST, does not mention OT IV to OT VII inclusive, nor the Technical Bulletins that Ability forms part of.
The court notes that in this deed the copyright to OT 1 to OT III inclusive is indeed mentioned. In the light of this it has to be accepted that the copyright to OT I, II, III was transferred to CST. “ABILITY I MAJOR” also appears in Attachment B. In the light of the full name of the work registered as “Ability” – see 1.2 above – it has to be accepted that this relates to Ability. The form in which this work is published by NEPI is not relevant in this respect. The plaintiffs also rightly point out that the rights to the “Works”, covering all works of Hubbard according to the definition, were transferred with the deed, and that Attachment B is a statement of “some of the Works” that are registered with the Copyright Office. This provides an assumption, or at least the beginning of evidence, that OT IV to VII inclusive were included in the transfer. A judgement in this respect – for which (counter) arguments would have to be heard – can indeed be left out because, for the reasons arising from the consideration under 12 hereinafter, the plaintiffs attach no importance to it.

9. The defendants further state that insofar that the copyright has already been transferred (to CST), the electronic rights are not included in an ordinary copyright transfer, under both Dutch and American law.
The court believes that the question as to what rights the copyright transfer to CST included has to be answered according to American law. Whether CST is authorised to act in law in the Netherlands has to be assessed under Dutch law. The defendants do not state that the copyright to the texts concerned was transferred with restrictions, and this is not shown by the transfer deed either, so it cannot be seen that CST is lacking the authority to act against the electronic reproduction or publication of these texts. Therefore in this action the court will assume that CST is authorised to act against a copyright infringement in electronic form. It therefore follows that the claim of CST is admissible.

10. The defendants dispute, moreover, that the claims of RTC and NEPI are admissible, because as licensees they do not have any right to act against copyright infringements.
The court finds that the extent of the licence is also governed by American law, but the admissibility by Dutch law. Article 8 of the licence agreement between the Trustee and RTC stipulates that RTC may act on its own initiative and authority against copyright infringements, notwithstanding the right of the Trustee to participate in such an action or to commence proceedings on its own initiative. From article 28 of the licence agreement between the Trustee and NEPI, it follows that in the event of a copyright infringement the Trustee and NEPI are entitled to act jointly in proceedings and if one of them does not wish to participate, the other party may institute proceedings independently. These provisions must be taken as a (prior) power of attorney to the respective licensees to act jointly with the copyright holder, or otherwise, against infringements, in which case according to Dutch law the licensee is authorised to act in law independently. In these proceedings CST is also the legal successor of the Trustee. As licensees the claims of RTC and NEPI are thus admissible.

11. Then the question arises as to whether the defendants are infringing or have infringed the copyright of CST.

12. As the court has accepted that CST has the copyright to OT II and OT III and Ability this also means, in view of the consideration under 1.10 above, that during the time that Spaink placed the Fishman Affidavit, which these works form a part of as an appendix, on her home pages on the Internet, she was infringing this copyright. The plaintiffs do not support their thesis that Spaink also infringed the copyright to the other OT works, such that this point can be passed by.

13. With regard to the question of whether Spaink is still infringing the copyright of CST by quoting from the appendices to the Fishman affidavit in her home pages, the parties dispute the question of whether the OT works have been lawfully published in the sense of art. 15a of the Copyright Act.

The court first notes that this question must be answered according to the law of the location of publication. CoS has distributed the courses that the OT works relate to on a large scale among its members – according to the defendants and this is not contested – a minimum of 25,000 people. It follows from this that the works have appeared in print with the consent of the author. As the publication has been done with the consent of the rightful claimant, the lawfulness of the publication is a given fact, irrespective of its location, and the fact that the members to whom these works were distributed to were bound to keep them confidential does not detract from this. It can be left aside whether the OT works had already been lawfully published by copies of the Fishman Affidavit having been available for some time against payment from the library of the United States District Court for the Central District of California.
The claimed judgement, as given above under 2c, thus cannot be pronounced.

14. That NEPI’s publication of the Ability work was lawful is not in dispute. This means that on the basis of art. 15a paragraph 1 of the Copyright Act Spaink is free to quote from OT I and OT II and from Ability in her home pages. That quoted by Spaink from the works concerned – only a relatively small part of the works to illustrate its argument, without it being a case of exploiting the works – stays within the bounds set by the law in this respect. She is thus not infringing the copyright of CST at present. The claimed order as shown above under 2d cannot be granted. Before 23 February 1996 Spaink had indeed published these works in full on her home pages, but she had removed them from her home pages after the summons of CST, while there is no fear of a repetition. The plaintiffs thus have no interest in this claim.

15. It also follows from this that the primary order claimed under 2e cannot be granted.

16. To close, the question arises (in brief) as to how far the Service Providers themselves are infringing copyright if users of their services place infringing documents on the Internet.
The court first notes that the activities of the Service Providers with regard to this case are limited to providing information from and/or to its users and the storage of this information. The Service Providers do not select the information and do not process it either. They only provide the technical means to enable publication by others. Together with its presiding judge (summary judgement of 12 March 1996) the court believes that in these circumstances the Service Providers do not do the publishing themselves, but only provide the opportunity for publication.

The court further believes that the activities of the Service Providers do not involve a copyright relevant reproduction. It concerns here reproductions dictated by technology that arise not so much as a result of the action of the Service Provider but from the holder of a home page or the consumer who consults this information at home. The court finds support for this position in that stipulated in art. 5 paragraph 1 of the amended proposal for a Directive of the European Parliament and Council on the harmonisation of certain aspects of copyright and related rights in the information society, submitted by the Commission of the European Communities on 21 May 1999.

In this respect it is not important whether the information is accessible via an Internet address or via a hyperlink (a clickable electronic referral from a home page).
This does not detract from the fact that the Service Provider, who does not reproduce or publish material himself, nevertheless can be bound to assist and take adequate measures, on the grounds of the care that is fitting in the conduct of society, if he is notified that one of the users of his computer system is infringing copyright or otherwise acting unlawfully through the use of his home page. A certain degree of care may thus be expected from the Service Provider with regard to the occurrence of further infringements. Also in view of the fact that the Service Providers operate in a business capacity, the possibility available to them of denying access to the home page, and the damage that could result from further infringements, it must be judged that the Service Provider who has been notified that a user of his services is infringing copyright or otherwise acting unlawfully on his home page, is himself acting unlawfully if he does not then intervene when the correctness of the notification of this fact cannot be reasonably doubted. It may be expected of the Service Provider to remove the infringing documents from his computer system, and to inform the copyright holder, on his request, of the name and address of the user concerned.

17. It cannot thus be seen that the right of the freedom of expression, as laid down in art. 10 of the ECHR, is violated.

18. The foregoing means that the claimed judgements, as given under 2a and b above, can be granted, albeit in amended form. In view of the copyright infringements accepted by the court in the past, the plaintiffs have sufficient interest in their claim. There is no question of an abuse of law.

19. The defendants v.o.f. Lunatech Research and its members, Metropolis Internet BV and Dutch Channel Ltd, dispute that the infringing information has ever been present on their servers. With regard to v.o.f. Lunatech Research and its members, and Dutch Channel Ltd the plaintiffs have provided no proof of this and have not supported their claim in this respect. As the other defendants do not dispute that the infringing information has been present on their servers, the orders claimed alternatively, as set out above under 2c can be granted against them, again in an amended form. With regard to the claimed order given under 2d the court believes that the plaintiffs have no rightful interest that should be respected in now being informed of the users of the services of the Service Providers who at the time had placed the Fishman Affidavits on their home pages, if indeed the Service Providers are actually in a position to do so. The plaintiffs have provided no grounds for the liability of these users towards them for the damage suffered by them. The court will moderate the claimed penalties.

20. As the parties on both sides have been found partially in the wrong, the court shall divide the costs of the proceedings.

DECISION

The court:
DECLARES it to be the law that by having a reproduction of the works that CST has the copyright to on their computer systems without the consent of the plaintiffs, the Service Providers are acting unlawfully if and insofar that they have been notified of this, and moreover the correctness of the notification of this fact cannot be reasonably doubted, and the Service Providers have then not proceeded to remove this information from their computer system at the earliest opportunity, or at least to make this information inaccessible;

DECLARES it to be the law that by having a link on their computer systems which when activated brings about a reproduction of the works that CST has the copyright to on the screen of the user, without the consent of the plaintiffs, the Service Providers are acting unlawfully if and insofar that they have been notified of this, and moreover the correctness of the notification of this fact cannot be reasonably doubted, and the Service Providers have then not proceeded to remove this link from their computer system at the earliest opportunity;

ORDERS the Service Providers, with the exception of v.o.f. Lunatech Research and its members and Dutch Channel Ltd, as soon as they have been informed of the presence of documents on their computer systems whereby it cannot be reasonably doubted that they are infringing the works that CST has the copyright to, to see to the immediate removal of them on penalty of a fine of HFl 5000 for each day that this order is not complied with; ORDERS the Service Providers, with the exception of v.o.f. Lunatech Research and its members and Dutch Channel Ltd, to inform the plaintiffs, within three days of a request to this effect, of the names and addresses of the third parties who publish and/or reproduce the said documents via their computer system, on penalty of a fine of HFl 5000 for each day that they do not (promptly) satisfy this request;

DISMISSES that which is claimed otherwise or in excess of the above;
DIVIDES the costs of the proceedings so that each party shall bear its own costs.

Thus judged by E.J. Numann, C.J. Verduyn and E.J. Arkenbout, pronounced in public on 9 June 1999, in the presence of the court clerk.

No. 00-1351 (CA-99-2594-JFM)
Appeal from the United States District Court for the District of Maryland, at Baltimore. J. Frederick Motz, Chief District Judge.
Argued: November 1, 2000
Decided: February 6, 2001
Before WIDENER, WILKINS, and NIEMEYER, Circuit Judges.
Affirmed in part, reversed in part, and remanded by published opinion. Judge Niemeyer wrote the opinion, in which Judge Widener and Judge Wilkins joined.
COUNSEL:
ARGUED: Harry Brett Siegel, LAW OFFICE OF JOEL MARC ABRAMSON, Columbia, Maryland, for Appellant. Robert R. Vieth, COOLEY GODWARD, L.L.P., Reston, Virginia, for Appellee. ON BRIEF: Robert T. Cahill, COOLEY GODWARD, L.L.P., Reston, Virginia, for Appellee.

OPINION

NIEMEYER, Circuit Judge:

We are presented with an issue of first impression whether an Internet service provider enjoys a safe harbor from copyright infringement liability as provided by Title II of the Digital Millennium Copyright Act (“DMCA”) when it is put on notice of infringement activity on its system by an imperfect notice. Because we conclude that the service provider was provided with a notice of infringing activity that substantiallycomplied with the Act, it may not rely on a claim of defective notice to maintain the immunity defense provided by the safe harbor. Accordingly, we reverse the ruling of the district court that found the notice fatally defective, and affirm its remaining rulings.

I.

ALS Scan, Inc., a Maryland corporation, is engaged in the business of creating and marketing “adult” photographs. It displays these pictures on the Internet to paying subscribers and also sells them through the media of CD ROMs and videotapes. ALS Scan is holder of the copyrights for all of these photographs.

RemarQ Communities, Inc., a Delaware corporation, is an online Internet service provider that provides access to its subscribing members. It has approximately 24,000 subscribers to its newsgroup base and provides access to over 30,000 newsgroups which cover thousands of subjects. These newsgroups, organized by topic, enable subscribers to participate in discussions on virtually any topic, such as fine arts, politics, religion, social issues, sports, and entertainment. For example, RemarQ provides access to a newsgroup entitled “Baltimore Orioles,” in which users share observations or materials about the Orioles. It claims that users post over one million articles a day in these newsgroups, which RemarQ removes after about 8-10 days to accommodate its limited server capacity. In providing access to newsgroups, RemarQ does not monitor, regulate, or censor the content of articles posted in the newsgroup by subscribing members. It does, however, have the ability to filter information contained in the newsgroups and to screen its members from logging onto certain newsgroups, such as those containing pornographic material.

Two of the newsgroups to which RemarQ provides its subscribers access contain ALS Scan’s name in the titles. These newsgroups “alt.als” and; quot; alt.binaries.pictures.erotica.als” contain hundreds of postings that infringe ALS Scan’s copyrights. These postings are placed in these newsgroups by RemarQ’s subscribers.
Upon discovering that RemarQ databases contained material that infringed ALS Scan’s copyrights, ALS Scan sent a letter, dated August 2, 1999, to RemarQ, stating:

Both of these newsgroups ["alt.als" and ;quot;alt.binaries.pictures.erotica.als"] were created for the sole purpose of violating our Federally filed Copyrights and Tradename. These newsgroups contain virtually all Federally Copyrighted images. . . . Your servers provide access to these illegally posted images and enable the illegal transmission of these images across state lines.

This is a cease and desist letter. You are hereby ordered to cease carrying these newsgroups within twenty-four (24) hours upon receipt of this correspondence . . . .
America Online, Erol’s, Mindspring, and others have all complied with our cease and desist order and no longer carry these newsgroups.
* * *
Our ALS Scan models can be identified at http://www.alsscan.com/modlinf2.html[.]

Our copyright information can be reviewed at http://www.alsscan.com/copyrite.html[.]

RemarQ responded by refusing to comply with ALS Scan’s demand but advising ALS Scan that RemarQ would eliminate individual infringing items from these newsgroups if ALS Scan identified them “with sufficient specificity.” ALS Scan answered that RemarQ had included over 10,000 copyrighted images belonging to ALS Scan in its newsgroups over the period of several months and that
[t]hese newsgroups have apparently been created by individuals for the express sole purpose of illegally posting, transferring and disseminating photographs that have been copyrighted by my client through both its websites and its CD-ROMs. The newsgroups, on their face from reviewing messages posted thereon, serve no other purpose.

When correspondence between the parties progressed no further to resolution of the dispute, ALS Scan commenced this action, alleging violations of the Copyright Act and Title II of the DMCA, as well as unfair competition. In its complaint, ALS Scan alleged that RemarQ possessed actual knowledge that the newsgroups contained infringing material but had “steadfastly refused to remove or block access to the material.” ALS Scan also alleged that RemarQ was put on notice by ALS Scan of the infringing material contained in its database. In addition to injunctive relief, ALS Scan demanded actual and statutory damages, as well as attorneys fees. It attached to its complaint affidavits establishing the essential elements of its claims.

In response, RemarQ filed a motion to dismiss the complaint or, in the alternative, for summary judgment, and also attached affidavits, stating that RemarQ was prepared to remove articles posted in its newsgroups if the allegedly infringing articles were specifically identified. It contended that because it is a provider of access to news groups, ALS Scan’s failure to comply with the DMCA notice requirements provided it with a defense to ALS Scan’s copyright infringement claim.

The district court ruled on RemarQ’s motion, stating, “[RemarQ's] motion to dismiss or for summary judgment is treated as one to dismiss and, as such, is granted.” In making this ruling, the district court held: (1) that RemarQ could not be held liable for direct copyright infringement merely because it provided access to a newsgroup containing infringing material; and (2) that RemarQ could not be held liable for contributory infringement because ALS Scan failed to comply with the notice requirements set forth in the DMCA, 17 U.S.C. §512(c)(3)(A). This appeal followed.

II.

ALS Scan contends first that the district court erred in dismissing its direct copyright infringement claim. It contends that it stated a cause of action for copyright infringement when it alleged (1) the “ownership of valid copyrights,” and (2) RemarQ’s violation of its copyrights “by allowing its members access to newsgroups containing infringing material.”)FN1] See generally Keeler Brass Co. v. Continental Brass Co., 862 F.2d 1063, 1065 (4th Cir. 1988) (describing the requirements of a direct infringement claim). In rejecting ALS Scan’s direct infringement claim, the district court relied on the decision in Religious Technology Center v. Netcom On-Line Communication Services, Inc., 907 F. Supp. 1361, 1368-73 (N.D. Cal. 1995), which concluded that when an Internet provider serves, without human intervention, as a passive conduit for copyrighted material, it is not liable as a direct infringer. The Netcom court reasoned that “it does not make sense to adopt a rule that could lead to liability of countless parties whose role in the infringement is nothing more than setting up and operating a system that is necessary for the functioning of the Internet.” Id. at 1372. That court observed that it would not be work able to hold “the entire Internet liable for activities that cannot reason ably be deterred.” Id.; see also Marobie-FL, Inc. v. National Ass’n of Fire Equip. Distribs., 983 F. Supp. 1167, 1176-79 (N.D. Ill. 1997) (agreeing with Netcom’s reasoning). ALS Scan argues, however, that the better reasoned position, contrary to that held in Netcom, is presented in Playboy Enterprises, Inc. v. Frena, 839 F. Supp. 1552, 1555- 59 (M.D. Fla. 1993), which held a computer bulletin board service provider liable for the copyright infringement when it failed to prevent the placement of plaintiff’s copyrighted photographs in its system, despite any proof that the provider had any knowledge of the infringing activities.

Although we find the Netcom court reasoning more persuasive, the ultimate conclusion on this point is controlled by Congress’ codification of the Netcom principles in Title II of the DMCA. As the House Report for that Act states, The bill distinguishes between direct infringement and secondary liability, treating each separately. This structure is consistent with evolving case law, and appropriate in light of the different legal bases for and policies behind the different forms of liability.

As to direct infringement, liability is ruled out for passive, automatic acts engaged in through a technological process initiated by another. Thus the bill essentially codifies the result in the leading and most thoughtful judicial decision to date: Religious Technology Center v. Netcom On-Line Communication Services, Inc., 907 F. Supp. 1361 (N.D. Cal. 1995). In doing so, it overrules these aspects of Playboy Enterprises, Inc. v. Frena, 839 F. Supp. 1552 (M.D. Fla. 1993), insofar as that case suggests that such acts by service providers could constitute direct infringement, and provides certainty that Netcom and its progeny, so far only a few district court cases, will be the law of the land.

H.R. Rep. No. 105-551(I), at 11 (1998). Accordingly, we address only ALS Scan’s claims brought under the DMCA itself.

III.

v.

MP3.COM, INC.,

Defendant.

JED S. RAKOFF, U.S.D.J.

The complex marvels of cyberspatial communication may create difficult legal ssues; but not in this case. Defendant’s infringement of plaintiffs’ copyrights is clear. Accordingly, on April 28, 2000, the Court granted defendant’s motion for partial summary judgment holding defendant liable for copyright infringement. This opinion will state the reasons why.
The pertinent facts, either undisputed or, where disputed, taken most Favorably to defendant, are as follows:

The technology known as “MP3″ permits rapid and efficient conversion of Compact disc recordings (“CDs”) to computer files easily accessed over the Internet. See generally Recording Industry Ass’n of America v. Diamond Multimedia Systems Inc., 180 F.3d 1072, 1073-74 (9th Cir. 1999). Utilizing this technology, defendant MP3.com, on or aroundJanuary 12, 2000, launched its “My.MP3.com” service, which it advertised as permitting subscribers to store, customize, and listen to the recordings contained on their CDs from any place where they have an Internet connection. To make good on this offer, defendant purchased tens of thousands of popular CDs in which plaintiffs held the copyrights, and, without authorization, copied their recordings onto its computer servers so as to be able to replay the recordings for its subscribers.

Specifically, in order to first access such a recording, a subscriber to MP3.com must either “prove” that he already owns the CD version of the recording by inserting his copy of the commercial CD into his computer CD-Rom drive for a few seconds (the “Beam-it Service”) or must purchase the CD From one of defendant’s cooperating online retailers (the “Instant Listening Service”). Thereafter, however, the subscriber can access via the Internet From a computer anywhere in the world the copy of plaintiffs’ recording made by defendant. Thus, although defendant seeks to portray its service as the “functional equivalent” of storing its subscribers’ CDs, in actuality defendant is re-playing for the subscribers converted versions of the recordings it copied, without authorization, from plaintiffs’ copyrighted CDs. On its face, this makes out a presumptive case of infringement under the Copyright Act of 1976 (‘”Copyright Act”), 17 U.S.C. $ 101 et sea.. See, e.g., Castle Rock Entertainment, Inc. v. Carol Publishing Group, Inc., 150 F.3d 132, 137 (2d Cir. 1998); Hasbro Bradley, Inc. v. Sparkle Toys, Inc., 780 F.2d 189, 192 (2d Cir. 1985).{1}

Defendant argues, however, that such copying is protected by the Affirmative defense of “fair use.” See 17 U.S.C. $ 107. In analyzing such a defense, the Copyright Act specifies four factors that must be considered: “(1) the Purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes; (2) the nature of the copyrighted work; (3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (4) the effect of the use upon the potential market for or value of the copyrighted work.” Id. Other relevant factors may also be considered, since fair use is an “equitable rule of reason” to be applied in light of the overall purposes of the Copyright Act. Sony Corporation of America v. Universal City Studios, Inc., 464 U.S. 417, 448, 454 (1984);

see Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 549 (1985).

Regarding the first factor — “the purpose and character of the use” –defendant does not dispute that its purpose is commercial, for while subscribers to My.MP3.com are not currently charged a fee, defendant seeks to attract a sufficiently large subscription base to draw advertising and otherwise make a profit. Consideration of the first factor, however, also involves inquiring into whether the new use essentially repeats the old or whether, instead, it “transforms” it by infusing it with new meaning, new understandings, or the like. See, e.g., Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994); Castle Rock, 150 F.3d at 142; see also Pierre N. Leval, “Toward a Fair Use Standard,” 103 Harv. L. Rev. 1105, 1111 (1990). Here, although defendant recites that My.MP3.com provides a transformative “space shift” by which subscribers can enjoy the sound recordings contained on their CDs without lugging around the physical discs themselves, this is simply another way of saying that the unauthorized copies are being retransmitted in another medium — an insufficient basis for any legitimate claim of transformation. See, e.g. Infinity Broadcast Corp. v. Kirkwood, 150 F.3d 104, 108 (2d Cir. 1998) (rejecting the fair use defense by operator of a service that retransmitted copyrighted radio broadcasts over telephone lines); Los Angeles News Serv. v. Reuters Television Int’l Ltd.. 149 F.3d 987 (9th Cir.1998) (rejecting the fair use defense where television news agencies copied copyrighted news footage and retransmitted it to news organizations), cert. denied, 525 U.S. 1141 (1999); see also American Geophysical Union v. Texaco Inc., 60 F.3d 913, 923 (2d Cir.), cert. dismissed, 516 U.S. 1005 (1995); Basic Books, Inc. v. Kinko’s Graphics Corp., 758 F. Supp. 1522, 1530-31 (S.D.N.Y. 1991); see generally Leval, su ra, at 1111 (repetition of copyrighted material that “merely repackages or republishes the original” is unlikely to be deemed a fair use).

Here, defendant adds no new “new aesthetics, new insights and understandings” to the original music recordings it copies, see Castle Rock, 150 F.3d at 142 (internal quotation marks omitted), but simply repackages those recordings to facilitate their transmission through another medium. While such services may be innovative, they are not transformative.{2}

Regarding the second factor — “the nature of the copyrighted work” – the creative recordings here being copied are “close[] to the core of intended copyright protection,” Campbell, 510 U.S. at 586, and, conversely, far removed from the more factual or descriptive work more amenable to “fair use,” see Nihon Keizai Shimbun, Inc. v. Comline Business Data, Inc., 166 F.3d 65, 72?73 (2d Cir. 1999); see also Castle Rock, 150 F.3d at 143-44.

Regarding the third factor — “the amount and substantiality of the portion [of the copyrighted work] used [by the copier] in relation to the copyrighted work as a whole” — it is undisputed that defendant copies, and replays, the entirety of the copyrighted works here in issue, thus again negating any claim of fair use. See Infinity Broadcast, 150 F.3d at 109 (“[T]he more of a copyrighted work that is taken, the less likely the use is to be fair . . . .”); see generally Leval, supra, at 1122 (“[T]he larger the volume . . . of what is taken, the greater the affront to the interests of the copyright owner, and the less likely that a taking will qualify as a fair use.”).

