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Perfect 10, Inc. v. Google

December 22, 2008

PERFECT 10, INC.
v.
GOOGLE, INC., ET AL. PERFECT 10, INC. V. AMAZON.COM, INC., ET AL. PERFECT 10, INC. V. MICROSOFT CORPORATION



The opinion of the court was delivered by: The Honorable A. Howard Matz, U.S. District Judge

CIVIL MINUTES - GENERAL

Stephen Montes Not Reported

Deputy Clerk Court Reporter / Recorder Tape No.

Proceedings: IN CHAMBERS (No Proceedings Held)

ORDER CONSOLIDATING CASES, STAYING GOOGLE AND AMAZON AND DIRECTING CASE MANAGEMENT FOR MICROSOFT

The Court directs the parties to construe and apply this Order in light of the Court's September 25, 2008 order and the various orders and hearings that have occurred thereafter. That order is attached hereto as Exhibit 1.

A. CONSOLIDATION

The Court consolidates these three actions for the purpose of ensuring that Google and Amazon (including A9 and Alexa) are automatically included in the Court's ECF system on all filings in Microsoft. The Clerk's Office is instructed to treat these cases as consolidated.

B. STAY PROVISIONS

The Court stays Perfect 10 v. Google and Perfect 10 v. Amazon.com in their entirety. No discovery or motion practice in the two stayed cases is permitted during the stay, and no rulings will be issued on any pending motions in those cases, except that the Court will timely rule on A9's motion for summary judgment on contributory copyright infringement.*fn1 It will also rule on Perfect 10's fully briefed partial summary judgment motion against Amazon and Alexa, but that motion is taken under submission and may remain so for a lengthy period.

The stay will remain in place until the earliest of the following: (a) one week after the Court receives a written stipulation that Microsoft has settled, (b) one week after rulings on motions that resolve the last remaining copyright claims, or (c) one week after a verdict in the trial on the copyright claims. No stay will be in effect during the pendency of an appeal from dispositive motions or trial.

To ensure no prejudice to the defendants whose cases are stayed, during the pendency of the stay (a) Perfect 10 may not issue DMCA notices to those defendants; (b) Perfect 10 may not pursue any claims or damages against those defendants arising from any conduct or events during the stay period; and (c) with respect to existing claims or claims filed for the first time in the future, Perfect 10 may not contend or establish that the defendants' actions or inactions during the stay period evidence knowledge of infringement, willfulness, or intent. Nor may Perfect 10 point to such actions or inactions to support any claim for damages.

Once the stay is lifted, Google and Amazon (including A9 and Alexa) will be permitted to argue that rulings on findings in Microsoft give rise to a reasonable assertion of offensive collateral estoppel or res judicata or both, and to seek appropriate relief. Of course, Perfect 10 will be entitled to oppose any such argument(s).

The Court makes the following findings in support of the stay.

(a) These are unusually complex cases that have posed difficult problems for all the parties and the Court, especially in discovery. The nature, scope and scale of the infringements that Perfect 10 has alleged and the technological issues that are central to the disputes have made the cases even more complicated than such actions typically are. As evidenced by the numerous orders and status conferences since August 2008, the Court has endeavored to balance a number of considerations, including the parties', especially defendants', right to sweeping discovery, the burdens the defendants' discovery requests impose on Perfect 10, the Magistrate Judge's capacity to rule on motions involving "mega requests" (as well as this Court's capacity to rule on appeals from his rulings) and this Court's availability to rule on substantive motions and otherwise manage all these cases in light of the Court's extremely burdensome docket (exacerbated by an exploding criminal caseload). The Court has considered alternatives to this stay, including various solutions for managing these cases, such as the option of appointing a special discovery master or technical advisor.

(b) It is undisputed that the main issue in each of these cases is whether defendants may be liable for third parties' infringement of Perfect 10's copyrights. A timely resolution of the copyright claims in Microsoft will significantly narrow the factual and legal issues in dispute in the two stayed cases and significantly simplify the problems of proof and discovery that have complicated the resolution of all these cases. The Court selects Microsoft as the case to move forward first because it was already set for trial, has had fewer discovery problems, and is proceeding at a more advanced pace overall.

(c) The evolving nature of copyright law as applied to Internet service providers requires careful consideration of a wide array of factual and legal issues in all these cases, but if they proceeded simultaneously, the Court's ability to give them the timely and careful consideration each deserves would be seriously compromised. Stalled discovery notwithstanding, all the parties are preparing numerous summary judgment motions. These motions would inevitably be taken under possibly lengthy submission anyway.

