The opinion of the court was delivered by: Irma E. Gonzalez, Chief Judge United States District Court
ORDER GRANTING IN PART DEFENDANT MEGAUPLOAD'S AND DENYING IN PART MOTION TO DISMISS [Doc. No. 7]
This is an intellectual property case. Plaintiff Perfect 10, Inc. (Perfect 10) has asserted federal copyright and trademark claims, along with related state law claims, against Defendants Megaupload Limited (Megaupload) and its founder, Kim Schultz. Perfect 10 alleges Megaupload stores billions of dollars of "pirated" media on its servers, including thousands of Perfect 10 images and video. Presently before the Court is Defendant Megaupload's motion to dismiss. For the reason stated below, the Court GRANTS IN PART and DENIES IN PART Megaupload's motion.
Plaintiff Perfect 10, Inc. creates and sells adult entertainment products, including photographs, magazines, videos, and other media. [Compl. ¶ 12.] Formerly the publisher of the well-known magazine PERFECT 10, Perfect 10 now distributes its products primarily through its website, perfect10.com. [See id. ¶¶ 13-16.] To access content on perfect10.com, customers log in using a user name and password, which are obtained by paying a a monthly fee. [Id. ¶ 15.] Perfect 10 earns most of its revenue from sales of memberships on perfect10.com.
Because its business depends almost entirely on its intellectual property rights, [Id. ¶ 21], Perfect 10 has taken extensive steps to protect those rights. Perfect 10 owns thousands of copyrighted images, a substantial number of which are registered with the U.S. Copyright Office. [Id. ¶ 17.] Perfect 10 also owns a family of trademarks, three of which have become incontestable under Section 15 of the Lanham Act, 15 U.S.C. § 1065. [Id. ¶ 18.] Having spent millions of dollars promoting its trademarks, along with the products and services its trademarks represent, Perfect 10 has accumulated valuable goodwill. [Id.] Perfect 10 has also secured rights of publicity from some of its models. [Id. ¶ 20.]
Defendant Megaupload characterizes itself as a "file storage" company. [See Def.'s Mot. at 2.] Megaupload operates various websites, including megaupload.com, megaporn.com, megarotic.com, megavideo.com, and megaclick.com, among others. [Compl. ¶ 22.] Through its websites, Megaupload allows its users to upload files. What's problematic from Perfect 10's perspective is that users frequently upload "pirated" content to Megaupload's servers, which anyone may download with ease. [See id.]
The website megaupload.com is illustrative. [See id.] After a file is uploaded to megaupload.com, Megaupload creates a unique Uniform Resource Locator ("URL"). [Id.] The URL is the address of the file on the internet. [See id.] Anyone with the URL can download the file from Megaupload's servers. [Id.] Megaupload and its users disseminate URLs for various files throughout the internet. [Id.] In order to view, copy, or download such files from the Megaupload websites without waiting, users must pay a membership fee. [Id.] It is not clear from Perfect 10's complaint whether Megaupload's other websites work in precisely the same fashion as megaupload.com. [See generally Compl.]
This much is clear: Megaupload allegedly stores billions of dollars of "pirated" full-length movies, songs, software, and images on its servers. [Id. ¶ 22.] Megaupload apparently depends on, and provides substantial payouts to, affiliate websites who catalogue the URLs providing access to the mass of "pirated" content on Megaupload's servers. [Id. ¶ 26.] For example, at the affiliate search engine megaupload.net, users who perform a search are directed to Megaupload's website and offered the opportunity to purchase a membership. [Id.]
Megaupload also encourages its users to upload materials through its "Rewards Programs." Megavideo.com and megaporn.com have a rewards program called "Megaporn Rewards." [Id. ¶ 24.] Megaupload.com also has a rewards program, which it runs in a similar fashion, stating: The more downloads your files get, the more you can earn through our Megaupload Rewards program. Every qualifying download of one of your files will earn you a reward point. When you have reached a certain number of points, you can redeem them for premium status or even cash. There is no limit! And even better: The more downloads your files get, the more you can earn through our Megaupload Rewards program.
[Id.] Megaupload offers $10,000 for 5,000,000 reward points. [Id.]
Among the materials available on Megaupload's servers are thousands of
Perfect 10 images, videos, and other materials. [Id. ¶ 28.] The
copyrighted nature of the Perfect 10 materials is obvious, as the
materials contain copyright notices and are labeled "Perfect 10" or
Perfect-10. [Id.] Between July 23 and August 8, 2010, Perfect 10
allegedly sent Megaupload 22 notices of infringement.*fn1
[Id.] Most of the infringing works identified in the notices
have not been removed. [Id.]
In early 2011, Perfect 10 filed a complaint in this Court. [Doc. No. 1.] In its complaint, Perfect 10 asserts federal copyright and trademark claims, as well as state law unfair competition and right of publicity claims. [Id.] Presently before the Court is Defendant Megaupload's motion to dismiss. [Doc. No. 7.] The motion has been fully briefed and is suitable for disposition without oral argument pursuant to Civil Local Rule 7.1(d).
I. Legal Standard for a Rule 12(b)(6) Motion to Dismiss
A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a) (2009). A motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims asserted in the complaint. Fed. R. Civ. P. 12(b)(6); Navarro v. Block, 250 F.3d 729, 731 (9th Cir. 2001). The court must accept all factual allegations pled in the complaint as true, and must construe them and draw all reasonable inferences from them in favor of the nonmoving party. Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996).
To avoid a Rule 12(b)(6) dismissal, a complaint need not contain detailed factual allegations, rather, it must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim has "facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, --- U.S. ---, 129 S.Ct. 1937, 1949 (2009) (citing Twombly, 550 U.S. at 556).
However, "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (citation omitted). A court need not accept "legal conclusions" as true. Ashcroft v. Iqbal, --- U.S. ---, 129 S.Ct. 1937, 1949 (2009). In spite of the deference the court is bound to pay to the plaintiff's allegations, it is not proper for the court to assume that "the [plaintiff] can prove facts that [he or she] has not alleged or that defendants have violated the . . . laws in ways that have not been alleged." Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526 (1983).
A. Exhibits to the Van der Kolk Declaration
In support of its motion to dismiss, Megaupload submitted a declaration by Bram van der Kolk accompanied by 22 exhibits. The parties dispute whether the Court may consider such materials in ruling on the motion.*fn2
"In ruling on a 12(b)(6) motion, a court may generally consider only allegations contained in the pleadings, exhibits attached to the complaint, and matters properly subject to judicial notice. Swartz v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007) (citation omitted). "However, in order to prevent plaintiffs from surviving a Rule 12(b)(6) motion by deliberately omitting documents upon which their claims are based, a court may consider a writing referenced in a complaint but not explicitly incorporated therein ...