Regarding the fourth factor — “the effect of the use upon the potential Market for or value of the copyrighted work” –defendant’s activities on their Face invade plaintiffs’ statutory right to license their copyrighted sound recordings to others for reproduction. See 17 U.S.C. $ 106. Defendant, however, argues that, so far as the derivative market here involved is concerned, plaintiffs have not shown that such licensing is “traditional, reasonable, or likely to be developed.” American Geophysical, 60 F.3d at 930 & n.17. Moreover, defendant argues, its activities can only enhance plaintiffs’ sales, since subscribers cannot gain access to particular recordings made available by MP3.com unless they have already “purchased” (actually or purportedly), or agreed to purchase, their own CD copies of those recordings.

Such arguments — though dressed in the garb of an expert’s “opinion” (that, on inspection, consists almost entirely of speculative and conclusory statements) — are unpersuasive. Any allegedly positive impact of defendant’s activities on plaintiffs’ prior market in no way frees defendant to usurp a further market that directly derives from reproduction of the plaintiffs’ copyrighted works. See Infinity Broadcast, 150 F.3d at 111. This would be so even if the copyrightholder had not yet entered the new market in issue, for a copyrightholder’s “exclusive” rights, derived from the Constitution and the Copyright Act, include the right, within broad limits, to curb the Development of such a derivative market by refusing to license a copyrighted work or by doing so only on terms the copyright owner finds acceptable. See Castle Rock, 150 F.3d at 145?46; Salinger v. Random House, Inc., 811 F.2d 90, 99 (2d Cir.), cert. denied, 484 U.S. 890 (1987). Here, moreover, plaintiffs have adduced substantial evidence that they have in fact taken steps to enter that market by entering into various licensing agreements. See, e.g., Forrest R. Aff., Ex. F., Vidich Dep. at 61-63; id., Ex. N; Goodman R. Aff., Ex. B., Silver Dep. at 64-65; id., Ex. D, Eisenberg Dep. at 130-32; id., Ex. E., Evans Dep. 145-48.

Finally, regarding defendant’s purported reliance on other factors, see Campbell, 510 U.S. at 577, this essentially reduces to the claim that My.MP3.com provides a useful service to consumers that, in its absence, will be served by “pirates.” Copyright, however, is not designed to afford consumer protection or convenience but, rather, to protect the copyrightholders’ property interests. Moreover, as a practical matter, plaintiffs have indicated no objection in principle to licensing their recordings to companies like MP3.com; they simply want to make sure they get the remuneration the law reserves for them as holders of copyrights on creative works. Stripped to its essence, defendant’s “consumer protection” argument amounts to nothing more than a bald claim that defendant should be able to misappropriate plaintiffs’ property simply because there is a consumer demand for it. This hardly appeals to the conscience of equity.

In sum, on any view, defendant’s “fair use” defense is indefensible and must be denied as a matter of law. Defendant’s other affirmative defenses, such as copyright misuse, abandonment, unclean hands, and estoppel, are essentially frivolous and may be disposed of briefly. While defendant contends, under the rubric of copyright misuse, that plaintiffs are misusing their “dominant market position to selectively prosecute only certain online music technology companies,” Def.’s Consolidated Opp. to Pls.’ Motions for Summ. J. at 21, the admissible evidence of records shows only that plaintiffs have reasonably exercised their right to determine which infringers to pursue, and in which order to pursue them, cf. Broadcast Music, Inc. v. Peppermint Club, Inc., 1985 WL 6141, at *4 (N.D. Ohio Dec. 16, 1985). The abandonment defense must also fall since defendant has failed to adduce any competent evidence of an overt act indicating that plaintiffs, who filed suit against MP3.com shortly after MP3.com launched its infringing My.MP3.com service, intentionally abandoned their copyrights. See Richard Feiner & Co., Inc. v. H.R. Indus., Inc., 10 F. Supp. 2d 310, 313 (S.D.N.Y. 1998). Similarly, defendant’s estoppel defense Must be rejected because defendant has failed to provide any competent evidence That it relied on any action by plaintiffs with respect to defendant’s My.MP3.com service. Finally, the Court must reject defendant’s unclean hands defense given defendant’s failure to come forth with any admissible evidence showing bad faith or misconduct on the part of plaintiffs. See generally Dunlop McCullen v. Local 1-S, AFL-CIO-CLC, 149 F.3d 85, 90 (2d Cir. 1998); A.H. Emery Co. v. Marcan Prods Corn, 389 F.2d 11, 18 n.4 (2d Cir.), cert. denied, 393 U.S. 835 (1968).

The Court has also considered defendant’s other points and arguments and Finds them sufficiently without merit as not to warrant any further comment.
Accordingly, the Court, for the foregoing reasons, has determined that plaintiffs are entitled to partial summary judgment holding defendant to have infringed plaintiffs’ copyrights.
________________________
JED S. RAKOFF.
U.S.D.J

Dated: New York, New York
May 4, 2000

{1} Defendant’s only challenge to plaintiffs’ prima face case of infringement is the suggestion, buried in a footnote in its opposition papers, that its music computer files are not in fact “reproductions” of plaintiffs’ copyrighted works within the meaning of the Copyright Act. See, e.g., 17 U.S.C. $ 114(b). Specifically, defendant claims that the simulated sounds on MP3 based music files are not physically identical to the sounds on the original CD recordings. See Def.’s Consolidated Opp. to Pls.’ Motions for Partial Summ. J. at 13-14 n.9. Defendant concedes, however, that the human ear cannot detect a difference between the two. Id. Moreover, defendant admits that a goal of its copying is to create a music file that is sonically as identical to the original CD as possible. See Goodman Reply Aff., Robertson Dep., Ex. A, at 85. In such circumstances, some slight, humanly undetectable difference between the original and the copy does not qualify for exclusion from the coverage of the Act.

{2} Defendant’s reliance on the Ninth Circuit’s “reverse engineering” cases, see Sony Computer Entertainment, Inc. v. Connectix Corp., 203 F.3d 596 (9th Cir. 2000); Sega Enterprises Ltd. v. Accolade, Inc., 977 F.2d 1510, 1527 (9th Cir. 1993), is misplaced, because, among other relevant distinctions, those cases involved the copying of software in order to develop a new product, see Sony Computer Entertainment, 203 F.3d at 606; Sega Enterprises, 977 F.2d at 1522, whereas here defendant copied CDs onto its servers not to create any new form of expression but rather to retransmit the same expression in a different medium.

{3} The Court also finds no reason to alter or postpone its determination simply because of the recent filing of the complaint in Lester Chambers et al. v. Time Warner, Inc., et al. 00 Civ. 2839 (S.D.N.Y. filed Apr. 12, 2000) (JSR), the allegations of which, according to the defendant here, call into question the exclusivity of plaintiffs’ copyrights. The allegations of a complaint, having no evidentiary value, cannot defeat a motion for summary judgment.

17 March 2000
Source: Fax from Roman Kazan.
Roman Kazan has substantial information on the circumstances leading to this judgment. He may be telephoned at: (212) 888-8780, ext. 888. E-mail: roman@escape.com
Also see information at: http://www2.escape.com/dvdpress.html
This order was signed on March 17, 2000 by U.S. District Judge Lewis Kaplan, Southern District of New York. See: http://www.nysd.uscourts.gov/courtweb/

CRIMINAL ACTION NO. 9410092-RGS December 28, 1994MEMORANDUM OF DECISION AND ORDER ON DEFENDANT’S MOTION TO DISMISS STEARNS, D.J.

This case presents the issue of whether new wine can be poured into an old bottle. The facts, as seen in the light most favorable to the government, are these. The defendant, David LaMacchia, is a twenty-one year old student at the Massachusetts Institute of Technology (MIT). LaMacchia, a computer hacker, used MIT’s computer network to gain entree to the Internet. Using pseudonyms and an encrypted address, LaMacchia set up an electronic bulletin board which he named Cynosure.[1] He encouraged his correspondents to upload popular software applications (Excel 5.0 and WordPerfect 6.0) and computer games (Sim City 2000). These he transferred to a second encrypted address (Cynosure II) where they could be downloaded by other users with access to the Cynosure password. Although LaMacchia was at pains to impress the need for circumspection on the part of his subscribers, the worldwide traffic generated by the offer of free software attracted the notice of university and federal authorities.

On April 7, 1994, a federal grand jury returned a one count indictment charging LaMacchia with conspiring with “persons unknown” to violate 18 U.S.C. Sec. 1343, the wire fraud statute. According to the indictment, LaMacchia devised a scheme to defraud that had as its object the facilitation “on an international scale” of the “illegal copying and distribution of copyrighted software” without payment of licensing fees and royalties to software manufacturers and vendors. The indictment alleges that LaMacchia’s scheme caused losses of more than one million dollars to software copyright holders. The indictment does not allege that LaMacchia sought or derived any personal benefit from the scheme to defraud.

On September 30, 1994. the defendant brought a motion to dismiss, arguing that the government had improperly resorted to the wire fraud statute as a copyright enforcement tool in defiance of the Supreme Court’s decision in Dowling v. United States, 473 U.S. 207 (1985) The government argues that Dowling is a narrower case than LaMacchia would have it, and holds only that copyright infringement does not satisfy the physical “taking” requirement of the National Stolen Property Act, 18 U.S.C. Sec. 2314.

THE DOWLING DECISION

Paul Edmond Dowling was convicted of conspiracy, interstate transportation of stolen property [ITSP], copyright violations and mail fraud in the Central District of California. Dowling and his co-conspirators sold bootleg Elvis Presley recordings by soliciting catalogue orders from post office boxes in Glendale, California. The infringing recordings were shipped in interstate commerce to Maryland and Florida. The eight ITSP counts on which Dowling was convicted involved thousands of phonograph albums. “[E]ach album contained performances of copyrighted musical compositions for the use of which no licenses had been obtained nor royalties paid ….” Dowling, supra at 212. Dowling appealed his convictions (except those involving copyright infringement) The Ninth Circuit Court of Appeals affirmed. “[T]he [Ninth Circuit] reasoned that the rights of copyright owners in their protected property were indistinguishable from ownership interests in other types of property and were equally deserving of protection under the [stolen property] statute.” Id.

The Supreme Court granted certiorari only as to Dowling’s convictions for interstate transportation of stolen property.[2] The Court, in an opinion by Justice Blackmun, held that a copyrighted musical composition impressed on a bootleg phonograph record is not property that is “stolen, converted, or taken by fraud” within the meaning of the Stolen Property Act. Justice Blackmun emphasized that cases prosecuted under Sec. 2314 had traditionally involved “physical ‘goods, wares [or] merchandise.’” The statute “seems clearly to contemplate a physical identity between the items unlawfully obtained and those eventually transported, and hence some prior physical taking of the subject goods” Id at 216. In Dowling’s case there was no evidence “that Dowling wrongfully came by the phonorecords actually shipped or the physical materials from which they were made.” Dowling, supra at 214.

Justice Blackmun felt compelled, however, to answer the government’s argument that the unauthorized use of the underlying musical compositions was itself sufficient to render the offending phonorecords property “stolen, converted or taken by fraud.”

The Government’s theory here would make theft, conversion, or fraud equivalent to wrongful appropriation of statutorily protected rights in copyright. The copyright owner, however, holds no ordinary chattel. A copyright, like other intellectual property, comprises a series of carefully defined and carefully delimited interests to which the law affords correspondingly exact protections. Id. at 216.

A copyright, as Justice Blackmun explained, is unlike an ordinary chattel because the holder does not acquire exclusive dominion over the thing owned. The limited nature of the property interest conferred by copyright stems from an overriding First Amendment concern for the free dissemination of ideas. “The primary objective of copyright is not to reward the labor of authors. but ‘[t]o promote the Progress of Science and useful Arts.’ Art. I, Sec. 8, cl. 8.” Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 349 (1991). Data general Corp. v. Grumman Systems Support, 36 F.3d 1147, 1187 (1st Cir. 1994) (same). Justice Blackmun offered the “fair use” doctrine (17 U.S.C. Sec. 107) and the statutory scheme of compulsory licensing of musical compositions (17 U.S.C. Sec. 115) as examples of ways in which the property rights of a copyright holder are circumscribed by the Copyright Act.[3] Dowling, supra at 217.
It follows that interference with copyright does not easily equate with theft, conversion or fraud. The Copyright Act even employs a separate term of art to define one who misappropriates a copyright:

“Anyone who violates any of the exclusive rights of the copyright owner,” that is, anyone who trespasses into his exclusive domain by using or authorizing the use of the copyrighted work in one of the five ways set forth in the statute, “is an infringer of the copyright.” There is no dispute in this case that Dowling’s unauthorized inclusion on his bootleg albums of performances of copyrighted compositions constituted infringement of those copyrights. It is less clear, however, that the taking that occurs when an infringer arrogates the use of another’s protected work comfortably fits the terms associated with physical removal employed by Sec. 2314. The infringer invades a statutorily defined province guaranteed to the copyright holder alone. But he does not assume physical control over the copyright; nor does he wholly deprive its owner of its use. While one may colloquially like infringement with some general notion of wrongful appropriation, infringement plainly implicates a more complex set of property interests than does run-of-the-mill theft, conversion or fraud. As a result, it fits but awkwardly with the language Congress chose – “stolen, converted or taken by fraud” – to describe the sorts of goods whose interstate shipment Sec. 2314 makes criminal. Id at 217-218 (citations omited).

The ITSP statute, Justice Blackmun observed, had its roots in efforts by Congress to supplement the efforts of state authorities frustrated by jurisdictional problems arising from the transportation of stolen property across state lines. Id. at 219-220.

No such need for supplemental federal action has ever existed, however, with respect to copyright infringement, for the obvious reason that Congress always has had the bestowed authority to legislate directly in this area…. Given that power, it is implausible to suppose that Congress intended to combat the problem of copyright infringement by the circuitous route hypothesized by the government . . . In sum, the premise of Sec. 2314 — the need to fill with federal action an enforcement chasm created by limited state jurisdiction — simply does not apply to the conduct the Government seeks to reach here. Id at 220-221.
A review of the evolution of criminal penalties in the Copyright Act led Justice Blackmun to observe that:
“The history of the criminal infringement provisions of the Copyright Act reveals a good deal of care on Congress’ part before subjecting copyright infringement to serious criminal penalties…. In stark contrast, the Government’s theory of this case presupposes a congressional decision to bring the felony provisions of Sec. 2314, which make available the comparatively light fine of not more than $10,000 but the relatively harsh term of imprisonment of up to 10 years, to bear on the distribution of a sufficient quantity of any infringing goods simply because of the presence here of a factor-interstate transportation-not otherwise though relevant to copyright law. The Government thereby presumes congressional adoption of an indirect but blunderbuss solution to a problem treated with precision when considered directly. Id. at 225-226.
Finally, noting that the government’s expansive reading of the Stolen Property Act would have the unsettling effect of criminalizing a broad range of conduct involving copyright and other intellectual property that had been historically regulated by the civil laws, Justice Blackmun concluded that “the deliberation with which Congress over the last decade has addressed the problem of copyright infringement for profit, as well as the precision with which it has chosen to apply criminal penalties in this area, demonstrates anew the wisdom of leaving it to the legislature to define crime and prescribe penalties. Here, the language of Sec. 2314 does not ‘plainly and unmistakably’ cover petitioner Dowling’s conduct” Id at 228 (footnote omitted). Dowling’s ITSP convictions were reversed.

v.

MAPHIA, a businsess of unknown structure; PARSAC, a business of unknown structure; PSYCHOSIS, a business of unknown structure; CHAD SCHERMAN aka CHAD SHERMAN aka “BRUJJO DIGITAL,” and DOES 2-6 aka “OPERATOR,” “FIREHEAD,”"LION,” `HARD CORE,” “CANDYMAN,” all individually and d/b/a MAPHIA and PARSAC; HOWARD SILBERG by his mother and next friedn Ilene Silberg, aka “CAFFEINE,” and DOES 14-18 aka “APACHE,” ‘MAELSTROM,”"GAZZER,” “PARANOID/CHRYSEIS,”"DOOM” all individually and d/b/a PSYCHOSIS and PARSAC; DOES 7-12; DOES 19-25, Defendants.
NO. C 93-04262 CW
ORDER GRANTING SUMMARY ADJUDICATION OF LIABILITY AND A PERMANENT INJUNCTION WITH RESPECT TO DEFENDANT SHERMAN

Plaintiffs Sega Enterprises, Ltd. and Sega of America, Inc., (collectively “Sega”) filed this action for copyright infringement under 17 U.S.C. $$ 101 et seq., federal trademark infringement under 15 U.S.C. $$1051 et seq., federal unfair competition for false designation of origin under 15 U.S.C. $1125 (a), California trade name infringement under California Business and Professions Code $$ 14401 et seq. and California unfair competition under California Business and Professions Code $$14210, 17200-17203 against Defendant Chad Sherman and several other individuals operating on-line bulletin boards, and MAPHIA and other bulletin boards as businesses of unknown structure.

[1] This Court has jurisdiction over the causes of action arising under federal law pursuant to 28 U.S.C  $1338 (a), and has jurisdiction over the state causes of action pursuant to 28 U.S.C. $$ 1338(b).

Venue is proper in the federal district court where certain Defendants reside and where the alleged acts of trademark and copyright infringement occurred. 28 U.S.C.$$1391(b) and (c). Venue in the instant suit is proper in the Northern District of California.

After careful consideration of the parties’ papers and the record as a whole and good cause appearing, the Court GRANTS summary judgment regarding Sherman’s liability for copyright infringement, federal trademark infringement, federal unfair competition for false designation of origin, California trade name infringement and California unfair competition. The Court also GRANTS Sega’s request for a permanent injunction prohibiting further copying of SEGA games by way of the MAPHIA electronic bulletin board, or any bulletin board run by Sherman.

STATEMENT OF FACTS
I. Sega’s business

Sega [2] is a major manufacturer and distributor of computer video game systems and computer video game programs which are sold under the SEGA logo, its registered trademark. (Federal Registration No. 1,566,116, issued November 14, 1989). As part of its development process, Sega takes care to ensure the quality and reliability of the video game programs and products sold under SEGA trademarks.

Sega also owns the copyright for the game programs that Sega develops and has federal copyright registrations for several video games, including Jurassic Park and Sonic Spinball.

The Sega game system consists of two components, the base unit game console and software stored on video game cartridges which are inserted into the base unit. The base unit contains a microcomputer which, when connected to a cartridge and a television, permits an individual to play a video game stored on the inserted cartridge. The cartridge format is not susceptible to breakdown or erasure. Defective Sega cartridges are replaced by Sega.

Sega’s game system is designed to permit the user only to play video game programs contained in Sega cartridges. The system does not permit the copying of video game programs. Sega does not authorize the copying or distribution of its video game programs on other storage media such as floppy disks or hard disks.

Sega takes steps to keep its methods of developing video game programs, its works-in-progress, and the codes of its released products confidential, and the employees and contractors who work with Sega sign non-disclosure agreements regarding their work. Video game programs which are in development are referred to as “pre-release” programs. During the development period, pre-release software may be stored on cartridges, floppy disks or hard disks for internal use by Sega Upon completion of the program, however, the program is distributed only on cartridges.

II. MAPHIA Bulletin Board

Sherman is the system operator for MAPHIA, an electronic bulletin board. An electronic bulletin board (“BBS”) consists of electronic storage media, such as computer memories or hard disks, which are connected to telephone lines by modem devices, and are controlled by a computer. Users of BBSs can transfer information from their own computers to the storage media on the BBS by a process known as “uploading.” Users can also retrieve information from the BBS to their own computer memories by a process known as “downloading.” Video game programs, such as Sega’s video game programs, are among the kinds of information that can be transferred in these ways.

The software and computer hardware Sherman used to run MAPHIA is owned by him and located at his residence in San Francisco, California. The MAPHIA bulletin board is open to the public and has approximately 400 users who routinely download and upload files from and to the MPPHIA BBS. The users of this BBS are identified by a handle and a password. A handle is a pseudonym by which individuals are known to other users of the system. The password is not displayed to other users and is known only to the system operator and the authorized user.

The evidence shows that `Brujjo Digital” is the alias used by Sherman as the system operator of the MAPHIA BBS, and in communicating with others. For example, Sherman admitted that he was the system operator of the MAPHIA BBS, and the MAPHIA BBS indicates the Brujjo Digital is its operator.

III. Evidence collected from the seizure

This action was initiated after Sega allegedly received an anonymous tip that Sherman was a operating computer BBS which contained and distributed pirated and unauthorized versions of Sega’s video game software. Sega collected evidence of these activities by having a Sega employee gain access to the MAPHIA BBS under a pseudonym, using information supplied by an authorized user who was an informant.

Pursuant to the ex parte Temporary Restraining Order and Seizure Order issued by Judge Fern M. Smith of this Court on December 9, 1993, a search of Sherman’s premises was conducted. Pursuant to the Order, Sherman’s computer and memory devices were seized, the memory was copied, and the computers and other seized hardware were returned to Sherman, with the Sega games deleted.

Data from the MAPHIA BBS indicates that it is linked to another BBS called PSYCHOSIS, whose system operator is called Caffeine. This data also indicates that Sherman and the MAPHIA BBS are part of or linked to a network of BBSs, called PARSAC (also spelled “PARSEC” by Sherman), for business purposes. A newsletter displayed on the MAPHIA BBS refers to MAPHIA as the “WorldHeadquarters” for a group called “PARSEC” of which PSYCHOSIS is the “USHQ.” Sherman is the “acting world leader” of PARSAC. A message file located on Sherman’s computer, authored by Brujjo Digital, states:

NOTES WORTHY OF MENTION:

. . . You probably noticed that I am taking over the World Leader Position and that’s because I felt like I pulled alot of this together with ALOT ALOT of help from Caffeine …

. . .

PARSEC VOICE MAIL BOXES:

I’m setting up a VMB system at my house for PARSEC ONLY! … the kewl thing about it is that the VMB can page myself and Caffeine when an original game is ready for release or anything important comes up.

. . .

ADVERTISING CAMPAIGN:

As you know we have PARSEC TRADING CO. as our business that sells everything from Copiers to … I’ll have some Advertisements ready by the time I install Caffeine’s REXX DOOR to handle Customer’s Orders online at the !MAPHIA! like the system Caffeine runs on Psychosis . . .

. . .

NEW MEMBERS:

. . . We are selling … Super Magic Drivers … but me and Caffeine will handle all the business side of that . . .

At the time it was seized, the MAPHIA BBS contained unauthorized copies of 12 Sega games developed by Sega, ten Sega-licensed games, and six Sega pre-release or “beta” version games, developed in-house by Sega. The copies of Sega’s programs uploaded to and downloaded from the MAPHIA BBS are substantially similar to Sega’s video game programs as stored in the cartridges sold by Sega. Prior to the seizure, each of the Sega-developed and beta version games on the MAPHIA BBS was available for downloading by MAPHIA users who access the board through their own computers by modem telephone connections. Sega had U.S. copyright registration in at least two of the games found on the MAPHIA BBS, namely Jurassic Park and Sonic Spinball.

Sega games are generally listed on the MAPHIA BBS in a file area entitled “<<< !MAPHIA! >>> SEGA CONSOLES <<<” The games are identified by a “file descriptor” which includes the title of the game, the manufacturer, and either the word “SEGA” or “Sega,” the same word that is in the SEGA registered trademark. Additionally, the SEGA trademark appears on the screen whenever a Sega game which has been downloaded from the MAPHIA BBS is subsequently played. Sherman acknowledged that the SEGA trademark is displayed when the downloaded games are played.

The directory of video game programs available on MAPHIA also contains numerous references to video game programs containing “patches” or “fixes.” These words refer to user to user-introduced changes to problems which may have been introduced in the copying process or which existed in beta version games.