(d) None of the Amazon defendants claims that a stay will prejudice its legal rights, so long as Perfect 10 is not permitted to accrue additional claims or damages against them during the stay. They only ask the Court to rule on the summary judgment motions they have already filed.

(e) Google did argue in its papers that it will be prejudiced by a delay in the determination of its legal obligations. As noted above, delay would be inevitable anyway if all three cases proceeded simultaneously. Although Perfect 10 has asserted certain unique claims against Google, with the exception of the copyright claim based on Blogger, its claims all arise from Google's search engine operations, and they pose the same or very similar analytical and discovery problems that the Court referred to above.

(f) For all these reasons, the Court finds that a stay of a reasonably short duration of both Google and Amazon will promote the fair and efficient resolution of those two cases. At the status conference on December 18, 2008, both Google and the Amazon parties conceded that a stay is a reasonable solution, given the conditions attached to the stay.

C. MANAGEMENT OF MICROSOFT CASE

Perfect 10 and Microsoft filed a Joint Status Report on November 10, 2008 detailing the significant progress that they had made toward negotiating a fair and efficient approach to the litigation. The Court agrees with and adopts Microsoft's proposal for structuring the litigation and rejects Perfect 10's opposition, criticisms or reservations. (See Joint Status Report, attached hereto and incorporated herein by reference as Exhibit 2, at 2:22-3:6.)

For Perfect 10 v. Microsoft, the Court ORDERS that:

(a) Perfect 10 shall select the factual and legal combinations that it will pursue using the list in Exhibit C to the attached Joint Status Report. This must be done by not later than January 5, 2009. The following instructions apply:

(i) Perfect 10 shall select at least one vicarious infringement combination.

(ii) Perfect 10 may not choose any of items N67-N70, theories of trademark infringement. In light of the admissions it made in discovery waiving all trademark claims, Perfect 10 must seek leave from the Court to prosecute any trademark claims, state or federal. Perfect 10 may not make such a motion until its copyright claims are resolved.

(iii) Perfect 10 may select not more than the 187,400 combinations, as it referred to in its "Answer . . . Regarding . . . Combination Scenarios" filed on December 19, 2008 and attached hereto as Exhibit 3. The Court allows Perfect 10 to "use" such combinations only because of its assurance in Exhibit 3 that it will not designate more than 60 works to represent all these combinations. (iv) Perfect 10 shall produce a spreadsheet listing its selected combinations using the codes in Exhibit C to the Joint Status Report.

(v) All factual and legal combinations and items from Exhibit C that Perfect 10 does not select shall be waived. That is, as to any of the works Perfect 10 claims or in the future may claim have been infringed, Perfect 10 may not thereafter pursue any claims against Microsoft based on a waived combination.

(b) For each combination Perfect 10 does choose to pursue, it must designate on the spreadsheet one (1) work (image) to serve as the exemplar for that combination. Perfect 10 has represented that it will designate not more than 60 works, some or all of which can apply to or fall within more than one combination. This designation must be provided by not later than January 20, 2009. Microsoft may then counter-designate one work (image) for each combination selected by Perfect 10, but it is not necessarily limited to 60 works, because it is not required to use a given work as an example for multiple combinations. This counter-designation must be provided by not later than February 2, 2009. These works shall serve as the basis or "sample" for later summary judgment motion practice and the basis for future extrapolation to the other works falling within that combination that Perfect 10 claims were infringed.

(c) For each designated work, Perfect 10 must produce all the information listed in Exhibit A to the November 10, 2008 Joint Status Report, except for #13 (damages claimed). Perfect 10 shall provide this information in a spreadsheet format, preferably using the same spreadsheet referred to above, and shall provide the information to Microsoft by not later than January 20, 2009.

(d) Unless compelling cause is shown, discovery may not take place and discovery motions may not be filed for any information other than what is required by this Section (C)(2) of this Order..

(e) (i) The Court sets August 11, 2009 as the trial date.

(ii) The parties shall jointly file a stipulation for the rest of the dates on the Court's "Presumptive Schedule." Their stipulation shall also include a last date by which Perfect 10 may file an amended complaint alleging and identifying additional works infringed by Microsoft. Unless modified by the Court, Perfect 10 and Microsoft must adhere strictly to this schedule. The Court is highly unlikely to grant continuances, especially if sought by Perfect 10, absent compelling reasons, such as medical emergencies. The scheduling order dated February 11, 2008 is vacated.

