Megaupload Fails to Derail Perfect 10 Infringement Lawsuit

LOS ANGELES—Chief Judge Irma E. Gonzalez of the U.S. District Court for the Southern District of Los Angeles has issued a very interesting ruling on a motion to dismiss filed by the defendant in Perfect 10 v. Megaupload Limited, a copyright infringement lawsuit brought by Perfect 10’s Norm Zada against the “file storage” company that operates a number of websites, including megaupload.com, megaporn.com, megarotic.com, megavideo.com and megaclick.com, among others. Though the ruling essentially splits the difference with respect to individual claims made by Perfect 10—including dismissing without prejudice Perfect 10’s vicarious copyright infringement, trademark infringement and publicity rights claims—the overall attempt by Megaupload to dismiss the entire case failed in ways that may come back to haunt not only its success in this case but also future cases that involve similar online networks claiming DMCA safe harbor status. Indeed, not only was Judge Gonzalez not swayed by Megaupload’s  claim in its motion that Perfect 10 failed to allege specific knowledge by Megaupload of infringement—specifically arguing that takedown notices sent by Perfect 10 were deficient and thus did not require a response and could not be used to prove knowledge of infringement—she concluded to the contrary, “There is some doubt among courts as to whether a takedown notice automatically implies knowledge,” and added ominously, “In this case, there are additional allegations in Perfect 10's complaint that give rise to a plausible inference of knowledge.” Indeed, the question of direct infringement had already been established to the satisfaction of the court. “Drawing all reasonable inferences in Perfect 10's favor,” wrote Gonzalez, “Megaupload serves as more than a passive conduit, and more than a mere 'file storage' company: it has created distinct websites, presumably in an effort to streamline users' access to different types of media (e.g., megapom.com, megavideo.com); it encourages and, in some cases pays, its users to upload vast amounts of popular media through its Rewards Programs; it disseminates URLs for various files throughout the internet; it provides payouts to affiliate websites who maintain a catalogue of all available files; and last, at a minimum, it is plausibly aware of the ongoing, rampant infringement taking place on its websites. Taken together, Perfect 10 has adequately alleged Megaupload has engaged in volitional conduct sufficient to hold it liable for direct infringement.” Driving yet more nails into Megaupload’s coffin, Gonzalez stated that Megaupload in its motion does not even dispute Perfect 10's allegation that it induces, causes, or materially contributes to infringing conduct. “Nor could it,” she states, “given the allegations that Megaupload encourages, and in some cases, pays its users to upload vast amounts of popular media through its Rewards Programs… Under the circumstances of this case, if Megaupload lacks knowledge of infringing activity, Plaintiff’s allegations suggest such a lack of knowledge is willful. The Court concludes Perfect 10 has satisfactorily pleaded specific knowledge of contributory infringement, and therefore denies Megaupload's motion to dismiss that claim.” Regarding the dismissed vicarious infringement claim by Perfect 10, Gonzalez did not conclude that it had not taken place, but that Perfect 10 had not provided facts to prove that Megaupload had the “right and ability to supervise infringing conduct,” leaving open the possibility for Perfect 10 to re-file an amended complaint with sufficient facts to prove the charge. The same possibility for amendment held for the trademark infringement claim and the right of publicity rights claim. In the former, Gonzalez agreed with Perfect 10’s own admission that its “trademark infringement allegations are not ‘explicitly stated.’ For instance, the word ‘confusion’ appears nowhere in the complaint.” A similar problem arises with Perfect 10’s rights of publicity claim. “The allegations supporting Perfect 10's reliance on Downing are entirely absent from its complaint,” wrote Gonzalez, adding, "Acknowledging as much, Perfect 10 asserts it is ‘prepared to amend the rights of publicity claim to include these more specific allegations if necessary'." In dismissing all three with prejudice, however, the judge gave Perfect 10 21 days from the filing of the order to file an amended complaint fixing the original complaint’s noted deficiencies. “The amended complaint should only make the revisions discussed above, should be a complete document without reference to any prior pleading, and should not add any new causes of action,” she concluded. If Perfect 10 follows that advice and files an amended complaint, unless some as-yet-unexpressed arguments flip this case on its head, it appears as if Judge Gonzalez will rule in Zada’s favor. Even if Perfect 10 leaves the original complaint as is, however, the specificity with which Gonzalez has connected the infringement dots with respect to Megaupload’s “volitional conduct” would appear to cook the defendant’s goose in any case. Judge Gonzelez’ July 27 ruling can be accessed here. The original Perfect 10 complaint can be accessed here.