Printouts of the data on Sherman’s BBS seized pursuant to this Court’s Order and on-line data captured from Sherman’s BBS show that the uploading and downloading of unauthorized copies of Sega’s copyrighted video games was known to Sherman. Sherman acknowledges that users of the MAPHIA bulletin board were allowed to upload and download Sega games with the authorized password. A screen printout of user uploading and downloading statistics from his MAPHIA BBS shows that Sherman tracked, or at least had the ability to track, user uploads and downloads. Additionally, another message authored by Brujjo Digital and located on Sherman’s BBS states:

Please UPLOAD *ALL* the missing CONSOLE Files NOT HERE from the time I closed the !MAPHIA! Oct 17th until up to now!! Time to get some free credits for someone if you get them all in here and get me caught up.

Sherman also sold video game copiers, referred to as “Super Magic Drives” (“copiers”), through the MAPHIA BBS in collaboration with the PSYCHOSIS BBS, collectively known as PARSAC. Sherman’s business plan as described by his alias “Brujjo Digital,” states:

As you know we have PARSEC TRADING CO. as our business that sells everything from Copiers to Modems to Hard Drives to Calling Cards (off the record, hehe), and even Pentium Chips now. So, the next step is a MEDIA BLITZ! … I’ll have some Advertisements ready …

Also, we are selling Super Wild Cards, Pro Fighter Q’s and Super Magic Drives for AKIRA and that part of PARSEC will be dedicated for him but me and CAFFEINE will handle all the business side of that and paying him the money and dealing with the customers, etc.

According to a data file found on Howard Silberg’s computer, Parsec Trading has the following policy:

As You know, if you read the policies of PARSEC TRADING, each customer receives free-downloads up to ten (10) megabytes. This is so you can use your back-up unit and enjoy it! After your ten megabytes has been used up, you can donate $35 per month for a month of free-downloads, $200 for a year of free-downloads, or $500 for unlimited free-downloads.

A copier is necessary to play games which have been downloaded from the BBSs. The Super Magic Drive copier consists of a connector which plugs into the video game console, a receptacle which accepts video game cartridges, a main unit which contains a random access memory (RAM) to store games, and a floppy disk drive. A MAPHIA BBS user can download video programs through his or her computer onto a floppy disk and make copies with his or her computer or play those game programs through the adaptor drive. To play a downloaded game, the user can choose the “run program” option and run the video game program from the floppy disk without a video game cartridge.

The adaptor drive also allows the user to copy the contents of a game cartridge onto a floppy disk. The user plugs the video game copier into the game console and places a video game cartridge into the receptacle of the video game copier. The user then turns on the adaptor drive. Through a menu screen, the user can select the “dump” option which will permit the user to copy the contents of the cartridge to a floppy disk.

Sega has attempted to obtain additional information from Sherman through deposition and discovery. Sherman was deposed on March 1, 1994, at which time he refused to answer substantive questions by invoking his Fifth Amendment privilege.

EVIDENTIARY OBJECTIONS
I. Sega’s Motion to Strike Peterson’s First Declaration

ORDER DENYING DEFENDANT NETCOM’S MOTION FOR SUMMARY JUDGMENT; DENYING DEFENDANT KLEMESRUD’S MOTION FOR SUMMARY JUDGMENT ON THE PLEADINGS; AND DENYING PLAINTIFFS’ MOTION FOR PRELIMINARY INJUNCTION AGAINST NETCOM AND KLEMESRUD

This case concerns an issue of first impression regarding intellectual property rights in cyberspace.[1] Specifically, this order addresses whether the operator of a computer bulletin board service (“BBS”), and the large Internet [2] access provider that allows that BBS to reach the Internet, should be liable for copyright infringement committed by a subscriber of the BBS.
Plaintiffs Religious Technology Center (“RTC”) and Bridge Publications, Inc. (“BPI”) hold copyrights in the unpublished and published works of L. Ron Hubbard, the late founder of the Church of Scientology (“the Church”). Defendant Dennis Erlich (“Erlich”) [3] is a former minister of Scientology turned vocal critic of the Church, whose pulpit is now the Usenet newsgroup [4] alt.religion.scientology (“a.r.s.”), an on-line forum for discussion and criticism of Scientology. Plaintiffs maintain that Erlich infringed their copyrights when he posted portions of their works on a.r.s. Erlich gained his access to the Internet through defendant Thomas Klemesrud’s (“Klemesrud’s”) BBS “support.com.” Klemesrud is the operator of the BBS, which is run out of his home and has approximately 500 paying users. Klemesrud’s BBS is not directly linked to the Internet, but gains its connection through the facilities of defendant Netcom On-Line Communications, Inc. (“Netcom”), one of the largest providers of Internet access in the United States.

After failing to convince Erlich to stop his postings, plaintiffs contacted defendants Klemesrud and Netcom. Klemesrud responded to plaintiffs’ demands that Erlich be kept off his system by asking plaintiffs to prove that they owned the copyrights to the works posted by Erlich. However, plaintiffs refused Klemesrud’s request as unreasonable. Netcom similarly refused plaintiffs’ request that Erlich not be allowed to gain access to the Internet through its system. Netcom contended that it would be impossible to prescreen Erlich’s postings and that to kick Erlich off the Internet meant kicking off the hundreds of users of Klemesrud’s BBS. Consequently, plaintiffs named Klemesrud and Netcom in their suit against Erlich, although only on the copyright infringement claims.[5]

On June 23, 1995, this court heard the parties’ arguments on eight motions, three of which relate to Netcom and Klemesrud and are discussed in this order: (1) Netcom’s motion for summary judgment; (2) Klemesrud’s motion for judgment on the pleadings;[6] and (3) plaintiffs’ motion for a preliminary injunction against Netcom and Klemesrud. For the reasons set forth below, the court grants in part and denies in part Netcom’s motion for summary judgment and Klemesrud’s motion for judgment on the pleadings and denies plaintiffs’ motion for a preliminary injunction.

I. NETCOM’S MOTION FOR SUMMARY JUDGMENT OF NONINFRINGEMENT
A. Summary Judgment Standards.

Because the court is looking beyond the pleadings in examining this motion, it will be treated as a motion for summary judgment rather than a motion to dismiss. Grove v. Mead School District, 753 F.2d 1528, 1532 (9th Cir. 1985). Summary judgment is proper when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). There is a “genuine” issue of material fact only when there is sufficient evidence such that a reasonable juror could find for the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). Entry of summary judgment is mandated against a party if, after adequate time for discovery and upon motion, the party fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The court, however, must draw all justifiable inferences in favor of the nonmoving parties, including questions of credibility and of the weight to be accorded particular evidence. Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 520 (1991).

B. Copyright Infringement.

To establish a claim of copyright infringement, a plaintiff must demonstrate (1) ownership of a valid copyright and (2) “copying”[7] of protectable expression by the defendant. Baxter v. MCA, Inc., 812 F.2d 421, 423 (9th Cir.), cert. denied, 484 U.S. 954 (1987). Infringement occurs when a defendant violates one of the exclusive rights of the copyright holder. 17 U.S.C. 501(a). These rights include the right to reproduce the copyrighted work, the right to prepare derivative works, the right to distribute copies to the public, and the right to publicly display the work. 17 U.S.C. 106(1)-(3) & (5). The court has already determined that plaintiffs have established that they own the copyrights to all of the Exhibit A and B works, except item 4 of Exhibit A.[8] The court also found plaintiffs likely to succeed on their claim that defendant Erlich copied the Exhibit A and B works and was not entitled to a fair use defense. Plaintiffs argue that, although Netcom was not itself the source of any of the infringing materials on its system, it nonetheless should be liable for infringement, either directly, contributorily, or vicariously[9] Netcom disputes these theories of infringement and further argues that it is entitled to its own fair use defense.

1. Direct Infringement.

Infringement consists of the unauthorized exercise of one of the exclusive rights of the copyright holder delineated in section 106. 17 U.S.C. 501. Direct infringement does not require intent or any particular state of mind, [10] although willfulness is relevant to the award of statutory damages. 17 U.S.C. 504(c).
Many of the facts pertaining to this motion are undisputed. The court will address the relevant facts to determine whether a theory of direct infringement can be supported based on Netcom’s alleged reproduction of plaintiffs’ works. The court will look at one controlling Ninth Circuit decision addressing copying in the context of computers and two district court opinions addressing the liability of BBS operators for the infringing activities of subscribers. The court will additionally examine whether Netcom is liable for infringing plaintiffs’ exclusive rights to publicly distribute and display their works.

a. Undisputed Facts

The parties do not dispute the basic processes that occur when Erlich posts his allegedly infringing messages to a.r.s. Erlich connects to Klemesrud’s BBS using a telephone and a modem. Erlich then transmits his messages to Klemesrud’s computer, where they are automatically briefly stored. According to a prearranged pattern established by Netcom’s software, Erlich’s initial act of posting a message to the Usenet results in the automatic copying of Erlich’s message from Klemesrud’s computer onto Netcom’s computer and onto other computers on the Usenet. In order to ease transmission and for the convenience of Usenet users, Usenet servers maintain postings from newsgroups for a short period of time–eleven days for Netcom’s system and three days for Klemesrud’s system. Once on Netcom’s computers, messages are available to Netcom’s customers and Usenet neighbors, who may then download the messages to their own computers. Netcom’s local server makes available its postings to a group of Usenet servers, which do the same for other servers until all Usenet sites worldwide have obtained access to the postings, which takes a matter of hours. Francis Decl. 5.

Unlike some other large on-line service providers, such as CompuServe, America Online, and Prodigy, Netcom does not create or control the content of the information available to its subscribers. It also does not monitor messages as they are posted. It has, however, suspended the accounts of subscribers who violated its terms and conditions, such as where they had commercial software in their posted files. Netcom admits that, although not currently configured to do this, it may be possible to reprogram its system to screen postings containing particular words or coming from particular individuals. Netcom, however, took no action after it was told by plaintiffs that Erlich had posted messages through Netcom’s system that violated plaintiffs’ copyrights, instead claiming that it could not shut out Erlich without shutting out all of the users of Klemesrud’s BBS.

b. Creation of Fixed Copies.

The Ninth Circuit addressed the question of what constitutes infringement in the context of storage of digital information in a computer’s random access memory (“RAM”). MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 518 (9th Cir. 1993). In MAI, the Ninth Circuit upheld a finding of copyright infringement where a repair person, who was not authorized to use the computer owner’s licensed operating system software, turned on the computer, thus loading the operating system into RAM for long enough to check an “error log.” Id. at 518-19. Copyright protection subsists in original works of authorship “fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device.” 17 U.S.C. 102 (emphasis added). A work is “fixed” when its “embodiment in a copy . . . is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration.” Id. 101. MAI established that the loading of data from a storage device into RAM constitutes copying because that data stays in RAM long enough for it to be perceived. MAI Systems, 991 F.2d at 518.

In the present case, there is no question after MAI that “copies” were created, as Erlich’s act of sending a message to a.r.s. caused reproductions of portions of plaintiffs’ works on both Klemesrud’s and Netcom’s storage devices. Even though the messages remained on their systems for at most eleven days, they were sufficiently “fixed” to constitute recognizable copies under the Copyright Act. See Information Infrastructure Task Force, Intellectual Property and the National Information Infrastructure: The Report of the Working Group on Intellectual Property Rights 66 (1995) (“IITF Report”).

c. Is Netcom Directly Liable for Making the Copies?

Accepting that copies were made, Netcom argues that Erlich, and not Netcom, is directly liable for the copying. MAI did not address the question raised in this case: whether possessors of computers are liable for incidental copies automatically made on their computers using their software as part of a process initiated by a third party. Netcom correctly distinguishes MAI on the ground that Netcom did not take any affirmative action that directly resulted in copying plaintiffs’ works other than by installing and maintaining a system whereby software automatically forwards messages received from subscribers onto the Usenet, and temporarily stores copies on its system. Netcom’s actions, to the extent that they created a copy of plaintiffs’ works, were necessary to having a working system for transmitting Usenet postings to and from the Internet. Unlike the defendants in MAI, neither Netcom nor Klemesrud initiated the copying. The defendants in MAI turned on their customers’ computers thereby creating temporary copies of the operating system, whereas Netcom’s and Klemesrud’s systems can operate without any human intervention. Thus, unlike MAI, the mere fact that Netcom’s system incidentally makes temporary copies of Plaintiffs’ works does not mean Netcom has caused the copying.[11] The court believes that Netcom’s act of designing or implementing a system that automatically and uniformly creates temporary copies of all data sent through it is not unlike that of the owner of a copying machine who lets the public make copies with it.[12] Although some of the people using the machine may directly infringe copyrights, courts analyze the machine owner’s liability under the rubric of contributory infringement, not direct infringement. See, e.g., RCA Records v. All-Fast System, Inc., 594 F. Supp. 335 (S.D.N.Y. 1984); 3 Melville B. Nimmer & David Nimmer, NIMMER ON COPYRIGHT 12.04[A][2][b], at 12-78 to – 79 (1995) (“NIMMER ON COPYRIGHT”); Elkin-Koren, supra, at 363 (arguing that “contributory infringement is more appropriate for dealing with BBS liability, first because it focuses attention on the BBS-users relationship and the way imposing liability on BBS operators may shape this relationship, and second because it better addresses the complexity of the relationship between BBS operators and subscribers”). Plaintiffs’ theory would create many separate acts of infringement and, carried to its natural extreme, would lead to unreasonable liability. It is not difficult to conclude that Erlich infringes by copying a protected work onto this computer and by posting a message to a newsgroup. However, plaintiffs’ theory further implicates a Usenet server that carriers Erlich’s message to other servers regardless of whether that server acts without any human intervention beyond the initial setting up of the system. It would also result in liability for every single Usenet server in the worldwide link of computers transmitting Erlich’s message to every other computer. These parties, who are liable under plaintiffs’ theory, do no more than operate or implement a system that is essential if Usenet messages are to be widely distributed. There is no need to construe the Act to make all of these parties infringers. Although copyright is a strict liability statute, there should still be some element of violation or causation which is lacking where a defendant’s system is merely used to create a copy by a third party.

Plaintiffs point out that the infringing copies resided for eleven days on Netcom’s computer and were sent out from it onto the “Information Superhighway.” However, under plaintiffs’ theory, any storage of a copy that occurs in the process of sending a message to the Usenet is an infringement. While it is possible that less “damage” would have been done if Netcom had heeded plaintiffs’ warnings and acted to prevent Erlich’s message from being forwarded, [13] this is not relevant to its direct liability for copying. The same argument is true of Klemesrud and any Usenet server. Whether a defendant makes a direct copy that constitutes infringement cannot depend on whether it received a warning to delete the message. See D.C. Comics, Inc. v. Mini Gift, 912 F.2d 29, 35 (2d Cir. 1990). This distinction may be relevant to contributory infringement, however, where knowledge is an element,. See infra part I.B.2.a.
The court will now consider two district court opinions that have addressed the liability of BBS operators for infringing files uploaded by subscribers.

d. Playboy Case.

Playboy Enterprises, Inc. v. Frena involved a suit against the operator of a small BBS whose system contained files of erotic pictures. 839 F. Supp. 1552, 1534 (M.D. Fla. 1993). A subscriber of the defendant’s BBS had uploaded files containing digitized pictures copied from the plaintiff’s copyrighted magazine, which files remained on the BBS for other subscribers to download. Id. The court did not conclude, as plaintiffs suggest in this case, that the BBS is itself liable for the unauthorized reproduction of plaintiffs’ work; instead, the court concluded that the BBS operator was liable for violating the plaintiff’s right to publicly distribute and display copies of its work. Id. at 1556-57.

In support of their argument that Netcom is directly liable for copying plaintiffs’ works, plaintiffs cite to the court’s conclusion that “[t]here is no dispute that [the BBS operator] supplied a product containing unauthorized copies of a copyrighted work. It does not matter that [the BBS operator] claims he did not make the copies [him]self. Id. at 1556. It is clear from the context of this discussion[14] that the Playboy court was looking only at the exclusive right to distribute copies to the public, where liability exists regardless of whether the defendant makes copies. Here, however, plaintiffs do not argue that Netcom is liable for its public distribution of copies. Instead, they claim that Netcom is liable because its computers in fact made copies. Therefore, the above-quoted language has no bearing on the issue of direct liability for unauthorized reproductions. Notwithstanding Playboy’s holding that a BBS operator may be directly liable for distributing or displaying to the public copies of protected works,[15] this court holds that the storage on a defendant’s system of infringing copies and retransmission to other servers is not a direct infringement by the BBS operator of the exclusive right to reproduce the work where such copies are uploaded by an infringing user. Playboy does not hold otherwise.[16]

e. Sega Case.

A court in this district addressed the issue of whether a BBS operator is liable for copyright infringement where it solicited subscribers to upload files containing copyrighted materials to the BBS that were available for others to download. Sega Enterprises Ltd. v. MAPHIA, 857 F. Supp. 679, 683 (N.D. Cal. 1994). The defendant’s “MAPHIA” BBS contained copies of plaintiff Sega’s video game programs that were uploaded by users. Id. at 683. The defendant solicited the uploading of such programs and received consideration for the right to download files. Id. Access was given for a fee or to those purchasing the defendant’s hardware device that allowed Sega video game cartridges to be copied. Id. at 683-84. The court granted a preliminary injunction against the defendant, finding that plaintiffs had shown a prima facie case of direct and contributory infringement. Id. at 687. The court found that copies were made by unknown users of the BBS when files were uploaded and downloaded. Id. Further, the court found that the defendant’s knowledge of the infringing activities, encouragement, direction and provision of the facilities through his operation of the BBS constituted contributory infringement, even though the defendant did not know exactly when files were uploaded or downloaded. Id. at 686-87.
This court is not convinced that Sega provides support for a finding of direct infringement where copies are made on a defendant’s BBS by users who upload files. Although there is some language in Sega regarding direct infringement, it is entirely conclusory:

KANE, J.

On August 21, 1995 Religious Technology Center (“RTC”), a California non-profit corporation, filed a verified complaint against Lawrence Wollersheim, Robert Penny and F.A.C.T.NET, Inc. (“FACTNET”) for injunctive relief and damages for copyright infringement (17 U.S.C. $ 501) and trade secrets misappropriation (Colo. Rev. Stat. $ 7-74-102 to -110 (1986)).
Jurisdiction is based on 28 U.S.C. $$ 1331 and 1338(a) and (b) in that this is an action for copyright infringement under 17 U.S.C. $ 501. Supplemental jurisdiction exists under 28 U.S.C. $ 1367 over the trade secrets misappropriation claim, which RTC alleges arises out of the same transaction and occurrences.
Before me is RTC’s motion for preliminary injunction.

Background

RTC is one of the formal entities constituting the Church of Scientology (the “Church”) founded by L. Ron Hubbard. FACTNET is a non-profit educational and charitable corporation registered and with its principle place of business in Colorado. Wollersheim and Penny are former Scientologists. Wollersheim serves as President of the Board and Executive Director of FACTNET and Penny is a member of the FACTNET Board.Defendants, operating on minimal financial resources, maintain a library and archive information concerning, inter alia, an ongoing public controversy regarding the Church’s status as a religious tax exempt organization and charges that its practices involve harmful psychological coercion which has resulted in mental and physical harm to a significant number of its adherents.

Much of the information maintained by Defendants is made available publicly on FACTNET’s Bulletin Board Service on the international computer network known as the Internet. Other data is stored in a private portion of the FACTNET library which includes information concerning and provided by former Scientologists and their families.

RTC alleges Defendants have placed on the Internet unauthorized copies of unpublished religious works called OT materials, often referred to as “Advanced Technology.” They list the materials in issue (“the Works”) in Exhibit “A” to the complaint.
RTC maintains it has the exclusive license to the Works. It asserts the materials consist of unpublished works of L. Ron Hubbard, the founder of the Church of Scientology. The Church only permits access to each of the works to members who have attained the proper level of spiritual enlightenment and made the requisite financial contributions. Such access is through a highly controlled system known as “auditing” involving supervision by a senior member of the Church. RTC claims the Works are available at only seven sites around the world and are never removed from these locations.

Defendants maintain any of the Works in its possession were obtained lawfully and are maintained in the non-public section of Defendants’ library. Wollersheim has provided consulting services to lawyers representing clients in litigation involving the Church but denied making copies of the Works for this purpose. Defendants assert they have not posted any of the works to the Internet for public availability and that it is their policy not to do so.

According to Wollersheim, the only deviation from this policy was between August 1 and August 3, 1995, when, due to miscommunication, Arnold P. Lerma, a FACTNET director posted some of the works to the Internet. The portions of the works published by Lerma had been part of an unsealed public court record in the Central District of California in Church of Scientology International v. Fishman, No. CV 91-6426 HLH (Tx) C.D. Cal. These materials were attached to an affidavit filed by Fishman in that case. Wollersheim testified he received a copy of the affidavit from Fishman’s counsel in the course of the consulting services Wollersheim provided in that case.

On August 15, 1995, Defendants posted a message to a newsgroup on the Internet claiming Lerma had acted on their behalf and with their endorsement and that they stood behind his actions.

Procedural History

On August 21, 1995, Judge Babcock, ruling on ex parte motions, granted a temporary restraining order against Defendants. His order restrained Defendants from the unauthorized copying, use or reproduction of the works identified in Exhibit “A” to the complaint or any other part of the works that are part of the Advanced Technology, in particular the copying into “any computer data base, information service, storage facility, archives, or other computerized network or facility.” The order further restrained the destruction or concealing by Defendants of such works in their possession. It also required RTC to file a bond in the amount of $10,000 with the court forthwith.

Judge Babcock set a hearing for a preliminary injunction before me on August 25, 1995 due to his being unavailable on that date. Judge Babcock ordered Defendants to deliver the infringing articles within their possession and control into the custody of RTC’s counsel. In this regard, he issued a writ of seizure and ordered a portion of the court file sealed until execution of the writ of seizure. Judge Babcock also granted RTC’s motion for expedited discovery, ordering the depositions of all three Defendants to take place on August 23, 1995. On August 22, 1995, extensive materials, including computer equipment, computer software and voluminous documents were seized from Defendants’ premises pursuant to the writ. They were placed in the custody of RTC’s counsel who proceeded to search for allegedly infringing materials.

On August 23, 1995, Defendants filed motions for a protective order, for temporary stay of expedited discovery and to require immediate delivery of confidential, proprietary, and privileged documents belonging to Defendants to their counsel of record, Thomas B. Kelley. RTC filed an opposition to the motion for a stay. On August 24, 1995 I ordered an extension of the time for taking the depositions of Defendants and an extension of the restraining order until September 8, 1995 when the preliminary injunction hearing commenced. On August 25, 1995 I ordered Defendant’s counsel or his representative be allowed to be present while plaintiff’s counsel searched the impounded evidence. I further ordered any items to which Defendants’ might claim privilege to be segregated from the materials impounded and handed over to the court.

The preliminary injunction hearing took place before me on September 8, 11, and 12, 1995. At the termination thereof, I issued an oral ruling. I denied RTC’s request for a preliminary injunction and ordered RTC to return and restore to the Defendants all seized materials. I ordered Defendants to maintain the status quo as to the possession of all copyrighted materials at issue in the case and restricted each of Defendants to making only fair use of the materials. I reserved the right to clarify my oral order by way of a written opinion. This is that opinion.

Preliminary Injunction

I have authority to issue a preliminary injunction under Federal Rule of Civil Procedure 65. In addition, the Copyright Act specifically authorizes me to grant a preliminary injunction “on such terms as [I] may deem reasonable to prevent or restrain infringement of a copyright.” 17 U.S.C. $502. The Colorado Uniform Trade Secrets Act similarly grants me the power to grant injunctive relief “to prevent or restrain actual or threatened misappropriation of a trade secret.”