Initials of Preparer SMO

The Court has considered the parties' responses to the Court's minute order dated August 20, 2008 concerning discovery disputes and the appointment of a discovery master. The Court has also considered the parties' contentions and concerns regarding a variety of issues arising from the August 18, 2008 scheduling conference and the August 27, 2008 telephonic conference, including the setting of trial dates for the Google and Amazon cases. The Court does not intend to appoint either a technical advisor or a discovery master at this time.

The parties in all these cases somehow have succumbed to the all-too-frequent tendency of litigants and lawyers to get sidetracked. That is particularly regrettable in lawsuits, such as these, that are complicated, technology-driven and potentially far-reaching.*fn2 For the Court to manage these cases in a standard fashion, such as to treat the pending discovery motions as if they were commonplace disputes, would not advance the goal of enabling the parties either to ready these cases for Rule 56 determinations or for meaningful settlement talks.*fn3

Given the foregoing problems, as well as the enormous, ever-expanding number of the copyrighted images that Perfect 10 claims were infringed, it is necessary and appropriate for the Court to manage these cases differently. Therefore, in the exercise of its inherent and statutory authority to administer the rules of discovery in a manner that will "secure the just, speedy, and inexpensive determination of every action and proceeding," Fed. R. Civ. P. 1, the Court intends to require the parties to negotiate in good faith a method or approach that will enable them to assess the strengths and weaknesses of their respective overall "cases" and contentions based on a sample of the key pertinent facts. In other words, the parties will take an approach comparable to that of a recognized, impartial expert who uses surveys and statistical analyses to project the extent (if any) of customer satisfaction with a product or, in the trademark context, the extent of confusion among consumers as to the source or origin of goods. From the information that the parties obtain, exchange and organize, they should be able to extrapolate reliable conclusions as to where they think they can go, or want to go, from

Accordingly, the Court has determined that a further conference with counsel in all three cases is necessary. Accordingly, the Court ORDERS the parties in all these cases to appear for a status conference on October 6, 2008 at 1:30 p.m.. The broad purpose of the conference is to explore ways for the parties to achieve the foregoing objectives -- i.e., summary judgment and settlement readiness -- without "going the distance" via full-fledged, uncircumscribed discovery.

At the conference, the Court will invite counsel to address the following preliminary or tentative findings and proposals, which will probably be incorporated into a special Case Management Order that will issue at the same time as the scheduling orders for the Google and Amazon cases. The following paragraphs are numbered to facilitate discussion.

Perfect 10 will have to identify each "Perfect 10 Copyrighted Work" it claims was infringed by not later than ___________________. Thereafter, Perfect 10 will be precluded from seeking damages for the infringement of any work not so identified. It would, however, be entitled to injunctive relief for works identified later.

In this discovery phase, the focus should be on developing information that enables the parties to assess their positions as to the secondary copyright liability claims that the Ninth Circuit addressed in Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1169-76 (9th Cir. 2007). Among the key major factors that should be the focus of their efforts are the following:

A. Contributory Liability (see 508 F.3d at 1171-72).

(1) What specific infringing material did defendant learn was on or accessible through its "system"?

(a) When?

(b) How?

(i) If by way of a DMCA notice, what did the notice contain?

(ii) Was the notice in compliance with section 512?

(2) At the time defendant learned of the infringing image, what simple, reasonable and feasible measures, if any, did defendant have to avoid providing Internet users access to infringing images? (See 508 F.3d at 1172.) E.g., what changes to its operations could defendant have made to avoid assisting infringing websites? (See 508 F.3d at 1174-75.)

B. Vicarious Liability (see 508 F.3d at 1173-74).

(1) At the time defendant learned of the infringing image, did defendant have a legal right to stop or limit the directly infringing conduct?

(a) Did it have the right to terminate websites?

(b) Did it have the right to block websites' ability to host and serve infringing images?

(2) Did defendant actually decline to exercise that right?

(3) Does defendant have such a legal right currently?

(4) At the time defendant learned of the infringing image, did defendant have the practical ability to stop or limit infringement?

(a) The ability to determine whether there is infringement, in the absence of targeted DMCA notices?

(b) The ability to block access to infringing images?

(5) In what manner did defendant derive a direct financial benefit from the directly infringing conduct? (This inquiry seeks a description; it does not require a calculation of claimed damages.)