A preliminary injunction is an extraordinary remedy providing the potential for considerable harm yet its emergency nature does not afford the court the usual degree of careful consideration afforded by the deliberative processes of a trial. As a consequence, the issuance of such an injunction, like the power of contempt, is one which is at best used sparingly, if at all.
Moreover, the very purpose of an injunction is to preserve the status quo ante. That is a rather elegant piece of Latin which means the last existing state of peaceable, noncontested conditions which preceded the pending controversy. I will not dwell on this, but it is helpful to observe that our legal forefathers were not fools; the complete phrase is status quo ante bellum which literally means “the state of things before the war began.”

Given this purpose and the caution the law prescribes there are four basic considerations or findings which must be made before an injunction can issue. These same four factors likewise assist in determining the scope of the injunction and the conditions which attach to it. A party seeking injunctive relief must establish:

1. it will suffer irreparable injury unless the injunction issues;
2. the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party;
3. the injunction would not be adverse to the public interest;
and
4. substantial likelihood that the movant will eventually prevail on the merits.

Walmer v. United States Dep’t of Defense, 52 F.3d 851, 854 (10th Cir. 1995). The Tenth Circuit has adopted a modified interpretation of the fourth “likelihood of success” element. Id. “If the movant has satisfied the first three requirements for a preliminary injunction, the movant may establish likelihood of success by showing questions going to the merits so serious, substantial, difficult and doubtful, as to make the issues ripe for litigation and deserving of more deliberative investigation.” Id. This modified test applies, however, only where the first three requirements are satisfied.

Similarly, the less rigorous test for injunctive relief sometimes employed in copyright cases is only applicable where the plaintiff has made a prima facie showing of infringement. See, e.g., Financial Control Assoc’s v. Equity Builders, Inc., 799 F. Supp. 1103, 1113 (D. Kan. 1992); 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright $ 14.06 [A] (1995). The circumstances of this case warrant consideration and balancing of all four factors.

Substantial Likelihood of Success on the Merits.

v.

WEBBWORLD, INC., d/b/a NEPTICS.COM, BENTLEY IVES, JAMES GURKIN, and BENJAMIN ELLIS,
Defendants

Case No. 3-96-CV-3222-DES

The Internet, often referred to as the “Information Superhighway,” consists of information transmitted from computer to computer via telephone lines. Internet Access Providers (“IAPs”), such as America Online and Netcom, enable computer users to access the Information Superhighway by providing the necessary electronic “on-ramps.” Once a computer user has gained access to the Internet through an IAP, that user may “visit” one of the many specific “locations” on the Internet called “websites.” Many thousands of commercial and non-commercial computer users operate websites to exchange information or to advertise goods and services to potential customers. To connect with a website, an Internet user, who has already gained access to the Internet through an IAP, simply types the website’s Internet address on the user’s keyboard.

Webbworld operates an Internet website called Neptics, Inc. (“Neptics”). The Neptics website makes adult images available to any Internet user who chooses to access the website. However, before being allowed to view Neptics’ images, the Internet user must first pay Webbworld’s subscription fee of $11.95 per month, a transaction which can be completed “on-line” with a major credit card. Over a period of several months, images were available through the Neptics’ website which were originally created by or for Playboy Entetprises

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Inc. (Playboy”), and which previously appeared in one of Playboy’s copyrighted magazines.

II. SUMMARY JUDGMENT STANDARD

A court shall render summary judgment upon a showing that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). The rule provides that “the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1985). The substantive law identifies which facts are material. Id. at 248. A dispute over a material fact is genuine when the evidence is such that a reasonable jury could find for the nonmovant. Id. “Only disputes over facts that might properly affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Id.

The movant has the initial burden of showing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1985). The movant may discharge its burden “by ’showing’–that is, pointing out to the district court–that there is an absence of evidence to support the nonmoving party’s case.”

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Id. at 325. The movant need not negate the nonmovant’s claim. Id. at 323.

Once the movant makes a properly supported motion, the nonmovant must do more than merely show there is some metaphysical doubt as to the material facts. Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586, (1985). The nonmovant must go beyond the pleadings and, by affidavits or depositions, answers to interrogatories, and admissions on file, designate specific facts showing there is a genuine issue for trial. Celotex, 477 U.S. at 324, (interpreting Fed. R. Civ. P. 56(e)). Rule 56(c) requires the court to enter summary judgment against a nonmovant who fails to make a showing sufficient to establish the existence of an essential element to that party’s case, and on which that party will bear the burden ofproof. Id. at 322. Such a complete failure of proof on an essential element of the nonmovant’s case renders all other facts immaterial. Id. at 323.

A court must view the facts in the light most favorable to the nonmovant and allow the nonmovant the benefit of all reasonable inferences to be drawn from the evidence. See, e.g., Thomas v. LTV Corp., 39 F.3d 611, 616 (5th Cir. 1994). The court’s function is not to weigh the evidence, but merely to determine whether there is sufficient evidence favoring the nonmovant for a finder of fact to

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return a verdict in that party’s favor. Anderson, 477 U.S. at 249. Essentially, the court performs the threshold inquiry of determining whether a trial is necessary. Id. at 250.

III. DISCUSSION

A. Copyright Infringement

The Copyright Act of 1976 (“Copyright Act”) provides that an owner of a copyrighted work has the exclusive right to reproduce the work in copies, to prepare derivative works based on the copyrighted work, to distribute copies of the work to the public, and, in the case of certain types of works, to perform and display the work publicly. 17 U.S.C. Section 106. It also provides that “[a]nyone who violates any of the exclusive rights of the copyright owner as provided by sections 106 through 118 … is an infringer of the copyright.” 17 U.S.C. Section 501(a).

To establish a prima facie case of copyright infringement, the plaintiff must prove “ownership” of copyrighted material and “copying” by the defendant. Norma Ribbon & Trimming, Inc. v. Little, 51 F.3d 45, 47 (5th Cir. 1995) (citing Lakedreams v. Taylor, 932 F.2d 1103, 1107 (5th Cir.1991). Infringement occurs when a defendant violates one ofthe exclusive rights of the copyright holder. 17 U.S.C. Section 50l(a). These rights include the right to reproduce the copyrighted work, the right to prepare derivative

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works, the right to distribute copies to the public, and the right to publicly display the work. 17 U.S.C. Sections 106(1)-(3) & (5). The copyright owner need not prove knowledge or intent on the part ofthe defendant to establish liability for direct copyright infringement. 17 U.S.C. Section 504(c). See, e.g., Playboy Enterprises, Inc. v. Frena, 839 F.Supp. 1552, 1559 (M.D. Fla. 1993) (“lntent or knowledge is not an element of infiingement….”).

A plaintiff establishes “ownership” by demonstrating that the material is “copyrightable” and that he complied with the statutory requirements in securing the copyright. Central Point Software, Inc. v. Nugent, 903 F.Supp. 1057, 1057 (E.D. Tex. I995). In this case, plaintiff has provided the court with copies of the Certificates of Copyright Registration establishing that Playboy is the owner of the copyright for each of the magazines from which the Neptics’ images were copied. These copyright registrations are prima facie evidence of the validity of the copyrights and the information contained in the certificates. 17 U.S.C. Section 410(c); Central Point Software, Inc. v. Nugent, 903 F.Supp. at 1059. Defendants present no evidence tending to disprove the validity of any of the certificates of registration, or of any of the information cited therein. Accordingly, the court finds that

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Playboy has properly established its ownership of the copyrighted images at issue.

Copying is generally established by showing the defendant had access to the copyrighted material and that there is a substantial similarity between the two works. Norma Ribbon, 51 F.3d at 47 (citing Allied Mktg. Group, Inc. v. CDL Mktg., Inc., 878 F.2d 806, 810-11 (5th Cir.1989). A plaintiff can also establish copying, without a showing of access, by showing that “the two works are so strikingly similar as to preclude the possibility of independent creation.” Ferguson v. National Broadcasting Co., Inc., 584 F.2d 111, 113 (5th Cir. 1978). Here, plaintiffs establish the copying requirement by providing the court with the affidavit of Mr. Gene Snyder. Mr. Snyder, who is employed by Playboy as its Electronic infringement Research Assistant, subscribed to defendants’ website. His affidavit and accompanying exhibits demonstrate that the images in issue were stored in defendants’ “web server” computers and available for downloading by subscribers. The images retrieved by Mr. Snyder from the Neptic’s website are virtually identical to those images which previously appeared in one of Playboy’s copyrighted magazines. Defendants, however, object to consideration by the court of the material presented in Mr. Snyder’s affidavit (“Affidavit”). Defendants contend that the Affidavit fails to comply

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with Fed. R. Civ. P. 59(e) because Mr. Snyder lacked personal knowledge and his statements were conclusory. The court is not convinced by this argument and finds that plaintiff has established a prima facie case of copyright infringement.

The court will next examine, in light of the standard for summary judgment, whether defendants can establish any defenses to plaintiff’s prima facie case of copyright infringement. Defendants first argue that this case falls within the scope of Religious Technology Center v. Netcom On-Line Communication Services, Inc., 907 F.Supp. 1361 (N.D. Cal. 1995) (referred to hereafter as “RTC”) RTC involved a claim for direct copyright infringement against Netcom On-Line: Communications Services (“Netcom”), one of the largest IAPs in the United States. Id. at 1366. Netcom was sued because it provided Internet access to a private Bulletin Board Service (“BBS”) to which infringing material was being posted. Id. at 1365-68. The court found that Netcom was not liable for direct infringement because “Netcom does not create or control the content of the information available to its subscribers; it merely provides access to the Internet, whose content is controlled by no single entity.” Id. at 1372 (emphasis in original).

This court finds that defendants’ reliance on RTC is misplaced. As plaintiff points out, a Neptics subscriber, unlike a Netcom

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customer, cannot gain access to the Internet using Neptics. The Neptics subscriber must first get onto the Internet using a separate IAP, such as Netcom. Only after gaining access to the Internet can the subscriber connect with the Neptics website. Where Netcom gets paid for providing Internet access for its customers, Neptics gets paid for selling the images it stores on its computers. Defendants argue that Neptics, like Netcom, it is nothing more than an information conduit. Defendants provide no evidence, however, to support this theory other than an implied similarity arising out of its discussion of the RTC case. Indeed, the deposition testimony of Webbworld’s Systems Manager, Mr. Brian Ellis, makes it clear that Neptics’ function is not to provide Internet access, but rather to provide its subscribers with adult images which are contained in the storage devices of its computers.

Webbworld also argues that it cannot be held liable for copyright infringement because it has no control over the persons who are posting the infringing images to the adult newsgroups from which Neptics obtains its material. While this may be true, Neptics surely has control over the images it chooses to sell on the Neptics’ website. Even the absence of the ability to exercise such control, however, is no defense to liability. If a business cannot be

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operated within the bounds of the Copyright Act, then perhaps the question of its legitimate existence needs to be addressed.

Finally, defendants attempt to avoid summary judgment by claiming that Playboy’s “rabbit head” design was added to some of the infringing images after they were downloaded from the Neptics website. Plaintiff points out that, a copyrighted image is infringed when it is reproduced without permission, whether or not it appears in association with a trademark or other identifying mark. See 17 U.S.C. Section __. Nevertheless, defendants do provide evidence, in the form of Mr. Ellis’ deposition testimony, that Playboy’s “rabbit head” design was added to some of the infiinging images after they had been retrieved from the Neptics’ website. In light of this factual dispute, it would be improper for the court to grant plaintiff’s summary judgment motion with respect to those images affected by defendants’ claim of tampering. However, this factual dispute only affects sixteen of the seventy-eight copyrighted images at issue. This is because only sixteen of the seventy-eight asserted copyrights depend on plaintiffs “rabbit head” design to identify Playboy as the source of Neptic’s infringing copies. Defendants’ infringements of the remaining sixty-two copyright registrations include unauthorized copies of Playboy’s magazine covers or photographs which bear one of Playboy’s trademarks.

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B. Statutory Damages

Plaintiff has elected, under 17 U.S.C. Section 504(c), to recover statutory damages. Statutory damages provide for a sum of not less than $500 or more than $20,000 as the court deems just to be awarded to the copyright owner. The court may exercise its discretion and award up to $100,000 for willful infringement. 17 U.S.C. Section 504(c)(2). The Fifth Circuit has defined willful infringement as infringement wherein a defendant: “knows his actions constitute an infringement….” Broadcast Music, Inc. v. Xanthas, Inc., 855 F.2d 233, 236 (5th Cir. 1988). The statute invests the trial court with wide discretion to set damages within the statutoty limits. Broadcast Music, Inc. v. Star Amusements, Inc., 44 F.3d 485, 487-89 (7th Cir.1995) (citing Douglas v. Cunningham, 294 U.S. 207, 210 (1935). Among the factors a court may consider in setting statutory damage amounts are: the expenses saved and profits reaped by the infringer, the deterrent effect of the award on defendant and on third parties, and the infringer’s state of mind in committing the infringement. See. e.g., Nintendo of America, Inc. v. Dragon Pacific Intern., 40 F.3d 1007, 1011 (9th Cir. 1994), cert. denied, 115 S.Ct 2256 (1995).

In the present case, plaintiff seeks $20,000 per infringement. Plaintiff suggests that it need not prove that Webbworld’s

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infringements were willful to collect statutory damages in the non-willful range of $500 to $20,000. Plaintiff also suggests that the presence of evidence of willful infringement justifies an award at the high end of the non-willful range. As evidence of defendants’ willful infringement, plaintiff asserts that Webbworld continued to copy Playboy images after entry of a temporary restraining order and preliminary injunction, after notice by Playboy that many of its infringing images were contained in its “Centerfolds” directory, and after its own attorney recognized that Neptics displayed images copyrighted by Playboy. The defendants offer no controverting affidavits or any other summary judgment evidence on the issue of a just amount of statutory damages.

The court agrees that if Playboy sustains its burden of establishing willfulness on the part of defendants, the court may exercise its discretion and award up to $100,000 per infringement under the appropriate circumstances. The court is not persuaded, however, that evidence of willful infringement, without more, automatically justifies an award at the high end of the non-willful range. Nevertheless, plaintiff has provided this court with sufficient summary judgment evidence to establish both the number of infringements and the amount of damages to award for each. The court finds that an award of $5000 per infringement is just in this

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case. Accordingly, the court finds that the plaintiff is entitled to summary judgment for $310,000 in statutory damages.

C. Vicarious Copyright Infringement

Plaintiff also moves the court for summary judgment of vicarious copyright infringement against Webbworld’s principal operators, Bentley Ives and Benjamin Brian Ellis. In Swallow Turn v. Wilson, 831 F.Supp. 575, 579 (E.D. Tex. 1993), the court granted summary judgment finding the defendant vicariously liable for copyright infiingement stating:

All participants in copyright infringement are jointly and severally liable as tortfeasors. (Citations omitted). If a defendant has a direct financial interest in the infringing activity and has the right and ability to supervise the activity which causes the infringement, then he should be held vicariously liable. (Citations omitted).

Whether a defendant has the required supervisory authority and financial interest are issue of law to be decided by the court. Realsongs v. Gulf Broadcasting Corp., 824 F.Supp. 89, 91 (M.D. La. 1993). Intent or knowledge of the infringement is not an element of the claim for vicarious copyright infringement. Peer Intern. Corp. v. Luna Records, Inc., 887 F.Supp. 560, 565 (S.D.N.Y. 1995).

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The evidence shows that Mr. Ives is Webbworld’s sole officer, director, and shareholder. He also handles most of its business, financial and legal matters. Mr. Ellis conceived the business idea for the Neptics’ website, created the “Scan News” software program, and ran Neptics’ day-to-day operations. Plaintiff suggests these undisputed facts establish that Messrs. Ives and Ellis had the required supervisory authority over the infringing activity. Defendants contend otherwise. Although they do not deny that Messrs. Ives and Ellis had control over the operation ofthe Neptics’ website, they maintain that the evidence fails to establish that Messrs. Ives and Ellis had the right and ability to supervise the conduct of those who initially posted Playboy’s copyrighted images to the Internet.

Defendants’ argument seems to miss the point. That defendants had no control over those responsible for originally uploading the infringing images onto the Internet is not relevant to the issue of defendants’ control over their infringing activity. The only relevant question regarding the element of control is whether defendants had the right and ability to control what occurred on the Neptics website. The court finds that they did. Defendants’ arguments to the contrary, including their contention that they lacked control because the process was automated, are unavailing.

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The evidence also shows that Mr. Ives’ share of Neptics’ income was twenty-five percent and Mr. Ellis’s share was fifty percent. Plaintiff asserts this establishes that Messrs. Ives and Ellis had a direct financial interest in the infringing activity. Defendants object, denying they received any direct financial benefit from the infiinging activity because Neptics’ charges its customers a fixed fee of $11.95 per month, rather than charging per image viewed or downloaded. In support of their argument, defendants rely on the district court decision in Fonovisa, Inc. v. Cherry Auction, Inc., 847 F.Supp. 1492 (E.D. Ca1.1994). In Fonovisa, the district court found that the operator of a swap meet was not vicariously liable for the infringing sales of vendors to whom it rented booth space. The Fonovisa court reasoned that the swap meet operator received no separate financial benefit directly linked to the infringing sales because the operator charged a fixed booth rental fee to its vendors and a fixed admission price to the swap meet’s customers. 847 F.Supp. at 1497.

Defendants’ reliance on the district court’s decision in Fonovisa is unavailing. On appeal, the Ninth Circuit disagreed and reversed the district court. The Ninth Circuit found that the district court had applied the wrong standard in requiring a direct tie between the vicarious infiinger’s financial benefit and the

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infringing activity. Fonovisa, 76 F.3d 259, 263 (9th Cir. 1996). Instead, the Ninth Circuit found it sufficient that the infringing materials likely enhanced the swap meet for its customers. Id. The Ninth Circuit’s reasoning applies as well to this case, in which plaintiff’s photographs enhanced the attractiveness ofthe Neptics’ website to potential customers. Accordingly, the court finds that the financial interest of Messrs. Ives and Ellis in Neptics’ infringing activity was sufficiently direct to support plaintiffs vicarious infringement claim.

D. Attorney’s Fees

Plaintiff further requests the court to award attorney’s fees. 17 U.S.C. Section 505 permits a court to award attorney’s fees to the party prevailing in a copyright claim. Thus, attorney’s fees may be awarded to a prevailing party as a matter of the court’s discretion. Fogerty v. Fantasy, 510 U.S. 517 (1994). However, attorney’s fees “are the rule rather than the exception and should be awarded routinely.” Micromanipulator Co. v. Bough, 779 F.2d 255, 259 (5th Cir. 1985); Meadowgreen Music Co. v. Voice in the Wilderness Broadcasting, Inc., 789 F.Supp. 823, 828 (E.D. Tex. 1992). Considering the facts surrounding this case, the court is of the opinion that reasonable attorney’s fees are justified.

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IT IS THEREFORE BY THE COURT ORDERED that plaintiff’s Motions for Partial summary Judgment (Docs. 47 and 65) are granted to the extent that defendants Webbworld, Ives, and Ellis shall be jointly and severally liable to plaintiff in the amount of $310,000, pursuant to 17 U.S.C. Section 504, for copyright infringement of sixty-two of Playboy’s magazine covers and photographs bearing one of Playboy’s trademarks.

IT IS FURTHER ORDERED that counsel shall confer regarding reasonable attorney’s fees and submit the appropriate documents for the court’s review.

IT IS FURTHER ORDERED that plaintiff’s Motion to Hold Defendant Webbworld in Contempt of Temporary Restraining Order (Doc. 31) is denied.

Dated this 27 day of June 1997, at Topeka, Kansas.

/s/ Dale S. Sappels
United States District Judge
sitting by Designation

SA CV 99-320 AHS (EEx)
Related case:
SA CV 99-321 AHS (EEx)
ORDER (1)DENYING PLAINTIFF’S MOTION FOR PRELIMINARY INJUNCTION; (2) GRANTING DEFENDANTS’ REQUEST FOR JUDICIAL NOTICE; (3) ISSUING FINDINGS OF FACT AND CONCLUSIONS OF LAW

I.PROCEDURAL BACKGROUND

On April 15, 1999, plaintiff Playboy Enterprises, Inc. (“PEI”) filed a Motion for preliminary Injunction against defendant Netscape Communications Corp. and against defendant Excite, Inc. On May 10,1999, defendants filed a joint opposition. PEI filed its reply on May 17, 1999. The Court heard oral argument on the motion on May 24, 1999. At the end of the hearing, the Court took the matter under advisement, and ordered the parties to lodge proposed Findings of Fact and Conclusions of Law. Plaintiff lodged its proposed Findings on June 1, 1999; defendants lodged theirs on June 8, 1999. The Court has considered all of the parties’ submissions, as well as arguments presented at the hearing.

II.FACTUAL BACKGROUND

Defendants operate search engines on the Internet. (1) When a person searches for a particular topic in either search engine, the search engine compiles a list of sites matching or related to the user’s search terms, and then posts the list of sites, known as “search results.”
Defendants sell advertising space on the search result pages. Known as “banner ads,” the advertisements are commonly found at the top of the screen. The ads themselves are often animated and whimsical, and designed to entice the Internet user to “click here.” If the user does click on the ad, she is transported to the web site of the advertiser.
As with other media, advertisers seek to maximize the efficacy of their ads by targeting consumers matching a certain demographic profile. Savvy web site operators accommodate the advertisers by “keying” ads to search terms entered by users. That is, instead of posting ads in a random rotation, defendants program their servers to link a pre-selected set of banner ads to certain “key” search terms. Defendants market this context-sensitive advertising ability as a value-added service and charge a premium.
Defendants key various adult entertainment ads to a group of over 450 terms related to adult entertainment, including the terms “playboy” and “playmate.” Plaintiff contends that inclusion of those terms violates plaintiff’s trademarks rights in those words.

III.PARTIES’ CONTENTIONS

Plaintiff has a trademark on “Playboy®” and “Playmate®.” plaintiff contends that defendants are infringing and diluting its trademarks (1) by marketing and selling the group of over 450 words, including “playboy” and “playmate,” to advertisers, (2) by programming the banner ads to run in response to the search terms “playboy” and “playmate” (i.e., “keying”), and (3) by actually displaying the banner ad on the search results page. As a result, plaintiff contends, Internet users are diverted from plaintiff’s official web site and web sites sponsored or approved by plaintiff, which generally will be listed as search results, to other adult entertainment web sites. Plaintiff further argues that defendants intend to divert the users to the non-PEI sites. Plaintiff does not contend, however, that defendants infringe or dilute the marks when defendants’ search engines generate a list of Web sites related to “playboy” or “playmate.”
Defendants respond that while plaintiff may have a trademark on “Playboy®” and “Playmate®” defendants do not actually “use” the trademarks qua trademarks. Moreover, even if defendants do use the trademarks, defendants argue that a trademark does not confer an absolute property right on all uses of the protected terms, and that defendants’ use of the terms is permitted. Finally, defendants dispute that they have any intent to divert users from clicking on search results (such as PEI’s) to clicking on banner ads.

IV.DISCUSSION

A. Legal Standard for Preliminary Injunction

In order for plaintiff to obtain a preliminary injunction, it “must show either (1) a combination of probable success on the merits and a possibility of irreparable harm, or (2) the existence of serious questions on the merits and the balance of hardships weighing heavily in its favor.” PEI v. Welles, 7 F.Supp.2d 1098, 1099 (S.D.Cal. 1998), aff’d without opinion, 162 F.3d 1169 (9th Cir. 1998)

B. Law and The Internet

“The Internet is ‘a unique and wholly new medium of worldwide human communication.”’ Reno v. ACLU, 521 U.S. 844, 117 S.Ct. 2329, 2334 (1997) (citation omitted) . The parties and the Court are conversant with the workings of the Internet, as well as with the constantly expanding body of law that seeks to craft a legal contour for it. The Court is mindful of the difficulty of applying well-established doctrines to what can only be described as an amorphous situs of information, anonymous messenger of communication, and seemingly endless stream of commerce. Indeed, the very vastness, and manipulability, of the Internet forms the mainspring of plaintiff’s lawsuit.

C. Trademark Use

Integral to plaintiff’s success on the merits of its case, on either the infringement or dilution theory, is a showing that defendants use plaintiff’s trademarks in commerce. See Memorandum of Points & Authorities [Excite], pg. 13 (e.g., “Excite is deriving substantial and direct revenue by selling banner advertisements keyed to the PEI marks”); Memorandum of Points and Authorities [Netscape], pg. 14 (same). Plaintiff does not so show. Rather, plaintiff can only contend that the use of the words “playboy” and “playmate,” as keywords or search terms, is equivalent to the use of the trademarks “Playboy®” and “Playmate®.Il However, it is undisputed that an Internet user cannot conduct a search using the trademark form of the words, i.e., Playboy® and Playmate®. Rather, the user enters the generic word “playboy” or “playmate.” It is also undisputed that the words “playboy” and “playmate” are English words in their own right, and that there exist other trademarks on the words wholly unrelated to PEI. Thus, whether the user is looking for goods and services covered by PEI’s trademarks or something altogether unrelated to PEI is anybody’s guess. Plaintiff guesses that most users searching the Web for “playboy” and “playmate” are indeed looking for PEI sites, goods and services. Based on that theory, plaintiff argues that since defendants also speculate that users searching for “playboy” and “playmate” are looking for things related to Playboy® and Playmate®, defendants use the trademarks when they key competing adult entertainment goods and services to the generic “playboy” and “playmate.”
Plaintiff has not shown that defendants use the terms in their trademark form, i.e., Playboy® and Playmate®, when marketing to advertisers or in the algorithm that effectuates the keying of the ads to the keywords. Thus, plaintiff’s argument that defendants “use” plaintiff’s trademarks falls short.

D. Trademark Infringement and Dilution

Even if use of the generic “playboy” and “playmate” were construed to be use the trademark terms Playboy® and Playmate®, plaintiff still must show that the use violates trademark law. plaintiff has asserted two theories, trademark infringement and trademark dilution.

1. Infringement

“The core element of trademark infringement is the likelihood of confusion, i.e., whether the similarity of the marks is likely to confuse customers about the source of the products.” Official Airline Guides. Inc. v. Goss, 6 F.3d 1385, 1391 (9th Cir. 1993) . Assuming arguendo that defendants’ use of “playboy” and “playmate” is use of plaintiff’s marks, plaintiff must still show that confusion is likely to result from that use. Plaintiff has not so shown.

Rather, plaintiff relies on the recent case from the Court of Appeals for the Ninth Circuit, Brookfield Communications. Inc. v. West Coast Entertainment Corp., – F.3d -, 1999 WL 232014, *22~*24 (9th Cir. 1999) , for the proposition that defendants cause “initial interest confusion” by the use of the words “playboy” and “playmate.” Initial interest confusion, as coined by the Ninth Circuit, is a brand of confusion particularly applicable to the Internet. Generally speaking, initial interest confusion may result when a user conducts a search using a trademark term and the results of the search include web sites not sponsored by the holder of the trademark search term, but rather of competitors. Id. The Ninth Circuit reasoned that the user may be diverted to an un-sponsored site, and only realize that she has been diverted upon arriving at the competitor’s site. Once there, however, even though the user knows she is not in the site initially sought, she may stay. In that way, the competitor has captured the trademark holder’s potential visitors or customers. Id.

Brookfield is distinguishable from this case, and where applicable, supportive of defendants’ position.
First, the trademark at issue in Brookfield was not an English word in its own right. In Brookfield, the Court compared Brookfield’s trademark “MovieBuff” with competitor West Coast’s use of the domain name “moviebuff.com,” and found them to be “essentially identical” despite the differences in capitalization, which the Court considered “inconsequential in light of the fact that Web addresses are not caps-sensitive… Id. at *14. However, the Court held that West Coast could use the term “Movie Buff” (or, presumably, “movie buff”) with the space, as such is the “proper term for the ‘motion picture enthusiast’…. It cannot, however, omit the space.” Id. at 26. On the other hand, “[i]n light of the fact that it is not a word in the English language, when the term ‘MovieBuff’ is employed, it is used to refer to Brookfield’s products and services, rather than to mean ‘motion picture enthusiast.’” Id. at *26.

As English words, “playboy” and “playmate” cannot be said to suggest sponsorship or endorsement of either the web sites that appear as search results (as in Brookfield) or the banner ads that adorn the search results page. Although the trademark terms and the English language words are undisputedly identical, which, presumably, leads plaintiff to believe that the use of the English words is akin to use of the trademarks, the holder of a trademark may not remove a word from the English language merely by acquiring trademark rights in it. Id.

Second, the use by defendant of plaintiff’s trademark in Brookfield was more suspect because the parties compete in the same market — as online providers of film industry information. See Id. at *l6~*l7 (“[n]ot only are they not non-competitors, the competitive proximity of their products is actually quite high”). The Ninth Circuit analogized the capture of unsuspecting Internet users by a competitor to highways and billboards:

Suppose West Coast’s competitor.. .puts up a billboard on a highway reading — “West Coast Video: 2 miles ahead at Exit 7″ — where West Coast is really located at Exit 8 but Blockbuster is located at Exit 7. Customers looking for West Coast’s store will pull off at Exit 7 and drive around looking for it. Unable to locate West, Coast, but seeing the Blockbuster store right by the highway entrance, they may simply rent there.

Brookfield, at *24. Although the customer is not confused as to where she ultimately rents a video, Blockbuster has misappropriated West Coast’s goodwill through causing initial consumer confusion. Id. The customer has been captured by the competitor in much the same way that defendant in Brookfield captures Internet users looking for plaintiff’s web site.
Here, the analogy is quite unlike that of a devious placement of a road sign bearing false information. This case presents a scenario more akin to a driver pulling off the freeway in response to a sign that reads “Fast Food Burgers” to find a well-known fast food burger restaurant, next to which stands a billboard that reads: “Better Burgers: 1 Block Further.” The driver, previously enticed by the prospect of a burger from the well-known restaurant, now decides she wants to explore other burger options. Assuming that the same entity owns the land on which both the burger restaurant and the competitor’s billboard stand, should that entity be liable to the burger restaurant for diverting the driver? That is the rule PEI contends the Court should adopt.

2. Dilution

Trademark dilution is defined as “the lessening of the capacity of a famous mark to identify and distinguish goods or services.” 15 U.S.C. § 1127. However, dilution is “not intended to serve as a mere fallback protection for trademark owners unable to prove trademark infringement.” I.P. Lund Trading ApS v. Kohler Co., 163 F.3d 27, 48 (1st Cir. 1998).
To establish dilution, plaintiff must show that “(1) [defendants have] made use of a junior mark sufficiently similar to the famous mark to evoke in a relevant universe of consumers a mental association of the two that (2) has caused (3) actual economic harm to the famous mark’s economic value by lessening its former selling power as an advertising agent for its goods and services.” Ringling Bros. -Barnum & Bailey Combined Shows Inc. v. Utah Div’n of Travel Dept., 170 F.3d 449, 459 (4th Cir. 1999). Dilution generally occurs through the blurring of a famous mark or tarnishment of the mark, but is not limited to these categories. See Panavision Int’l, L.P. v. ToeDpen, 141 F.3d 1316, 1326 (9th Cir. 1998) . plaintiff has not shown blurring of its marks, which would occur if defendants used the marks to identify defendants’ goods or services. Id. at 1326 n.7. First, as discussed supra, plaintiff has not shown that defendant use its marks Playboy® and Playmate®. Further, plaintiff has not presented any evidence that defendants’ use of the words “playboy” and “playmate” causes any severance of the association between plaintiff and its marks Playboy® and Playmate®, much less in the minds of Internet users.
Plaintiff has also failed to show tarnishment, which occurs when a famous mark is associated improperly with an inferior or offensive product or service. Id. at 1326 n.7. Plaintiff contends that because the content of the banner ads is more sexually explicit that PEI’s content, PEI’s marks are being tarnished. Again, plaintiff’s argument is based on the incorrect assumption that defendants use plaintiff’s marks, rather than the generic words “playboy” and “playmate.” But even if the defendants could be said to use plaintiff’s marks, plaintiff would still be required to show that associating marks admittedly famous for adult entertainment with other purveyors of adult entertainment somehow harms plaintiff’s marks. Whether PEI is a cut above the rest, as it contends, is undercut by the fact that PEI’s marks are associated with other purveyors of adult entertainment in other marketing channels, as defendants’ exhibits graphically establish. Adoption of plaintiff’s tarnishment would secure near-monopoly control of the placement of plaintiff’s marks and the associated goods and services on the Internet, where, arguably, “placement” is a nebulous concept. A greater showing of harm is required.

V. CONCLUSION

Accordingly, and for the foregoing reasons, the plaintiff’s motion is denied. The Court hereby adopts and issues the parties’ proposed Findings of Fact and Conclusions of Law, as modified, appended hereto. The Court grants defendants’ Request for Judicial Notice.
IT IS SO ORDERED.
IT IS FURTHER ORDERED that the Clerk shall serve a copy of this Order on counsel for all parties in this action.
Dated: June 24, 1999.
ALICEMARIE H. STOTLER
UNITED STATES DISTRICT JUDGE

SAM H. BELL, District Judge.
ORDER:

This case raises the question of a computer bulletin board system operator’s liability for copyright and trademark infringement regarding information available to its customers through their home computers. Plaintiff Playboy Enterprises, Inc. (“PEI”) asks the court to find that Defendants Rusty-N-Edie’s, Inc. (“RNB”) and Russ Hardenburgh are liable for direct and/or contributory copyright infringement with respect to 412 graphic image files (“GIFs”) which were allegedly available to paying customers of Defendants’ bulletin board service (the “BBS”). These files, asserts PEI, contain illegal copies of adult photographs from PEI’s Playboy Magazine. PEI also claims that Defendants’ violated section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), by removing the name or trademark of PEI and distributing the photographs under other names for a profit. Defendants answer that there are genuine issues of material fact with respect to each of Plaintiff’s claims, precluding summary judgment.

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The court has considered the evidence and arguments of the parties, and is now prepared to offer its decision in this matter.
Plaintiff’s motion for summary judgment is granted with respect to its claims of direct and contributory copyright infringement against both RNE and Mr. Hardenburgh. Plaintiff’s motion is denied with respect to its Lanham Act claim, which claim shall be set forth for trial.
The court’s reasoning in this matter is set forth below.
Background
A computer bulletin board service (“BBS”) offers home computer owners a method for obtaining information from a central source by use of a modem.[1] Remote computers access the central service through telephone lines. Files of information are stored in the central system, and subscribers may either “download” information into their home units, or “upload” information from their home units into the central files. The owner of the service controls the terms by which remote computer owners will be able to access the system, and typically will control the conditions under which information may be downloaded or uploaded.
BBS owners often provide other services to subscribers, including electronic mail capabilities, “chat rooms” where many subscribers may communicate at once, and Internet access to the World Wide Web. Local bulletin board services such as the one in this case might be

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distinguished from massive on-line services such as America On-Line or Compuserve, which provide similar services to customers on a much larger scale.
Defendant RNE and its President, Russ Hardenburgh, began operating a local BBS out of Boardman, Ohio in the early days (relatively speaking) of this technology. In July of 1988, “Rusty-N-Edie’s BBS” became available to owners of home computers. (2nd Hardenburgh Aff. Para. 1.) For a fee, subscribers received access to certain files which were otherwise off limits to the general public, and had the right to download a set number of megabytes of electronic information from these files every week. (Hardenburgh dep. pp. 120-122.) The BBS also provided e-mail services, chat lines, advertisements for goods, computer technical assistance, and a “matchmaker” dating service. (2nd Hardenburgh Aff. Para. 3.)
By January of 1993, the central BBS had grown to 124 computers, with nearly 6000 subscribers. (2nd Hardenburgh Aff. Para. 6.) Approximately 105,000 to 110,000 files were available for downloading, nearly half of which were graphic image files, or “GIFs.” (Id.) A GIF is created by scanning a photograph to create digital data that can be run through a computer. GIFs from Rusty-N-Edie’s BBS could be downloaded by the customer to his or her home computer, and could be viewed only with the assistance of certain specialized software. (Id.) Approximately 40,000 of the GIFs available to subscribers at this time, Defendants admit, contained “adult” photographs. (1st Hardenburgh Aff. Para. 6.)
To increase its stockpile of available information, and thereby its attractiveness to new customers, Defendants provided an incentive to encourage subscribers to upload information onto the BBS. Subscribers were given a “credit” for each megabyte of electronic data that they uploaded onto the system. For each credit, the subscriber was entitled to download 1.5 extra

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megabytes of electronic information, in addition to the megabytes available under the normal terms of subscription. (Hardenburgh dep. p. 157.) According to Defendants, information uploaded onto the BBS went directly to an “upload file” where an RNE employee briefly checked the new files to ascertain whether they were “acceptable,” meaning, not pornographic, and not blatantly protected by copyright. (Hardenburgh dep. p. 138-142.)
PEI is understandably concerned that on-line systems can be used to transmit copies of its copyrighted photographs to people who have not themselves purchased Playboy Magazine. In the early 1990s, PEI employee Anne Steinfeldt was given the job of scanning on-line systems to determine whether such photographs were available to subscribers via their home computers. (2nd Steinfeldt Aff. Para. 1.) In November of 1992, Ms. Steinfeldt subscribed to Rusty-N-Edie’s BBS under the pseudonym “Bob Campbell.” (Id. at Para. 2.) She conducted key word searches in the files available on the BBS, and claims to have downloaded approximately 100 GIFs from the BBS which contained reproductions of PEI’s photographs. (Id. at Para. 5.) She transferred these files to floppy disks, and then delivered the disks to PEI photo-librarian Timothy Hawkins. (Hawkins Aff. Para.Para. 2, 3.) Mr. Hawkins states that he examined the files by displaying the images on his computer monitor and comparing those images with photographs from Playboy Magazine. (Id. at Para.Para. 3, 4.)
On March 11, 1993, PEI filed its original complaint against RNE and Mr. Hardenburgh in this court, alleging copyright and trademark infringement. (Docket # 1.) The case was assigned to District Judge Battisti. On January 7, 1994, PEI moved for summary judgment on its claims of copyright infringement with respect to 99 GIFs allegedly downloaded from the BBS by Ms. Steinfeldt and reviewed by Mr. Hawkins. (Docket # 28.) PEI listed the

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titles of the 99 GIFs at issue in its Exhibit A but only submitted ten actual copies of the allegedly infringing images. (Docket # 29.) PEI paired these ten reproductions of computer screens with ten virtually identical photographs from Playboy Magazine. (Id.) PEI also produced the certificates of copyright for each of the PEI photographs listed in its Exhibit A. (Id.) Based upon these submissions and the accompanying affidavits of its employees, PEI argued that Defendants could raise no genuine issue of material fact to dispute the assertion that all 99 GIFs had appeared on the BBS. (Id.) Defendants, PEI argued, were jointly and severally liable for copyright infringement as a matter of law.
On January 31, 1994, PEI moved for summary judgment on its Lanham Act unfair competition claim. (Docket # 33.) PEI argued that Defendants had falsely implied that they were the source of PEI’s images by adding text to PEI photographs that was not present originally, and by deleting text that was originally present. (Id.) PEI claimed that the words “Rusty-N-Edies” had been added to some of the photographs, along with the telephone number for one of Defendants’ BBS phone lines. (Docket # 34.) PEI provided one actual example of this activity. (Id.)
Defendants responded to PEI’s motions for summary judgment on February 24, 1994, arguing that there were genuine issues of material fact with respect to each of PEI’s claims. (Docket # 40.) Defendants argued that PEI’s submissions did not prove that the 99 GIFs listed in Exhibit A were actually present on the BBS. (Id.) Mr. Hardenburgh claimed that he had reviewed the floppy disks in question, and had found them to contain 85 GIFs, not 99. Only 82 of the files on the disks, he asserts, were even listed in Plaintiff’s Exhibit A, four of which were created or modified after Ms. Steinfeldt turned the disks over to Mr. Hawkins. (1st Hardenburgh

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Aff. Para. 5.) Defendants argued that these inconsistencies cast doubt on the credibility of PEI employees Steinfeldt and Hawkins, and precluded summary judgment in PEI’s favor. (Docket # 40.)
PEI replied to Defendants on June 10, 1994, and in doing so brought new evidence to light. (Docket # 46.) PEI explained to the court that on January 30, 1993 the Federal Bureau of Investigation had conducted an unrelated search of the Hardenburgh premises pursuant to a search warrant, and had seized Defendants’ BBS equipment. (Id.; 1st Hardenburgh Aff. Para. 2.) In connection with this search, the FBI had created computer tapes (the “FBI Tapes”) which contained all of the information present on the BBS at that time, including all GIFs available to subscribers for downloading. (1st Tesnakis Aff.) Both sides of the litigation, PEI explained, were in possession of copies of these tapes. (Gibson Aff. Para.Para. 4, 5, 6.) Having reviewed the tapes, PEI withdrew its motion for summary judgment with respect to 79 of the 99 GIFs originally at issue. PEI was apparently unable to confirm that these 79 GIFs were on the BBS at the time of the FBI search. (Docket # 46.) With respect to the other 20 GIFs, however, PEI asserted that the FBI Tapes conclusively established that these files were present on Defendants’ BBS on January 30, 1993, and that they directly infringed PEI’s copyrights. (Id.) PEI submitted copies of these 20 GIFs as extracted from the FBI Tapes, and also submitted the corresponding 20 photographs from Playboy Magazine. (Exhibit 2 to Tesnakis Aff.) PEI noted that it would continue to study the FBI Tapes to determine whether a future motion for summary judgment could be filed with respect to other files present on the BBS which may have infringed PEI’s copyrights. (Docket # 46.)
Defendants surreplied to Plaintiff’s answer on July 11, 1994. (Docket # 51.)

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Defendants implied that any PEI photographs which appeared on the BBS were placed there by RNE subscribers, not RNE employees. (Id.) Because Defendants had not themselves taken part in any infringing activity, they asserted, they could not have directly infringed PEI’s copyrights. (Id.)
On September 14, 1994, Magistrate Judge Bartunek issued a Report and Recommendation regarding PEI’s motions for summary judgment. (Docket # 60.) The Magistrate recommended that the court grant Plaintiff’s motion for summary judgment regarding Defendants’ liability for direct copyright infringement. (Id.) The Magistrate found that there was no dispute that PEI owned the copyrights in question and that the 20 GIFs at issue had, in fact, appeared on Defendants’ BBS. (Id.) Also, it was abundantly clear to the Magistrate that the GIFs produced by Plaintiff were copies of the 20 PEI photographs submitted into evidence. (Id.) As to Defendants’ claim that it was BBS subscribers who uploaded the information onto the system, the Magistrate felt that this argument was immaterial in relation to a finding of copyright infringement. (Id.)
With respect to any Lanham Act violations, alternatively, the Magistrate recommended that the court deny Plaintiff’s motion. (Id.) The Magistrate felt that in order to prevail on their Lanham Act claim, PEI would have to prove that it was Defendants, and not their subscribers, who engaged in activity which misled consumers about the source of the images. (Id.)
Both Plaintiff and Defendant filed objections to the Magistrate’s Report and Recommendation. (Docket #s 64, 66, 69.)
On November 1, 1994, following Judge Battisti’s death, the case was transferred

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to Senior Circuit Judge Krupansky. (Docket # 71.) Soon thereafter, on January 17, 1995, PEI filed its third motion for summary judgment. (Docket # 74.) As promised, PEI had scrutinized the FBI Tapes and announced that it was now prepared to prove that 392 additional GIFs containing copies of PEI photographs were present on Defendants’ BBS at the time of the FBI search. (Docket # 75.) PEI produced, for the court’s consideration, copies of each and every one of the GIFs at issue, in addition to the corresponding PEI photograph. (Exhibit D to 2nd Tesnakis Aff.) PEI also produced certificates of copyright for each photograph. (Exhibit B to 2nd Tesnakis Aff.) PEI repeated their claim that Defendants were liable for direct copyright infringement, but argued in addition that Defendants were liable for contributory copyright infringement. (Docket # 75.) PEI produced the deposition testimony of three RNE employees, each of whom stated that any GIFs which were uploaded onto the BBS were placed in an upload file, and were not released onto the system for subscribers until they were reviewed by RNE staff. (Hardenburgh dep., Little dep., McFarland dep.) Defendants responded, echoing many of the arguments they had made previously. (Docket # 88.) Defendants also argued that a finding of copyright infringement on the part of a computer bulletin board service would “halt the computer age at its inception” by overburdening BBS owners with the “impossible” task of screening their systems for any and all copyrighted material. (Id.) On March 1, 1996 the case was transferred here. (Docket # 104.)
The parties have offered numerous submissions and arguments in addition to those described above, some of which will be touched upon below. The question presented in this litigation, however, has remained fundamentally the same throughout. It is: has PEI produced sufficient evidence to warrant summary judgment on its claims of copyright and trademark infringement?

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Dec. 9, 1993.
839 F.Supp. 1552
No. 93-489-Civ-J-20
ORDER

SCHLESINGER, District Judge.

This cause is before the Court on Plaintiff’s First Motion for Partial Summary Judgment (Copyright Infringement) as to Defendant Frena (Doc. No. S-1, filed July 26, 1993), and Plaintiff’s Second and Third Motions for Partial Summary Judgment (Trademark Infringement and Lanham Act Violations) as to Defendant Frena (Doc. No. S-3, filed July 29, 1993). In its First Motion for Partial Summary Judgment, Plaintiff requests that the Court grant partial summary judgment that Defendant Frena infringed Plaintiff’s copyrights and specifically that the 170 image files in question in Exhibit C to the Tesnakis Affidavit infringed Plaintiff’s copyrights in 50 of Plaintiff’s copyrighted magazines. In the Second and Third Motions for Partial Summary Judgment, Plaintiff requests that the Court grant partial summary judgment that Defendant Frena infringed Plaintiff’s federally registered trademarks PLAYBOY (R) and PLAYMATE (R); specifically that Defendant Frena infringed United States Trademark registration numbers 600,018 and 721,987 and that Defendant Frena competed unfairly with Plaintiff, violating 15 U.S.C. Section 1125(a). Furthermore, Plaintiff asks for oral argument on its Motions. Defendant Frena has filed responses to these Motions. (Doc. Nos. S-5 and S-6, filed August 4, 1993).

Defendant George Frena operates a subscription computer bulletin board service, Techs Warehouse BBS (“BBS”), that distributed unauthorized copies of Plaintiff Playboy Enterprises, Inc.’s (“PEI”) copyrighted photographs. BBS is accessible via telephone modem to customers. For a fee, or to those who purchase certain products from Defendant Frena, anyone with an appropriately equipped computer can log onto BBS. Once logged on subscribers may browse through different BBS directories to look at the pictures and customers may also download[1] the high quality computerized copies of the photographs and then store the copied image from Frena’s computer onto their home computer. Many of the images found on BBS include adult subject matter. One hundred and seventy of the images that were available on BBS were copies of photographs taken from PEI’s copyrighted materials.

Defendant Frena admits that these materials were displayed on his BBS, see Answer at P 23; Defendant’s Admissions, Response No. 8, that he never obtained authorization or consent from PEI, see Answer at PP 38, 39 and 40, and that each of the accused computer graphic files on BBS is substantially similar to copyrighted PEI photographs, see Defendant’s Admissions, Response No. 5. Defendant Frena also admits that each of the files in question has been downloaded[2] by one of his customers. See Defendant’s Admissions, Response No. 11.