In light of the large number of copyright registrations and works that Perfect 10 has placed at issue in all three cases, the Court finds that it would be both fair and feasible for Perfect 10 to create a spreadsheet along the lines contemplated by Google's Interrogatories Nos. 3 and 11, A9.com's Interrogatories Nos. 1 and 6, and Microsoft's Interrogatory No. 1 -- but only for a selected and relatively small sample of copyrighted

Such a limited spreadsheet would reduce or possibly eliminate any requirement that the parties search through all the hard drives and disorganized physical documents that Perfect 10 has provided in discovery thus far. It also would do much to avoid or reduce further discovery disputes, promote the efficient and timely administration of these lawsuits and provide a framework for settlement.

(a) Based on the joint stipulations in the parties' pending motions to compel responses to those interrogatories, the Court compiled a chart, attached hereto, that displays the categories of information sought in those interrogatories, as well as the information that Perfect 10 contends it has already produced or will produce. The Court realizes that not all those interrogatories seek identical pieces of information. (E.g., Microsoft did not request a list of infringing URLs.) However, they all basically seek a way to enable the parties to gather and access vital identifying information about the copyrighted work in question.

(b) The precise information required for the spreadsheet remains to be determined. The Court doubts that all of the disputed categories reflected in the attachment need be included, but at a minimum, it would be necessary to identify the work, the registration number, chain of title information, the URL(s) of infringing websites, and the DMCA notices. At trial Perfect 10 itself would have to introduce such information anyway, because the fact-finder would need it to determine whether the parties proved their claims (or defenses, as the case may be). If at trial Perfect 10 sought to prove these facts through charts and summaries, it would have had to provide the underlying evidence for the charts and summaries sometime before trial. See Fed. R. Evid. 1006. The Court finds that it is "reasonable" to require it to do so at this stage, in discovery.

After the entries have been made in the spreadsheet, the Court will either limit discovery to the Perfect 10 Copyrighted Works specified in the spreadsheet or require that discovery be primarily focused on those works. In any event, the Court will order the parties to use the spreadsheet entries to extrapolate facts, based on statistically sound methods, as to the remaining works that Perfect 10 has claimed were infringed. To implement this approach, two issues must be decided.

(a) First, what categories of information should be placed on the spreadsheet? There are at least two ways to determine this. The first way is for the parties to agree on what information is so vital that it should be reflected on the spreadsheet. The second way is for the Court to make that determination.

(b) Second, which works will be selected for the sample that is the basis for the spreadsheet? Again, the first way to determine this is for the parties to agree. The second is to allow Perfect 10 to select the works that will be entered on the spreadsheet, from the potentially thousands it has pointed to thus far, provided that Dr. Zada file a sworn declaration describing the methodology, including any assumptions, Perfect 10 used to select such works.

What will deter Perfect 10 from skewing the designation of works in an effort to enlarge or exaggerate the number of infringements and/or damages? Simply this: Defendants will be given the opportunity to establish that the spreadsheet entries Perfect 10 chose are not fairly representative of the entire range of works in question. If they succeed, the Court likely would order Perfect 10 to develop a spreadsheet for literally every work it identified as having been infringed, and would preclude it from pursuing damages for any work not properly incorporated into such spreadsheet. In other words, the Court would return the case to conventional forms of "combat."

At the conference, the Court will also invite counsel to answer the following questions:

(a) For one copyrighted work, how much time would it take to enter all the allegedly infringing URLs onto a spreadsheet? How much time would it take to enter all the information tallied in the attached chart?

(b) Assume that the sample discussed above consists of 100 copyrighted works and that discovery of the facts relevant to the claims and defenses for those works has been completed. Looking at those facts in the light most favorable to Perfect 10, assume that at most Perfect 10 may succeed in proving liability for 50 works. Would such a statistical outcome help the parties resolve their dispute? What if the number were 33 out of 100?

Initials of Preparer

Information Sought by Defendants in Motions to Compel

Category Google*fn4 A9.com*fn5 Microsoft*fn6 Already in Perfect 10's production?

Unique identifier of the work T T T

Copyright Registration # T T T Y

Page number of document(s) containing the work T T T (just "exemplar")

URLs of allegedly infringing webpage T T Y

Date of DMCA notice sent T T Y

Damages claimed T T T

Date of and particular conduct constituting the infringing act T Y

Search term and other instructions or events used to cause the infringing display T

Indicate thumbnail or full-size image T

Copyright registrations of compilations or derivative works incorporating the work T

Documents showing chain of title T Y

Date of first publication of ...


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