Subscribers can upload[3] material onto the bulletin board so that any other subscriber, by accessing their computer, can see that material. Defendant Frena states in his Affidavit filed August 4, 1993, that he never uploaded any of PEI’s photographs onto BBS and that subscribers to BBS uploaded the photographs. Affidavit of George Frena at P 6 (Doc. No. S-7). Defendant Frena states that as soon as he was served with a summons and made aware of this matter, he removed the photographs from BBS and has since that time monitored BBS to prevent additional photographs of PEI from being uploaded. See Affidavit of George Frena at P 6.

Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). The moving party bears the initial burden of showing the Court, by reference to materials on file that there are no genuine issues of material fact that should be decided at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Clark v. Coats & Clark, Inc., 929 F.2d 604 (11th Cir.1991). A moving party discharges its burden on a motion for summary judgment by “showing” or “pointing out” to the Court that there is an absence of evidence to support the nonmoving party’s case. Celotex, 477 U.S. at 325, 106 S.Ct. at 2554. Rule 56 permits the moving party to discharge its burden with or without supporting affidavits and to move for summary judgment on the case as a whole or on any claim. Id. When a moving party has discharged its burden, the nonmoving party must then “go beyond the pleadings,” and by its own affidavits, or by “depositions, answers to interrogatories, and admissions on file,” designate specific facts showing that there is a genuine issue for trial. Id. at 324.

In determining whether the moving party has met its burden of establishing that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law, the Court must draw inferences from the evidence in the light most favorable to the nonmovant, Key West Harbor v. City of Key West, 987 F.2d 723, 726 (11th Cir.1993), and resolve all reasonable doubts in that party’s favor. Spence v. Zimmerman, 873 F.2d 256, 257 (11th Cir.1989). The nonmovant need not be given the benefit of every inference, but only of every “reasonable” inference. Brown v. City of Clewiston, 848 F.2d 1534, 1540 n. 12 (11th Cir.1988). The Eleventh Circuit has explained the reasonableness standard: In deciding whether an inference is reasonable, the Court must “cull the universe of possible inferences from the facts established by weighing each against the abstract standard of reasonableness.” [citation omitted]. The opposing party’s inferences need not be more probable than those inferences in favor of the movant to create a factual dispute, so long as they reasonably may be drawn from the facts. When more than one inference reasonably can be drawn, it is for the trier of fact to determine the proper one. WSB-TV v. Lee, 842 F.2d 1266, 1270 (11th Cir.1988).

Thus, if a reasonable fact finder evaluating the evidence could draw more than one inference from the facts, and if that inference introduces a genuine issue of material fact, then the court should not grant the summary judgment motion. Augusta Iron and Steel Works v. Employers Insurance of Wausau, 835 F.2d 855, 856 (11th Cir.1988). It must be emphasized that the mere existence of some alleged factual dispute will not defeat an otherwise properly supported summary judgement motion. Rather, “the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A dispute about a material fact is “genuine” if the “evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id. at 248, 106 S.Ct. at 2510. The inquiry is “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251-52, 106 S.Ct. at 2511-12.

I. COPYRIGHT INFRINGEMENT

The Copyright Act of 1976 gives copyright owners control over most, if not all, activities of conceivable commercial value. The statute provides that the owner of a copyright … has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies …; (2) to prepare derivative works based upon the copyrighted work; (3) to distribute copies … of the copyrighted work to the public … and (5) in the case of … pictorial … works … to display the copyrighted work publicly. 17 U.S.C. Section 106. Engaging in or authorizing any of these categories without the copyright owner’s permission violates the exclusive rights of the copyright owner and constitutes infringement of the copyright. See 17 U.S.C. SEction 501(a).

To establish copyright infringement, PEI must show ownership of the copyright and “copying” by Defendant Frena, see Feist Publications, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340 (1991); Southern Bell Tel. & Tel. v. Assoc. Telephone Directory Publishers, 756 F.2d 801, 810 (11th Cir.1985).

There is no dispute that PEI owns the copyrights on the photographs in question. PEI owns copyright registrations for each of the 50 issues of Playboy publications that contain the photographs on BBS. See Tesnakis Affidavit at P 9. The copyright registration certificate constitutes prima facie evidence in favor of Plaintiff. See Southern Bell Tel., 756 F.2d at 811. Once the plaintiff has established his prima facie ownership, the burden then shifts to the defendant to counter this evidence. See 3 MELVILLE B. NIMMER, Nimmer on Copyright section 13.01[A], at 13-7 (1993). Defendant Frena, however, failed to rebut the appropriate inference of validity.

Next, PEI must demonstrate copying by Defendant Frena. Since direct evidence of copying is rarely available in a copyright infringement action, copying may be inferentially proven by showing that Defendant Frena had access to the allegedly infringed work, that the allegedly infringing work is substantially similar to the copyrighted work, see Howard v. Sterchi, 974 F.2d 1272 (11th Cir.1992), and that one of the rights statutorily guaranteed to copyright owners is implicated by Frena’s actions. See Ford Motor Co. v. Summit Motor Products, Inc., 930 F.2d 277, 291 (3d Cir.1991), cert. denied, — U.S. —-, 112 S.Ct. 373, 116 L.Ed.2d 324.

Access to the copyrighted work is not at issue. Access is essentially undeniable because every month PEI sells over 3.4 million copies of Playboy magazine throughout the United States. See Kent Affidavit at P 4.
Substantial similarity is also a non-issue in this case. Defendant Frena has admitted that every one of the accused images is substantially similar to the PEI copyrighted photograph from which the accused image was produced. See Defendant’s Admissions at P 5. Moreover, not only are the accused works substantially similar to the copyrighted work, but the infringing photographs are essentially exact copies. See Exhibits A and B in the Tesnakis Affidavit. In many cases, the only difference is that PEI’s written text appearing on the same page of the photograph has been removed from the infringing copy.

The next step is to determine whether Defendant Frena violated one of the rights statutorily guaranteed to copyright owners under 17 U.S.C. Section 106. See 17 U.S.C. Section 501(a). Public distribution of a copyrighted work is a right reserved to the copyright owner, and usurpation of that right constitutes infringement. See Cable/Home Communication Corp. v. Network Productions, Inc., 902 F.2d 829, 843 (11th Cir.1990). PEI’s right under 17 U.S.C. Section 106(3) to distribute copies to the public has been implicated by Defendant Frena. Section 106(3) grants the copyright owner “the exclusive right to sell, give away, rent or lend any material embodiment of his work.” 2 MELVILLE B. NIMMER, Nimmer on Copyright Section 8.11[A], at 8-124.1 (1993). There is no dispute that Defendant Frena supplied a product containing unauthorized copies of a copyrighted work. It does not matter that Defendant Frena claims he did not make the copies itself. See JAY DRATLER, JR., Intellectual Property Law: Commercial, Creative and Industrial Property Section 6.01[3], at 6-15 (1991).

Furthermore, the “display” rights of PEI have been infringed upon by Defendant Frena. See 17 U.S.C. Section 106(5). The concept of display is broad. See 17 U.S.C. Section 101. It covers “the projection of an image on a screen or other surface by any method, the transmission of an image by electronic or other means, and the showing of an image on a cathode ray tube, or similar viewing apparatus connected with any sort of information storage and retrieval system.” H.R.Rep. No. 1476, 94th Cong., 2d Sess. 64 (Sept. 3, 1976), reprinted in 1976 U.S.Code Cong. & Admin.News 5659, 5677. The display right precludes unauthorized transmission of the display from one place to another, for example, by a computer system. See H.R.Rep. No. 1476, 94th Cong., 2d Sess. 80 (Sept. 3, 1976), reprinted in 1976 U.S.Code Cong. & Admin.News 5659, 5694; JAY DRATLER, JR., Intellectual Property Law: Commercial, Creative and Industrial Property Section 6.01[4], at 6-24 (1991).

“Display” covers any showing of a “copy” of the work, “either directly or by means of a film, slide, television image or any other device or process.” 17 U.S.C. Section 101. However, in order for there to be copyright infringement, the display must be public. A “public display” is a display “at a place open to the public or … where a substantial number of persons outside of a normal circle of family and its social acquaintenances is gathered.” 2 MELVILLE B. NIMMER, Nimmer on Copyright s 8.14[C], at 8-169 (1993). A place is “open to the public” in this sense even if access is limited to paying customers. 2 MELVILLE B. NIMMER, Nimmer on Copyright s 8.14[C], at 8-169 n. 36 (1993); see Columbia Pictures Indus., Inc. v. Redd Horne Inc., 749 F.2d 154 (3d Cir.1984).

Defendant’s display of PEI’s copyrighted photographs to subscribers was a public display. Though limited to subscribers, the audience consisted of “a substantial number of persons outside of a normal circle of family and its social acquaintenances.” 2 MELVILLE B. NIMMER, Nimmer on Copyright Section 8.14[C], at 8-169 (1993). See also Thomas v. Pansy Ellen Products, 672 F.Supp. 237, 240 (W.D.North Carolina 1987) (display at a trade show was public even though limited to members); Ackee Music, Inc. v. Williams, 650 F.Supp. 653 (D.Kan.1986) (performance of copyrighted songs at defendant’s private club constituted a public performance).

Defendant Frena argues that the affirmative defense of fair use precludes a finding of copyright infringement. “Fair use” describes “limited and useful forms of copying and distribution that are tolerated as exceptions to copyright protection.” Cable/Home Communications Corp., 902 F.2d at 843 (citing Pacific & Southern Co. v. Duncan, 744 F.2d 1490, 1494 (11th Cir.1984), cert. denied, 471 U.S. 1004, 105 S.Ct. 1867, 85 L.Ed.2d 161 (1985)).

The question of fair use constitutes a mixed issue of law and fact. See Harper & Row, Publishers, Inc. v. Nation Enterprises., 471 U.S. 539, 560, 105 S.Ct. 2218, 2230, 85 L.Ed.2d 588 (1985). Fair use may be addressed on summary judgment. See Cable/Home Communications Corp., 902 F.2d at 843-45 (affirming summary judgment holding that fair use doctrine did not apply).
The Copyright Act mandates four nonexclusive factors which courts shall consider case by case in determining fair use. Cable/Home Communications Corp., 902 F.2d at 843; see 17 U.S.C. Section 107. Section 107 does not attempt to define “fair use.” It merely lists the factors to be considered in determining whether a use made of a work in a particular case is fair. Section 107 states:

[T]he fair use of a copyrighted work … for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include–

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
(4) the effect of the use upon the potential market for or value of the work.

17 U.S.C. Section 107.
With respect to the first factor, “every commercial use of copyrighted material is presumptively an unfair exploitation of the monopoly privilege that belongs to the owner of the copyright …,” Harper & Row, Publishers, Inc., 471 U.S. at 562, 105 S.Ct. at 2231 (quoting Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 451, 104 S.Ct. 774, 793, 78 L.Ed.2d 574 (1984)), so that “any commercial use tends to cut against a fair use defense.” Triangle Publications, Inc. v. Knight-Ridder Newspapers, Inc., 626 F.2d 1171, 1175 (5th Cir.1980).

Defendant Frena’s use was clearly commercial. BBS was provided to those paying twenty-five dollars ($25) per month or to those who purchased products from Defendant Frena. One who distributes copyrighted material for profit is engaged in a commercial use even if the customers supplied with such material themselves use it for personal use. See Pacific & Southern Co. v. Duncan, 572 F.Supp. 1186 (N.D.Ga.1983), affirmed, 744 F.2d 1490 (11th Cir.1984), cert. denied, 471 U.S. 1004, 105 S.Ct. 1867, 85 L.Ed.2d 161 (1985).

Implicit in the presumption that every commercial use is presumptively unfair is “some meaningful likelihood that future market harm exists.” Cable/Home Communications Corp., 902 F.2d at 844 (citing Sony, 464 U.S. at 451, 104 S.Ct. at 793). It is clear that future market harm exists to PEI due to Frena’s activities, as will be discussed in more detail under factor four.

The second factor is the “nature of the copyrighted work.” 17 U.S.C. Section 107. “Copyright protection is narrower, and the corresponding application of fair use defense greater, in the case of factual works than in the case of works of fiction or fantasy.” 3 MELVILLE B. NIMMER, Nimmer on Copyright Section 13.05[A], at 13-102.57 (1993). If a work is more appropriately characterized as entertainment, it is less likely that a claim of fair use will be accepted. See In New Era Publications Intern., ApS v. Carol Publishing Group, 904 F.2d 152 (2d Cir.), cert. denied, 498 U.S. 921, 111 S.Ct. 297, 112 L.Ed.2d 251 (1990). The copyrighted works involved in this case are in the category of fantasy and entertainment. Therefore, the second factor works against Frena’s fair use defense.

Regarding the third factor, the amount and substantiality of the portion of the copyrighted work used, the Supreme Court has directed a qualitative evaluation of the copying of the copyrighted work. Cable/Home Communications Corp., 902 F.2d at 844 (citing Harper & Row, 471 U.S. at 564- 65, 105 S.Ct. at 2232-33). That is, “a small degree of taking is sufficient to transgress fair use if the copying is the essential part of the copyrighted work.” Id. See, e.g., Meeropol v. Nizer, 560 F.2d 1061, 1071 (2d Cir.1977) (although copyrighted letters were less than 1% of the infringing work, they were displayed prominently), cert. denied, 434 U.S. 1013, 98 S.Ct. 727, 54 L.Ed.2d 756 (1978); Roy Export Co. Establishment of Vaduz, Liechtenstein, Black, Inc. v. Columbia Broadcasting Sys., Inc., 503 F.Supp. 1137, 1145 (S.D.N.Y.1980) (fifty-five seconds taken from a one-hour and twenty- nine-minute film deemed qualitatively substantial for copyright infringement), aff’d, 672 F.2d 1095 (2d Cir.), cert. denied, 459 U.S. 826, 103 S.Ct. 60, 74 L.Ed.2d 63 (1982); Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49, 56 (2d Cir.) (“[N]o plagiarist can excuse the wrong by showing how much of his work he did not pirate.”), cert. denied, 298 U.S. 669, 56 S.Ct. 835, 80 L.Ed. 1392 (1936).

There is no doubt that the photographs in Playboy magazine are an essential part of the copyrighted work. The Court is not implying that people do not read the articles in PEI’s magazine. However, a major factor to PEI’s success is the photographs in its magazine. By pirating the photographs for which PEI has become famous, Defendant Frena has taken a very important part of PEI’s copyrighted publications.
The fourth factor, the “effect of the use upon the potential market for or value of the copyrighted work,” 17 U.S.C. Section 107(4), is “undoubtedly the single most important element of fair use, since a proper application of fair use does not impair materially the marketability of the copied work.” Cable/Home Communications Corp., 902 F.2d at 845. This factor poses the issue of “whether unrestricted and widespread conduct of the sort engaged in by the defendant (whether in fact engaged in by the defendant or others) would result in a substantially adverse impact on the potential market for or value of the plaintiff’s present work.” 3 MELVILLE B. NIMMER, Nimmer on Copyright section 13.05[A], at 13.102.61-62 (1993). “[P]otential market means either an immediate or delayed market, and includes harm to derivative works.” Cable/ Home Communications Corp., 902 F.2d at 845.

Obviously, if this type of conduct became widespread, it would adversely affect the potential market for the copyrighted work. Such conduct would deny PEI considerable revenue to which it is entitled for the service it provides.

There is irrefutable evidence of direct copyright infringement in this case. It does not matter that Defendant Frena may have been unaware of the copyright infringement. Intent to infringe is not needed to find copyright infringement. Intent or knowledge is not an element of infringement, and thus even an innocent infringer is liable for infringement; rather, innocence is significant to a trial court when it fixes statutory damages, which is a remedy equitable in nature. See D.C. Comics Inc. v. Mini Gift Shop, 912 F.2d 29 (2d Cir.1990).

Frena argues that his commercial use was so insignificant as to justify holding for him under the principle of de minimis non curat lex. The Court disagrees. The detrimental market effects coupled with the commercial-use presumption negates the fair use defense. Defendant Frena infringed Plaintiff’s copyrights; specifically, the 170 image files in question in Exhibit C to the Tesnakis Affidavit infringed Plaintiff’s copyrights in 50 of Plaintiff’s copyrighted magazines. The Court finds that the undisputed facts mandate partial summary judgment that Defendant Frena’s unauthorized display and distribution of PEI’s copyrighted material is copyright infringement under 17 U.S.C. Section 501.

II. TRADEMARK INFRINGEMENT UNDER 15 U.S.C. Section 1114

In addition to the use of PEI’s copyrighted photographs on BBS, PEI’s registered trademarks, PLAYBOY (R) and PLAYMATE (R), were used to identify many of the files containing the photographs. Furthermore, PEI’s text was removed from the photographs and Defendant Frena’s name, Techs Warehouse BBS, and telephone number were placed on PEI’s copyrighted photographs. This is uncontested. Therefore, Plaintiff has moved for partial summary judgment on the issues of trademark infringement under 15 U.S.C. Section 1114 and unfair competition under 15 U.S.C. Section 1125(a).

Defendant Frena admits that the registered trademarks PLAYBOY (R) and PLAYMATE (R) were used in file descriptors for 170 of the images found on BBS and that such file descriptors were displayed to his customers. See Answer at PP 51 and 52. Defendant Frena contends that when a subscriber uploads the material onto BBS, the same subscriber provides a description of the uploaded material for the BBS index. Defendant Frena contends that he himself has never placed the words “Playboy” or “Playmate” onto BBS. Defendant Frena further alleges that he, innocently and without malice, allowed subscribers to upload whatever they wanted onto BBS.

The first issue the Court must address is whether the marks PLAYBOY (R) and PLAYMATE (R) are distinctive enough to deserve protection under the Trademark Act of 1946 (commonly known as the Lanham Act), 15 U.S.C. Section 1051 et seq., specifically Section 32(1) of the Lanham Act, 15 U.S.C. Section 1114(1). See Freedom Sav. and Loan Ass’n v. Way, 757 F.2d 1176 n. 1 (11th Cir.), cert. denied, 474 U.S. 845, 106 S.Ct. 134, 88 L.Ed.2d 110 (1985); Ice Cold Auto Air v. Cold Air & Accessories, 828 F.Supp. 925, 930 (M.D.Fla.1993).

There are four categories of distinctiveness in which a mark may be classified. “In ascending order they are: (1) generic; (2) descriptive; (3) suggestive; and (4) arbitrary or fanciful.” Investacorp, Inc. v. Arabian Investment Banking Corp., 931 F.2d 1519, 1522-23 (11th Cir.1991), cert. denied, — U.S. —-, 112 S.Ct. 639, 116 L.Ed.2d 657 (1991). The categorization of a term as generic, descriptive, suggestive or arbitrary typically resolves the issue of whether a mark is protectable, with generic marks getting the least protection and arbitrary or fanciful marks receiving the highest degree of protection.

PLAYBOY (R) and PLAYMATE (R) are suggestive marks since they implicitly refer to their products qualities. See PEI v. P.K.Sorren Export Co. Inc. of Florida, 546 F.Supp. 987, 995 (S.D.Fl.1982). They are well known marks and widely associated with PEI’s products. These marks have acquired great distinctiveness among consumers, and are therefore entitled to a high degree of protection. See Playboy Enterprises, Inc. v. Chuckleberry Publishing, Inc., 486 F.Supp. 414, 419 (S.D.N.Y.1980).

Once the threshold question of whether the mark is distinctive enough to deserve protection is answered affirmatively, the Court must turn to the central inquiry of whether there is a “likelihood of confusion.” See Freedom Sav. and Loan Ass’n, 757 F.2d at 1179; Ice Cold Auto Air, 828 F.Supp. at 934.
The following factors are highly relevant in deciding whether there is a likelihood of confusion: “(1) the type of mark at issue; (2) similarity of marks; (3) similarity of product or services; (4) identity of purchasers and similarity of retail outlets; …. (6) the defendant’s intent; and (7) actual confusion.” Ice Cold Auto Air, 828 F.Supp. at 935 (citing Freedom Sav. and Loan Ass’n, 757 F.2d at 1182-83). The Court, however, is not required to specifically mention each of these factors in making its decision. See Univ. of Georgia Athletic Ass’n v. Laite, 756 F.2d 1535, 1542 (11th Cir.1985) (analyzing the factors in the context of a claim of unfair competition).

Rather than simply determining whether a majority of these factors indicate a likelihood of confusion, a court must “evaluate the weight to be accorded the individual factors and then make its ultimate decision.” AmBrit, Inc. v. Kraft, Inc., 812 F.2d 1531, 1538 (11th Cir.1986), cert. denied, 481 U.S. 1041, 107 S.Ct. 1983, 95 L.Ed.2d 822 (1987). An analysis of fewer than all seven factors may support a finding of likelihood of confusion. See Univ. of Georgia Athletic Ass’n, 756 F.2d at 1543. In the Eleventh Circuit, the type of mark and evidence of actual confusion are the most important factors. Dieter v. B & H Industries of Southwest Florida, Inc., 880 F.2d 322, 326 (11th Cir.1989), cert. denied, 498 U.S. 950, (1990).

In analyzing the type of mark, the Court must determine whether the mark is strong or weak in order to determine the level of protection to be extended to the mark. See Ice Cold Auto Air, 828 F.Supp. at 935. The more distinctive a plaintiff’s servicemark, the greater the likelihood that consumers will associate the registered trademark and all similar marks with the registered owner. The law therefore provides the greatest protection to strong and distinctive servicemarks; the strength of a mark depends on the extent of third party usage and the relationship between the name and the service or good it describes. Freedom Sav. and Loan Assoc., 757 F.2d at 1182.

In analyzing the relationship between the name and the service or good it describes, the Court again considers the proper categorization of the mark. At this stage of the analysis, the goal is to determine the degree of distinctiveness of the mark. See Ambrit, Inc., 812 F.2d at 1539 n. 36. Suggestive and arbitrary marks are considered to be the most distinctive marks, and, as relatively strong marks, entitled to the strongest protection. See Ice Cold Auto Air, 828 F.Supp. at 935. The Court previously categorized the marks involved as suggestive marks which are, therefore, entitled to the strongest protection.

There is no issue as to the similarity of the marks in the instant case. Not only are the marks similar, they are exactly the same. The greater the similarity between products and services, the greater the likelihood of confusion. See Exxon Corp. v. Texas Motor Exchange of Houston, Inc., 628 F.2d 500, 505 (5th Cir.1980). Defendant Frena’s product consisted of computer images of nude women. Of course, this is the core of PEI’s business. Even though Defendant Frena’s photographs were available in a different medium than Plaintiff’s, the services both parties provided were virtually identical.

A finding that Defendant adopted a mark with the intent of deriving benefit from the reputation of Plaintiff’s service or product may alone be enough to justify an inference that there is confusing similarity. See Ambrit, Inc., 812 F.2d at 1542. Defendant contends that he did not intend to use Plaintiff’s mark. However, a showing of intent or bad faith is unnecessary to establish a violation of Section 1141(a). See Chanel, Inc. v. Italian Activewear of Florida, Inc., 931 F.2d 1472, 1476 (11th Cir.1991). Intent is just one of the factors to consider in evaluating whether the infringing use is likely to cause confusion. See Chanel, Inc., 931 F.2d at 1472, 1476 n. 4 (citing Original Appalachian Artworks, Inc. v. The Toy Loft, 684 F.2d 821, 831-32 (11th Cir.1982)).

Even though a guilty state of mind is relevant evidence of trademark infringement, an innocent state of mind is irrelevant on the issue of likelihood of confusion since the lack of intent to deceive does nothing to alleviate the confusion precipitated by similarity of trademarks. See 3A RUDOLF CALLMAN, The Law of Unfair Competition, Trademarks and Monopolies section 20.49, at 385 (4th ed. 1993).
“Although evidence of actual confusion is not necessary to a finding of likelihood of confusion, it is nevertheless the best evidence of likelihood of confusion.” John H. Harland Co. v. Clarke Checks, Inc., 711 F.2d 966, 978 (11th Cir.1983) (quoting Amstar Corp. v. Domino’s Pizza, Inc., 615 F.2d 252, 263 (5th Cir.), cert. denied, 449 U.S. 899, 101 S.Ct. 268, 66 L.Ed.2d 129 (1980)). Actual confusion by a few customers is evidence of likelihood of confusion by many customers. See Freedom Sav. and Loan Ass’n, 757 F.2d at 1185. Therefore, a plaintiff usually will not have to prove more than a few incidents of actual confusion. See Id.

ORDER ON CROSS-MOTIONS FOR
PARTIAL SUMMARY JUDGMENT

On apparent first impression, the Court holds the use by an Internet “visual search engine” of others’ copyrighted images is a prima facia copyright violation, but it may be justified under the “fair use” doctrine. The Court finds that, under the particular circumstances of this case, the “fair use” doctrine applies, and the Digital Millennium Copyright Act is not violated.

Defendant’s Motion for Partial Summary Judgment on Plaintiff’s First and Second Claims for Relief is GRANTED. Plaintiff’s Motion for Partial Summary Judgment is DENIED.

I. BACKGROUND

Defendant Ditto (formerly known as Arriba) operates a “visual search engine” on the Internet. Like other Internet search engines, it allows a user to obtain a list of related Web content in response to a search query entered by the user. Unlike other Internet search engines, Defendant’s retrieves images instead of descriptive text. It produces a list of reduced, “thumbnail” pictures related to the user’s query.

During the period when most of the relevant events in this case occurred, Defendant’s visual search engine was known as the Arriba Vista Image Searcher. By “clicking” on the desired thumbnail, an Arriba Vista user could view the “image attributes” window displaying the full-size version of the image, a description of its dimensions, and an address for the Web site where it originated. ⁽¹⁾ By clicking on the address, the user could link to the originating Web site for the image. ⁽²⁾

Ditto’s search engine (in both of its versions) works by maintaining an indexed database of approximately two million thumbnail images. These thumbnails are obtained through the operation of Ditto’s “crawler,” a computer program that travels the Web in search of images to be converted into thumbnails and added to the index. ⁽³⁾ Ditto’s employees conduct a final screening to rank the most relevant thumbnails and eliminate inappropriate images.

Plaintiff Kelly is a photographer specializing in photographs of California gold rush country and related to the works of Laura Ingalls Wilder. He does not sell the photographs independently, but his photographs have appeared in several books. Plaintiff also maintains two Web sites, one of which (www.goldrush1849.com) provides a “virtual tour” of California’s gold rush country and promotes Plaintiff’s book on the subject, and the other (www.showmethegold.com) markets corporate retreats in California’s gold rush country.

In January 1999, around thirty five of Plaintiff’s images were indexed by the Ditto crawler and put in Defendant’s image database. As a result, these images were made available in thumbnail form to users of Defendant’s visual search engine.

After being notified of Plaintiff’s objections, Ditto removed the images from its database, though due to various technical problems some of the images reappeared a few times. Meanwhile Plaintiff, having sent Defendant a notice of copyright infringement in January, filed this action in April. Plaintiff argues its copyrights in the images were infringed by Defendant’s actions and also alleges Defendant violated the Digital Millennium Copyright Act (DMCA) by removing or altering the copyright management information associated with Plaintiff’s images. ⁽⁴⁾

II. DISCUSSION

These cross motions for summary adjudication present two questions of first impression. The first is whether the display of copyrighted images by a “visual search engine” on the Internet constitutes fair use under the Copyright Act. The second is whether the display of such images without their copyright management information is a violation of the Digital Millennium Copyright Act.

Summary judgment is proper if there is no genuine issue of fact and the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. Proc. 56(c). If no material historical facts are disputed, the ultimate conclusion to be drawn on the issue of “fair use” is for the Court and not a jury. Harper & Row, Publishers, Inc. v. Nation Enterprises, 471 U.S. 539 (1985); Fisher v. Dees, 794 F.2d 432, 436 (9^th Cir. 1986).

A. Fair Use

In order to show copyright infringement, Plaintiff must show ownership of a valid copyright and invasion of one of the exclusive rights of copyright holders. 17 U.S.C. § 106. Defendant does not dispute the validity of Plaintiff’s copyrights or his ownership of them. Defendant also does not dispute it reproduced and displayed Plaintiff’s images in thumbnail form without authorization. Plaintiff thus has shown a prima facie case of copyright infringement unless the fair use doctrine applies.

“Fair use” is a limitation on copyright owners’ exclusive right “to reproduce the copyrighted work in copies.” 17 U.S.C. § 106(1). It is codified at 17 U.S.C. § 107, which provides:

Notwithstanding the provisions of sections 106 and 106A, the fair use of a copyrighted work, including such use by reproduction in copies or phonorecords or by any other means specified by that section, for purposes such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research, is not an infringement of copyright. In determining whether the use made of a work in any particular case is a fair use the factors to be considered shall include–

(1) the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;

(2) the nature of the copyrighted work;

(3) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and

(4) the effect of the use upon the potential market for or value of the copyrighted work.

The fact that a work is unpublished shall not itself bar a finding of fair use if such finding is made upon consideration of all the above factors.

Fair use is an affirmative defense, and defendants carry the burden of proof on the issue. American Geophysical Union v. Texaco Inc., 60 F.3d 913, 918 (2d Cir. 1995); Columbia Pictures Ind. v. Miramax Films Corp., 11 F.Supp.2d 1179, 1187 (C.D. Cal. 1998) (“[b]ecause fair use is an affirmative defense, Defendants bear the burden of proof on all of its factors”). Based on an analysis of the factors, the Court finds there is fair use here.

1. Purpose and Character Of The Use

The first factor considers the nature of the use, including whether the use is commercial or educational. This, however, does not end the inquiry. “Purpose and character” also involve an assessment of whether “the new work merely supersedes the objects of the original creation, or instead adds something new, with a further purpose or different character, altering the first with new expression, meaning, or message; it asks, in other words, whether and to what extent the new work is transformative.” Campbell v. Acuff-Rose Music, 510 U.S. 569, 579 (1994) (citation omitted). “[T]he more transformative the new work, the less will be the significance of other factors, like commercialism, that may weigh against a finding of fair use.” Id. at 579.

There is no dispute Defendant operates its Web site for commercial purposes. Plaintiff’s images, however, did not represent a significant element of that commerce, nor were they exploited in any special way. ⁽⁵⁾ They were reproduced as a result of Defendant’s generally indiscriminate method of gathering images. Defendant has a commercial interest in developing a comprehensive thumbnail index so it can provide more complete results to users of its search engine. The Ditto crawler is designed to obtain large numbers of images from numerous sources without seeking authorization. ⁽⁶⁾ Plaintiff’s images were indexed as a result of these methods. While the use here was commercial, it was also of a somewhat more incidental and less exploitative nature than more traditional types of “commercial use.” ⁽⁷⁾

The most significant factor favoring Defendant is the transformative nature of its use of Plaintiff’s images. Defendant’s use is very different from the use for which the images were originally created. Plaintiff’s photographs are artistic works used for illustrative purposes. Defendant’s visual search engine is designed to catalog and improve access to images on the Internet. Joint Stip. ¶¶ 27-29, 32. The character of the thumbnail index is not esthetic, but functional; its purpose is not to be artistic, but to be comprehensive.

To a lesser extent, the Arriba Vista image attributes page also served this purpose by allowing users to obtain more details about an image. The image attributes page, however, raises other concerns. It allowed users to view (and potentially download) full-size images without necessarily viewing the rest of the originating Web page. At the same time, it was less clearly connected to the search engine’s purpose of finding and organizing Internet content for users. The presence of the image attributes page in the old version of the search engine somewhat detracts from the transformative effect of the search engine. But, when considering purpose and character of use in a new enterprise of this sort, it is more appropriate to consider the transformative purpose rather than the early imperfect means of achieving that purpose. The Court finds the purpose and character of Defendant’s use was on the whole significantly transformative.

The Court finds the first factor weighs in favor of fair use.

2. Nature of the Copyrighted Work

The second factor in § 107 is an acknowledgment “that some works are closer to the core of intended copyright protection than others, with the consequence that fair use is more difficult to establish when the former works are copied.” Campbell, supra 510 U.S. at 586. Artistic works like Plaintiff’s photographs are part of that core. The Court finds the second factor weighs against fair use.

3. Amount And Substantiality of the Portion Used

The third fair use factor assesses whether the amount copied was “reasonable in relation to the purpose of the copying.” Id. The analysis focuses on “the persuasiveness of a [copier's] justification for the particular copying done, and the enquiry will harken back to the first of the statutory factors, for . . . the extent of permissible copying varies with the purpose and character of the use.” Id. at 586-87.

In the thumbnail index, Defendant used Plaintiff’s images in their entirety, but reduced them in size. Defendant argues it is necessary for a visual search engine to copy images in their entirety so users can be sure of recognizing them, and the reduction in size and resolution mitigates damage that might otherwise result from copying. As Defendant has illustrated in its brief, thumbnails cannot be enlarged into useful images. Defendant’s Memo of P & A, at 3. Use of partial images or images further reduced in size would make images difficult for users to identify, and would eliminate the usefulness of Defendant’s search engine as a means of categorizing and improving access to Internet resources.

As with the first factor, the Arriba Vista image attributes page presents a greater problem because it displayed a full-size image separated from the surrounding content on its originating Web page. Image attributes (e.g. dimensions and the address of the originating site) could have been displayed without reproducing the full-size image, and the display of the full image was not necessary to the main purposes of the search engine. ⁽⁸⁾

If only the thumbnail index were at issue, Defendant’s copying would likely be reasonable in light of its purposes. The image attributes page, however, was more remotely related to the purposes of the search engine. The Court finds the third factor weighs slightly against fair use.

4. Effect of the Use On The Potential Market or Value

The fourth factor inquiry examines the direct impact of the defendant’s use and also considers “whether unrestricted and widespread conduct of the sort engaged in by the defendant . . . would result in a substantially adverse impact on the potential market for the original.” Campbell, supra, 510 U.S. at 590 (citation omitted).

The relevant market is Plaintiff’s Web sites as a whole. The photographs are used to promote the products sold by Plaintiff’s Web sites (including Plaintiff’s books and corporate tour packages) and draw users to view the additional advertisements posted on those Web sites. The fourth factor addresses not just the potential market for a particular photo, but also its “value.” The value of Plaintiff’s photographs to Plaintiff could potentially be adversely affected if their promotional purposes are undermined.

Defendant argues there is no likely negative impact because its search engine does not compete with Plaintiff’s Web sites and actually increases the number of users finding their way to those sites.

Plaintiff argues the market for his various products has been harmed. Defendant’s conduct created a possibility that some users might improperly copy and use Plaintiff’s images from Defendant’s site. Defendant’s search engine also enabled users to “deep link” directly to the pages containing retrieved images, and thereby bypass the “front page” of the originating Web site. As a result, these users would be less likely to view all of the advertisements on the Web sites or view the Web site’s entire promotional message. However, Plaintiff has shown no evidence of any harm or adverse impact.

In the absence of any evidence about traffic to Plaintiff’s Web sites or effects on Plaintiff’s businesses, the Court cannot find any market harm to Plaintiff. The Defendant has met its burden of proof by offering evidence tending to show a lack of market harm, and Plaintiff has not refuted that evidence. The Court finds the fourth factor weighs in favor of fair use.

5. Conclusion–Fair Use

The Court finds two of the four factors weigh in favor of fair use, and two weigh against it. The first and fourth factors (character of use and lack of market harm) weigh in favor of a fair use finding because of the established importance of search engines and the “transformative” nature of using reduced versions of images to organize and provide access to them. The second and third factors (creative nature of the work and amount or substantiality of copying) weigh against fair use.

The first factor of the fair use test is the most important in this case. Defendant never held Plaintiff’s work out as its own, or even engaged in conduct specifically directed at Plaintiff’s work. Plaintiff’s images were swept up along with two million others available on the Internet, as part of Defendant’s efforts to provide its users with a better way to find images on the Internet. Defendant’s purposes were and are inherently transformative, even if its realization of those purposes was at times imperfect. Where, as here, a new use and new technology are evolving, the broad transformative purpose of the use weighs more heavily than the inevitable flaws in its early stages of development.

The Court has weighed all of the § 107 factors together. The Court finds Defendant’s conduct constituted fair use of Plaintiff’s images. There is no triable issue of material fact remaining to be resolved on the question of fair use, and summary adjudication is appropriate. Defendant’s motion is GRANTED and Plaintiff’s motion is DENIED as to the copyright infringement claims.

B. Digital Millennium Copyright Act

Enacted on October 28, 1998, the Digital Millennium Copyright Act (DMCA) implements two earlier World Intellectual Property Organization treaties. Section 1202 of the DMCA governs “integrity of copyright management information.” ⁽⁹⁾ Section 1202(a) prohibits falsification of copyright management information with the intent to aid copyright infringement. Section 1202(b) prohibits, unless authorized, several forms of knowing removal or alteration of copyright management information. ⁽¹⁰⁾ Section 1203 creates a federal civil action for violations of these provisions.

Plaintiff argues Defendant violated § 1202(b) by displaying thumbnails of Plaintiff’s images without displaying the corresponding copyright management information consisting of standard copyright notices in the surrounding text. Joint Stip. of Facts, ¶¶ 64-69. Because these notices do not appear in the images themselves, the Ditto crawler did not include them when it indexed the images. ⁽¹¹⁾ Id. ¶ 70. As a result, the images appeared in Defendant’s index without the copyright management information, and any users retrieving Plaintiff’s images while using Defendant’s Web site would not see the copyright management information.

Section 1202(b)(1) does not apply to this case. Based on the language and structure of the statute, the Court holds this provision applies only to the removal of copyright management information on a plaintiff’s product or original work. Moreover, even if § 1202(b)(1) applied, Plaintiff has not offered any evidence showing Defendant’s actions were intentional, rather than merely an unintended side effect of the Ditto crawler’s operation.

Here, where the issue is the absence of copyright management information from copies of Plaintiff’s works, the applicable provision is § 1202(b)(3). To show a violation of that section, Plaintiff must show Defendant makes available to its users the thumbnails and full-size images, which were copies of Plaintiff’s work separated from their copyright management information, even though it knows or should know this will lead to infringement of Plaintiff’s copyrights. There is no dispute the Ditto crawler removed Plaintiff’s images from the context of Plaintiff’s Web sites where their copyright management information was located, and converted them to thumbnails in Defendant’s index. There is also no dispute the Arriba Vista search engine allowed full-size images to be viewed without their copyright management information.

Defendant’s users could obtain a full-sized version of a thumbnailed image by clicking on the thumbnail. A user who did this was given the name of the Web site from which Defendant obtained the image, where any associated copyright management information would be available, and an opportunity to link there. ⁽¹²⁾ Users were also informed on Defendant’s Web site that use restrictions and copyright limitations may apply to images retrieved by Defendant’s search engine. ⁽¹³⁾

Based on all of this, the Court finds Defendant did not have “reasonable grounds to know” it would cause its users to infringe Plaintiff’s copyrights. Defendant warns its users about the possibility of use restrictions on the images in its index, and instructs them to check with the originating Web sites before copying and using those images, even in reduced thumbnail form.

Plaintiff’s images are vulnerable to copyright infringement because they are displayed on Web sites. Plaintiff has not shown users of Defendant’s site were any more likely to infringe his copyrights, any of these users did infringe, or Defendant should reasonably have expected infringement.

There is no genuine issue of material fact requiring a trial on Plaintiff’s DMCA claims, and summary adjudication is appropriate. The

Court finds there was no violation of DMCA § 1202. Defendant’s motion is GRANTED and Plaintiff’s motion is DENIED on the DMCA claim.

DATED: December _____, 1999.

GARY L. TAYLOR

UNITED STATES DISTRICT JUDGE

Footnotes

1. This full-size image was not technically located on Defendant’s Web site. It was displayed by opening a link to its originating Web page. But only the image itself, and not any other part of the originating Web page, was displayed on the image attributes page. From the user’s perspective, the source of the image matters less than the context in which it is displayed.

2. Defendant’s current search engine, ditto.com, operates in a slightly different manner. When a ditto.com user clicks on a thumbnail, two windows open simultaneously. One window contains the full-size image; the other contains the originating Web page in full.

3. Images are briefly stored in full on Defendant’s server until the thumbnail is made; they are then deleted. Joint Stip.  32. There is no claim that Defendant provides any access to the full-sized images during this period.

4. Defendant’s request for judicial notice of a Nature article, and Plaintiff’s objection to the request, are both inappropriate. The parties have already included this article as Exhibit 5 to their Joint Stipulation of Facts.

5. The use in this case is commercial, but it is unusual and less serious than many other commercial uses. If, for example, Plaintiff’s images were used without authorization in advertising for Defendant’s Web site, a finding of fair use would be much less likely.

6. The parties argue at length about the possibility of blocking the Ditto crawler from a Web site by use of a “robots.txt” file or other methods. Defendant posted instructions on its Web site for blocking the Ditto crawler in March, after Plaintiff’s images had already been indexed. Plaintiff’s Web sites have never used any of these blocking methods. Joint Stip.  34.

The Ditto crawler has, in the past, apparently visited sites that were supposed to be blocked. Plaintiff argues this is evidence of bad faith by Defendant and suggests the fair use defense should as a result be precluded. The record shows Defendant made efforts to correct problems of this sort when it became aware of them, and did not act in bad faith.

7. Defendant also sought to promote a now-discontinued software product called Arriba Express. Arriba Express allowed users to “vacuum” an entire originating Web site and store it on their computers simply by pointing at a thumbnail. Joint Stip.  45-50, Exh. 18.  The images would be stored along with all content from the originating Web site. Arriba Express served a function related to that of the search engine, and Defendant’s promotion of it represents a related type of “commercial use.”

8. The newer search engine, ditto.com, appears to lessen this problem by eliminating the image attributes page and simultaneously opening the originating Web page along with a full-size image.

9. “Copyright management information” is defined, in relevant part, as:

Any of the following information conveyed in connection with copies . . . of a work . . . or displays of a work, including in digital form . . . :

(1) The title and other information identifying the work, including the information set forth on a notice of copyright.

(2) The name of, and other identifying information about, the author of a work.

(3) The name of, and other identifying information about, the copyright owner of the work, including the information set forth in a notice of copyright.

17 U.S.C. § 1202 (c).

10. Section 1202(b) provides, in relevant part,

No person shall, without the authority of the copyright owner or the law–

(1) intentionally remove or alter any copyright management information,

. . .

(3) distribute . . . copies of works . . . knowing that copyright management information has been removed or altered without authority of the copyright owner or the law, knowing, or, with respect to civil remedies under section 1203, having reasonable grounds to know, that it will induce, enable, facilitate, or conceal an infringement of any right under [federal copyright law].

11. There was one exception–a version of the “Shasta Rainbow” image obtained by the Ditto crawler from a third-party Web site. The copyright notice for that image was incorporated into the image itself (fine print along the edge of the picture). See Joint Stip.,  72-73. Plaintiff’s allegations of DMCA violations are inapplicable to this image.

12. Through Defendant’s current search engine, ditto.com, the user can no longer open a full-sized image without also opening the site where its copyright management information is located.

13. Plaintiff argues Defendant’s warnings are insufficient because they do not appear with the thumbnail images on the search result pages produced by the search engine. The Arriba Vista Web site only offered a warning if users clicked on a link to its “Copyright” page. This warning may arguably have been placed in the wrong place to deter some potential copyright infringers. But this does not necessarily mean Defendant “knew” or “should have known” for the purposes of a DMCA violation, especially since Plaintiff offers no evidence of any actual copyright infringement about which Defendant “should have known.”

Appeal from the United States District Court for the District of Maryland, at Baltimore. J. Frederick Motz, Chief District Judge.
Argued: November 1, 2000
Decided: February 6, 2001
Before WIDENER, WILKINS, and NIEMEYER, Circuit Judges.
Affirmed in part, reversed in part, and remanded by published opinion. Judge Niemeyer wrote the opinion, in which Judge Widener and Judge Wilkins joined.
COUNSEL:
ARGUED: Harry Brett Siegel, LAW OFFICE OF JOEL MARC ABRAMSON, Columbia, Maryland, for Appellant. Robert R. Vieth, COOLEY GODWARD, L.L.P., Reston, Virginia, for Appellee. ON BRIEF: Robert T. Cahill, COOLEY GODWARD, L.L.P., Reston, Virginia, for Appellee.

OPINION
NIEMEYER, Circuit Judge:

We are presented with an issue of first impression whether an Internet service provider enjoys a safe harbor from copyright infringement liability as provided by Title II of the Digital Millennium Copyright Act (“DMCA”) when it is put on notice of infringement activity on its system by an imperfect notice. Because we conclude that the service provider was provided with a notice of infringing activity that substantiallycomplied with the Act, it may not rely on a claim of defective notice to maintain the immunity defense provided by the safe harbor. Accordingly, we reverse the ruling of the district court that found the notice fatally defective, and affirm its remaining rulings.

I

ALS Scan, Inc., a Maryland corporation, is engaged in the business of creating and marketing “adult” photographs. It displays these pictures on the Internet to paying subscribers and also sells them through the media of CD ROMs and videotapes. ALS Scan is holder of the copyrights for all of these photographs.
RemarQ Communities, Inc., a Delaware corporation, is an online Internet service provider that provides access to its subscribing members. It has approximately 24,000 subscribers to its newsgroup base and provides access to over 30,000 newsgroups which cover thousands of subjects. These newsgroups, organized by topic, enable subscribers to participate in discussions on virtually any topic, such as fine arts, politics, religion, social issues, sports, and entertainment. For example, RemarQ provides access to a newsgroup entitled “Baltimore Orioles,” in which users share observations or materials about the Orioles. It claims that users post over one million articles a day in these newsgroups, which RemarQ removes after about 8-10 days to accommodate its limited server capacity. In providing access to newsgroups, RemarQ does not monitor, regulate, or censor the content of articles posted in the newsgroup by subscribing members. It does, however, have the ability to filter information contained in the newsgroups and to screen its members from logging onto certain newsgroups, such as those containing pornographic material.
Two of the newsgroups to which RemarQ provides its subscribers access contain ALS Scan’s name in the titles. These newsgroups “alt.als” and; quot; alt.binaries.pictures.erotica.als” contain hundreds of postings that infringe ALS Scan’s copyrights. These postings are placed in these newsgroups by RemarQ’s subscribers.
Upon discovering that RemarQ databases contained material that infringed ALS Scan’s copyrights, ALS Scan sent a letter, dated August 2, 1999, to RemarQ, stating:
Both of these newsgroups ["alt.als" and ;quot;alt.binaries.pictures.erotica.als"] were created for the sole purpose of violating our Federally filed Copyrights and Tradename. These newsgroups contain virtually all Federally Copyrighted images. . . . Your servers provide access to these illegally posted images and enable the illegal transmission of these images across state lines.
This is a cease and desist letter. You are hereby ordered to cease carrying these newsgroups within twenty-four (24) hours upon receipt of this correspondence . . . .
America Online, Erol’s, Mindspring, and others have all complied with our cease and desist order and no longer carry these newsgroups.
* * *
Our ALS Scan models can be identified at http://www.alsscan.com/modlinf2.html[.] Our copyright information can be reviewed at http://www.alsscan.com/copyrite.html[.]
RemarQ responded by refusing to comply with ALS Scan’s demand but advising ALS Scan that RemarQ would eliminate individual infringing items from these newsgroups if ALS Scan identified them “with sufficient specificity.” ALS Scan answered that RemarQ had included over 10,000 copyrighted images belonging to ALS Scan in its newsgroups over the period of several months and that
[t]hese newsgroups have apparently been created by individuals for the express sole purpose of illegally posting, transferring and disseminating photographs that have been copyrighted by my client through both its websites and its CD-ROMs. The newsgroups, on their face from reviewing messages posted thereon, serve no other purpose.
When correspondence between the parties progressed no further to resolution of the dispute, ALS Scan commenced this action, alleging violations of the Copyright Act and Title II of the DMCA, as well as unfair competition. In its complaint, ALS Scan alleged that RemarQ possessed actual knowledge that the newsgroups contained infringing material but had “steadfastly refused to remove or block access to the material.” ALS Scan also alleged that RemarQ was put on notice by ALS Scan of the infringing material contained in its database. In addition to injunctive relief, ALS Scan demanded actual and statutory damages, as well as attorneys fees. It attached to its complaint affidavits establishing the essential elements of its claims.
In response, RemarQ filed a motion to dismiss the complaint or, in the alternative, for summary judgment, and also attached affidavits, stating that RemarQ was prepared to remove articles posted in its newsgroups if the allegedly infringing articles were specifically identified. It contended that because it is a provider of access to news groups, ALS Scan’s failure to comply with the DMCA notice requirements provided it with a defense to ALS Scan’s copyright infringement claim.
The district court ruled on RemarQ’s motion, stating, “[RemarQ's] motion to dismiss or for summary judgment is treated as one to dismiss and, as such, is granted.” In making this ruling, the district court held: (1) that RemarQ could not be held liable for direct copyright infringement merely because it provided access to a newsgroup containing infringing material; and (2) that RemarQ could not be held liable for contributory infringement because ALS Scan failed to comply with the notice requirements set forth in the DMCA, 17 U.S.C. §512(c)(3)(A). This appeal followed.

II.

ALS Scan contends first that the district court erred in dismissing its direct copyright infringement claim. It contends that it stated a cause of action for copyright infringement when it alleged (1) the “ownership of valid copyrights,” and (2) RemarQ’s violation of its copyrights “by allowing its members access to newsgroups containing infringing material.”)FN1] See generally Keeler Brass Co. v. Continental Brass Co., 862 F.2d 1063, 1065 (4th Cir. 1988) (describing the requirements of a direct infringement claim). In rejecting ALS Scan’s direct infringement claim, the district court relied on the decision in Religious Technology Center v. Netcom On-Line Communication Services, Inc., 907 F. Supp. 1361, 1368-73 (N.D. Cal. 1995), which concluded that when an Internet provider serves, without human intervention, as a passive conduit for copyrighted material, it is not liable as a direct infringer. The Netcom court reasoned that “it does not make sense to adopt a rule that could lead to liability of countless parties whose role in the infringement is nothing more than setting up and operating a system that is necessary for the functioning of the Internet.” Id. at 1372. That court observed that it would not be work able to hold “the entire Internet liable for activities that cannot reason ably be deterred.” Id.; see also Marobie-FL, Inc. v. National Ass’n of Fire Equip. Distribs., 983 F. Supp. 1167, 1176-79 (N.D. Ill. 1997) (agreeing with Netcom’s reasoning). ALS Scan argues, however, that the better reasoned position, contrary to that held in Netcom, is presented in Playboy Enterprises, Inc. v. Frena, 839 F. Supp. 1552, 1555- 59 (M.D. Fla. 1993), which held a computer bulletin board service provider liable for the copyright infringement when it failed to prevent the placement of plaintiff’s copyrighted photographs in its system, despite any proof that the provider had any knowledge of the infringing activities.
Although we find the Netcom court reasoning more persuasive, the ultimate conclusion on this point is controlled by Congress’ codification of the Netcom principles in Title II of the DMCA. As the House Report for that Act states,
The bill distinguishes between direct infringement and secondary liability, treating each separately. This structure is consistent with evolving case law, and appropriate in light of the different legal bases for and policies behind the different forms of liability.
As to direct infringement, liability is ruled out for passive, automatic acts engaged in through a technological process initiated by another. Thus the bill essentially codifies the result in the leading and most thoughtful judicial decision to date: Religious Technology Center v. Netcom On-Line Communication Services, Inc., 907 F. Supp. 1361 (N.D. Cal. 1995). In doing so, it overrules these aspects of Playboy Enterprises, Inc. v. Frena, 839 F. Supp. 1552 (M.D. Fla. 1993), insofar as that case suggests that such acts by service providers could constitute direct infringement, and provides certainty that Netcom and its progeny, so far only a few district court cases, will be the law of the land.
H.R. Rep. No. 105-551(I), at 11 (1998). Accordingly, we address only ALS Scan’s claims brought under the DMCA itself.

III.

For its principal argument, ALS Scan contends that it substantially complied with the notification requirements of the DMCA and thereby denied RemarQ the “safe harbor” from copyright infringement liability granted by that Act. See 17 U.S.C. §512(c)(3)(A) (setting forth notification requirements). It asserts that because its notification was sufficient to put RemarQ on notice of its infringement activities, RemarQ lost its service provider immunity from infringement liability. It argues that the district court’s application of the DMCA was overly strict and that Congress did not intend to permit Internet providers to avoid copyright infringement liability “merely because a cease and desist notice failed to technically comply with the DMCA.”
RemarQ argues in response that it did not have “knowledge of the infringing activity as a matter of law,” stating that the DMCA protects it from liability because “ALS Scan failed to identify the infringing works in compliance with the Act, and RemarQ falls within the ’safe harbor’ provisions of the Act.” It notes that ALS Scan never provided RemarQ or the district court with the identity of the pictures forming the basis of its copyright infringement claim.
These contentions of the parties present the issue of whether ALS Scan complied with the notification requirements of the DMCA so as to deny RemarQ the safe harbor defense to copyright infringement liability afforded by that Act.
Title II of the DMCA, designated the “Online Copyright Infringement Limitation Act,” DMCA, §201, Pub. L. 105-304, 112 Stat. 2877 (1998) (codified at 17 U.S.C. §101 note), defines limitations of liability for copyright infringement to which Internet service providers might otherwise be exposed. The Act defines a service provider broadly to include any provider of “online services or network access, or the operator of facilities therefor,” including any entity providing “digital online communications, between or among points specified by user, of material of the user’s choosing, without modification to the content of the material as sent or received.” 17 U.S.C. ¤ 512(k). Neither party to this case suggests that RemarQ is not an Internet service provider for purposes of the Act.
The liability limiting provision applicable here, 17 U.S.C. §512(c), gives Internet service providers a safe harbor from liability for “infringement of copyright by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider” as long as the service provider can show that: (1) it has neither actual knowledge that its system contains infringing materials nor an awareness of facts or circumstances from which infringement is apparent, or it has expeditiously removed or disabled access to infringing material upon obtaining actual knowledge of infringement; (2) it receives no financial benefit directly attributable to infringing activity; and (3) it responded expeditiously to remove or disable access to material claimed to be infringing after receiving from the copyright holder a notification conforming with requirements of §512(c)(3).Id. §512(c)(1).[FN2] Thus, to qualify for this safe harbor protection, the Internet service provider must demonstrate that it has met all three of the safe harbor requirements, and a showing under the first prong the lack of actual or constructive knowledge is prior to and separate from the showings that must be made under the second and third prongs. In this case, the district court evaluated the adequacy given to RemarQ under the third prong only. Despite the fact the district court stated it was treating RemarQ’s motion as a motion to dismiss, rather than as a motion for summary judgment, the court’s memorandum opinion fails to mention the allegation made in ALS Scan’s complaint that RemarQ had actual knowledge of the infringing nature of the two subject newsgroups even before being contacted by ALS Scan, an allegation denied by RemarQ. Clearly, had the court truly been evaluating ALS Scan’s complaint under a 12(b)(6) standard of review, it would necessarily have had to accept ALS Scan’s allegation as proven for purposes of testing the adequacy of the complaint, see Eastern Shore Markets, Inc. v. J.D. Assoc. Ltd. P’ship, 213 F.3d 175, 180 (4th Cir. 2000), and consequently been required to rule in favor of ALS Scan under the first prong.
Even if we were to treat the district court’s order as disposing of a motion for summary judgment, and not a motion to dismiss, the court still could not, as a matter of law, have resolved the conflicting affidavits about actual knowledge. Resolving whether the court actually treated the motion as one to dismiss or for summary judgment is not necessary, however, because we conclude that ALS Scan substantially complied with the third prong, thereby denying RemarQ its safe harbor defense.
In evaluating the third prong, requiring RemarQ to remove materials following “notification,” the district court concluded that ALS Scan’s notice was defective in failing to comply strictly with two of the six requirements of a notification (1) that ALS Scan’s notice include “a list of [infringing] works” contained on the RemarQ site and (2) that the notice identify the infringing works in sufficient detail to enable RemarQ to locate and disable them. 17 U.S.C. §512(c)(3)(A)(ii), (iii).[FN3] In support of the district court’s conclusion, RemarQ points to the fact that ALS Scan never provided it with a “representative list” of the infringing photographs, as required by §512(c)(3)(A)(ii), nor did it identify those photographs with sufficient detail to enable RemarQ to locate and disable them, as required by §512(c)(3)(A)(iii). RemarQ buttresses its contention with the observation that not all materials at the offending sites contained material to which ALS Scan held the copyrights. RemarQ’s affidavit states in this regard:
Some, but not all, of the pictures users have posted on these sites appear to be ALS Scan pictures. It also appears that users have posted other non ALS Scan’s erotic images on these newsgroups. The articles in these newsgroups also contain text messages, many of which discuss the adult images posted on the newsgroups.
ALS Scan responds that the two sites in question “alt.als” and “alt.binaries.pictures.erotica.als” were created solely for the purpose of publishing and exchanging ALS Scan’s copyrighted images. It points out that the address of the newsgroup is defined by ALS Scan’s name. As one of its affidavits states:
[RemarQ's] subscribers going onto the two offending news groups for the purpose of violating [ALS Scan's] copyrights, are actually aware of the copyrighted status of [ALS Scan's] material because (1) each newsgroup has “als” as part of its title, and (2) each photograph belonging to [ALS Scan] has [ALS Scan's] name and/or the copyright symbol next to it.
Each of these two newsgroups was created by unknown persons for the illegal purpose of trading the copyrighted pictures of [ALS Scan] to one another without the need for paying to either (1) become members of [ALS Scan's] web site(s) or (2) purchasing the CD-ROMs produced by[ALS Scan].
ALS Scan presses the contention that these two sites serve no other purpose than to distribute ALS Scan’s copyrighted materials and therefore, by directing RemarQ to these sites, it has directed RemarQ to a representative list of infringing materials.
The DMCA was enacted both to preserve copyright enforcement on the Internet and to provide immunity to service providers from copyright infringement liability for “passive,” “automatic” actions in which a service provider’s system engages through a technological process initiated by another without the knowledge of the service provider. H.R. Conf. Rep. No. 105-796, at 72 (1998), reprinted in 1998 U.S.C.C.A.N. 649; H.R. Rep. No. 105-551(I), at 11 (1998). This immunity, however, is not presumptive, but granted only to “innocent” service providers who can prove they do not have actual or constructive knowledge of the infringement, as defined under any of the three prongs of 17 U.S.C. §512(c)(1). The DMCA’s protection of an innocent service provider disappears at the moment the service provider loses its innocence, i.e., at the moment it becomes aware that a third party is using its system to infringe. At that point, the Act shifts responsibility to the service provider to disable the infringing matter, “preserv[ing] the strong incentives for service providers and copyright owners to cooperate to detect and deal with copyright infringements that take place in the digital networked environment.” H.R. Conf. Rep. No. 105-796, at 72 (1998), reprinted in 1998 U.S.C.C.A.N. 649. In the spirit of achieving a balance between the responsibilities of the service provider and the copyright owner, the DMCA requires that a copyright owner put the service provider on notice in a detailed manner but allows notice by means that comport with the prescribed format only “substantially,” rather than perfectly. The Act states: “To be effective under this subsection, a notification of claimed infringement must be a written communication provided to the designated agent of a service provider that includes substantially the following . . . .” 17 U.S.C. §512(c)(3)(A) (emphasis added). In addition to substantial compliance, the notification requirements are relaxed to the extent that, with respect to multiple works, not all must be identified only a “representative” list. See id. §512(c)(3)(A)(ii). And with respect to location information, the copyright holder must provide information that is “reasonably sufficient” to permit the service provider to “locate” this material. Id. §512(c)(3)(A)(iii) (emphasis added). This subsection specifying the requirements of a notification does not seek to burden copyright holders with the responsibility of identifying every infringing work or even most of them when multiple copyrights are involved. Instead, the requirements are written so as to reduce the burden of holders of multiple copyrights who face extensive infringement of their works. Thus, when a letter provides notice equivalent to a list of representative works that can be easily identified by the service provider, the notice substantially complies with the notification requirements.
In this case, ALS Scan provided RemarQ with information that (1) identified two sites created for the sole purpose of publishing ALS Scan’s copyrighted works, (2) asserted that virtually all the images at the two sites were its copyrighted material, and (3) referred RemarQ to two web addresses where RemarQ could find pictures of ALS Scan’s models and obtain ALS Scan’s copyright information. In addition, it noted that material at the site could be identified as ALS Scan’s material because the material included ALS Scan’s “name and/or copyright symbol next to it.” We believe that with this information, ALS Scan substantially complied with the notification requirement of providing a representative list of infringing material as well as information reasonably sufficient to enable RemarQ to locate the infringing material. To the extent that ALS Scan’s claims about infringing materials prove to be false, RemarQ has remedies for any injury it suffers as a result of removing or disabling noninfringing material. See 17 U.S.C. §512(f), (g).
Accordingly, we reverse the district court’s ruling granting summary judgment in favor of RemarQ on the basis of ALS Scan’s noncompliance with the notification provisions of 17 U.S.C. §512(c)(3)(A)(ii) and (iii). Because our ruling only removes the safe harbor defense, we remand for further proceedings on ALS Scan’s copyright infringement claims and any other affirmative defenses that RemarQ may have.

IV.

ALS Scan also appeals the district court’s decision not to enter summary judgment on its behalf with respect to its infringement claim. Because there is a dispute as to several material facts, however, we affirm the district court’s ruling on ALS Scan’s motion for summary judgment. If ALS Scan is able to prove that in fact the offending newsgroups’ “sole purpose” is infringement of ALS Scan’s copyrights, it may be entitled to a remedy. However, because it is contested both that such is, in fact, the “sole” purpose of the newsgroups, and that “virtually all” the images posted in the newsgroups are infringing, we are unable to come to any legal conclusions. Final disposition must await further development of the record and further proceedings.

V.

Accordingly, for the reasons given, we reverse the district court’s decision to grant summary judgment in favor of RemarQ, affirm the district court’s decision not to grant summary judgment in favor of ALS Scan, and remand this case for further proceedings consistent with this opinion.
AFFIRMED IN PART, REVERSEDIN PART, AND REMANDED

FOOTNOTES:
FN1.It would appear that ALS Scan’s allegations amount more to a claim of contributory infringement in which a defendant,”with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another,” Gershwin Publ’g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir. 1971), than to a claim of direct infringement.
FN2.Section 512(c)(1) provides in full:
(c) Information residing on systems or networks at direction of users.

(1) In general, a service provider shall not be liable for monetary relief, or, except as provided in subsection (j), for injunctive or other equitable relief, for infringement of copyright by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider, if the service provider
(A)(i) does not have actual knowledge that the material or an activity using the material on the system or network is infringing;
(ii) in the absence of such actual knowledge, is not aware of facts or circumstances from which infringing activity is apparent; or
(iii) upon obtaining such knowledge or awareness, acts expeditiously to remove, or disable access to, the material;

(B) does not receive a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity; and
(C) upon notification of claimed infringement as described in paragraph (3), responds expeditiously to remove, or disable access to, the material that is claimed to be infringing or to be the subject of infringing activity.

FN3. Section 512(c)(3)(A)(ii), (iii) provides:
(3) Elements of notification.
(A) To be effective under this subsection, a notification of claimed infringement must be a written communication provided to the designated agent of a service provider that includes substantially the following: * * *

(ii) Identification of the copyrighted work claimed to have been infringed, or, if multiple copyrighted works at a single online site are covered by a single notification, a representative list of such works at that site.
(iii) Identification of the material that is claimed to be infringing or to be the subject of infringing activity and that is to be removed or access to which is to be disabled, and information reasonably sufficient to permit the service provider to locate the material.

Respondent companies distribute free software that allows computer users to share electronic files through peer-to-peer networks, so called because the computers communicate directly with each other, not through central servers. Although such networks can be used to share any type of digital file, recipients of respondents’ software have mostly used them to share copyrighted music and video files without authorization. Seeking damages and an injunction, a group of movie studios and other copyright holders (hereinafter MGM) sued respondents for their users’ copyright infringements, alleging that respondents knowingly and intentionally distributed their software to enable users to infringe copyrighted works in violation of the Copyright Act.

Discovery revealed that billions of files are shared across peer-to-peer networks each month. Respondents are aware that users employ their software primarily to download copyrighted files, although the decentralized networks do not reveal which files are copied, and when. Respondents have sometimes learned about the infringement directly when users have e-mailed questions regarding copyrighted works, and respondents have replied with guidance. Respondents are not merely passive recipients of information about infringement. The record is replete with evidence that when they began to distribute their free software, each of them clearly voiced the objective that recipients use the software to download copyrighted works and took active steps to encourage infringement. After the notorious file-sharing service, Napster, was sued by copyright holders for facilitating copyright infringement, both respondents promoted and marketed themselves as Napster alternatives. They receive no revenue from users, but, instead, generate income by selling advertising space, then streaming the advertising to their users. As the number of users increases, advertising opportunities are worth more. There is no evidence that either respondent made an effort to filter copyrighted material from users’ downloads or otherwise to impede the sharing of copyrighted files.
While acknowledging that respondents’ users had directly infringed MGM’s copyrights, the District Court nonetheless granted respondents summary judgment as to liability arising from distribution of their software. The Ninth Circuit affirmed. It read Sony Corp. of America v. Universal City Studios, Inc., 464 U. S. 417, as holding that the distribution of a commercial product capable of substantial noninfringing uses could not give rise to contributory liability for infringement unless the distributor had actual knowledge of specific instances of infringement and failed to act on that knowledge. Because the appeals court found respondents’ software to be capable of substantial noninfringing uses and because respondents had no actual knowledge of infringement owing to the software’s decentralized architecture, the court held that they were not liable. It also held that they did not materially contribute to their users’ infringement because the users themselves searched for, retrieved, and stored the infringing files, with no involvement by respondents beyond providing the software in the first place. Finally, the court held that respondents could not be held liable under a vicarious infringement theory because they did not monitor or control the software’s use, had no agreed-upon right or current ability to supervise its use, and had no independent duty to police infringement.
Held: One who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, going beyond mere distribution with knowledge of third-party action, is liable for the resulting acts of infringement by third parties using the device, regardless of the device’s lawful uses. Pp. 10-24.

(a) The tension between the competing values of supporting creativity through copyright protection and promoting technological innovation by limiting infringement liability is the subject of this case. Despite offsetting considerations, the argument for imposing indirect liability here is powerful, given the number of infringing downloads that occur daily using respondents’ software. When a widely shared product is used to commit infringement, it may be impossible to enforce rights in the protected work effectively against all direct infringers, so that the only practical alternative is to go against the device’s distributor for secondary liability on a theory of contributory or vicarious infringement. One infringes contributory by intentionally inducing or encouraging direct infringement, and infringes vicariously by profiting from direct infringement while declining to exercise the right to stop or limit it. Although “[t]he Copyright Act does not expressly render anyone liable for [another's] infringement,” Sony, 464 U. S., at 434, these secondary liability doctrines emerged from common law principles and are well established in the law, e.g., id., at 486. Pp. 10-13.

(b) Sony addressed a claim that secondary liability for infringement can arise from the very distribution of a commercial product. There, copyright holders sued Sony, the manufacturer of videocassette recorders, claiming that it was contributory liable for the infringement that occurred when VCR owners taped copyrighted programs. The evidence showed that the VCR’s principal use was “time-shifting,” i.e., taping a program for later viewing at a more convenient time, which the Court found to be a fair, noninfringing use. 464 U. S., at 423-424. Moreover, there was no evidence that Sony had desired to bring about taping in violation of copyright or taken active steps to increase its profits from unlawful taping. Id., at 438. On those facts, the only conceivable basis for liability was on a theory of contributory infringement through distribution of a product. Id., at 439. Because the VCR was “capable of commercially significant noninfringing uses,” the Court held that Sony was not liable. Id., at 442. This theory reflected patent law’s traditional staple article of commerce doctrine that distribution of a component of a patented device will not violate the patent if it is suitable for use in other ways. 35 U. S. C §271(c). The doctrine absolves the equivocal conduct of selling an item with lawful and unlawful uses and limits liability to instances of more acute fault. In this case, the Ninth Circuit misread Sony to mean that when a product is capable of substantial lawful use, the producer cannot be held contributory liable for third parties’ infringing use of it, even when an actual purpose to cause infringing use is shown, unless the distributors had specific knowledge of infringement at a time when they contributed to the infringement and failed to act upon that information. Sony did not displace other secondary liability theories. Pp. 13-17.

(c) Nothing in Sony requires courts to ignore evidence of intent to promote infringement if such evidence exists. It was never meant to foreclose rules of fault-based liability derived from the common law. 464 U. S., at 439. Where evidence goes beyond a product’s characteristics or the knowledge that it may be put to infringing uses, and shows statements or actions directed to promoting infringement, Sony’s staple-article rule will not preclude liability. At common law a copyright or patent defendant who “not only expected but invoked [infringing use] by advertisement” was liable for infringement. Kalem Co. v. Harper Brothers, 222 U. S. 55, 62-63. The rule on inducement of infringement as developed in the early cases is no different today. Evidence of active steps taken to encourage direct infringement, such as advertising an infringing use or instructing how to engage in an infringing use, shows an affirmative intent that the product be used to infringe, and overcomes the law’s reluctance to find liability when a defendant merely sells a commercial product suitable for some lawful use. A rule that premises liability on purposeful, culpable expression and conduct does nothing to compromise legitimate commerce or discourage innovation having a lawful promise. Pp. 17-20.

(d) On the record presented, respondents’ unlawful objective is unmistakable. The classic instance of inducement is by advertisement or solicitation that broadcasts a message designed to stimulate others to commit violations. MGM argues persuasively that such a message is shown here. Three features of the evidence of intent are particularly notable. First, each of the respondents showed itself to be aiming to satisfy a known source of demand for copyright infringement, the market comprising former Napster users. Respondents’ efforts to supply services to former Napster users indicate a principal, if not exclusive, intent to bring about infringement. Second, neither respondent attempted to develop filtering tools or other mechanisms to diminish the infringing activity using their software. While the Ninth Circuit treated that failure as irrelevant because respondents lacked an independent duty to monitor their users’ activity, this evidence underscores their intentional facilitation of their users’ infringement. Third, respondents make money by selling advertising space, then by directing ads to the screens of computers employing their software. The more their software is used, the more ads are sent out and the greater the advertising revenue. Since the extent of the software’s use determines the gain to the distributors, the commercial sense of their enterprise turns on high-volume use, which the record shows is infringing. This evidence alone would not justify an inference of unlawful intent, but its import is clear in the entire record’s context. Pp. 20-23.
(e) In addition to intent to bring about infringement and distribution of a device suitable for infringing use, the inducement theory requires evidence of actual infringement by recipients of the device, the software in this case. There is evidence of such infringement on a gigantic scale. Because substantial evidence supports MGM on all elements, summary judgment for respondents was error. On remand, reconsideration of MGM’s summary judgment motion will be in order. Pp. 23-24.
380 F. 3d 1154, vacated and remanded.
Souter, J., delivered the opinion for a unanimous Court. Ginsburg, J., filed a concurring opinion, in which Rehnquist, C. J., and Kennedy, J., joined. Breyer, J., filed a concurring opinion, in which Stevens and O’Connor, JJ., joined.

METRO-GOLDWYN-MAYER STUDIOS INC., et al.,
PETITIONERS v. GROKSTER, LTD., et al.
on writ of certiorari to the united states court of appeals for the ninth circuit
[June 27, 2005]