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Are Credit Card Providers Liable for Knowingly Facilitating Sales of Infringing Material?

The Ninth Circuit says "no," in Perfect 10 v. Visa Int'l, in an opinion written by Judge Smith and joined by Judge Reinhardt; Judge Kozinski dissents. I think Judge Kozinski's opinion is more persuasive as a matter of current law (whatever one thinks the law ought to be), at least as to contributory liability.

As Judge Kozinski points out, "If this were a drug deal ... we would never say that the guy entrusted with delivery of the purchase money is less involved in the transaction than the guy who helps find the seller." And the Ninth Circuit had already held that "the guy who helps find the seller" in copyright infringement cases, knowing that the seller is infringing, is liable.

The quote comes in the vicarious liability section, but it seems fully applicable to contributory infringement, especially since the theory of contributory infringement is closely related to aiding-and-abetting liability. Knowing provision of material assistance to infringers is sufficient for contributory copyright infringement, and providing financial services surely qualifies as material assistance. The majority's attempts to distinguish such assistance from other assistance strike me as unpersuasive.

In any case, whoever is right, this is obviously an issue that bears further watching, in this litigation and in future cases.

Related Posts (on one page):

  1. Knowingly Helping People Commit Crimes or Torts:
  2. Are Credit Card Providers Liable for Knowingly Facilitating Sales of Infringing Material?
Just Dropping By (mail):
Kozinski is much, much too optimistic about line-drawing by future courts. A victory for the plaintiff here would have spawned literally thousands upon thousands of other cases and likely would have ended up obliterating the Internet as we know it before other courts got around to articulating a sufficient body of law on the topic.

More on point to the post, I think Kozinski's wrong that the creditcard companies profit from the infringement. They profit from facilitating a transaction between Party A and Party B, regardless of whether that transaction is for a stolen picture or legitimate goods. Kozinski's logic would subject creditcard companies to regulation as a participant in every type of industry the companies process transactions for.
7.3.2007 4:03pm
r78:
And if the credit card company can be compared to a participant in a drug deal what about Google or whatever search enging brought the buyer on contact with the infringing seller? Isn't it sort of like a pimp?

If one can expect a credit card company to look into the specifics of a particular transaction, surely one could expect Google to do the same thing . . .

Kozinski just got way to carried away with himself . ..
7.3.2007 4:19pm
Anon. E. Mouse (mail):
Under Judge Kozinski's standard, it seems that Microsoft, Cisco and the rest of the internet are just as liable.

Now, perhaps I should have said under the 9th Cir's standard in Amazon, as Judge K. helpfully points out.

[The Amazon court] canvasses the caselaw in this area and concludes that Google "could be held contributorily liable if it had knowledge that infringing Perfect 10 images were available using its search engine, could take simple measures to prevent further damage to Perfect 10's copyrighted works, and failed to take such steps." Amazon, slip op. at 5793. Substitute "payment systems" for "search engine" in this sentence, and it describes defendants here: If a consumer wishes to buy an infringing image from one of the Stolen Content Websites, he can do so by using Visa or MasterCard, just as he can use Google to find the infringing images in the first place.

Then in his footnote 4:

Neither Google nor the credit cards here were designed for infringement. The majority tries to distinguish this case from Napster and [Grokster], where defendants' services were designed for no other purpose. But Napster and Grokster are not the endpoint of this court's caselaw: Even though Google has many legitimate, noninfringing uses, Amazon held that it would be guilty of contributory infringement if it could modify its service to avoid helping infringers. (emphasis added).

It seems Judge K. is applying 9th Cir. law fairly. Perhaps he's proving a point about Amazon?
7.3.2007 4:25pm
Mr. Impressive (mail):
I think the majority has it right, and Kozinski is wrong. The case can easily be distinguished from precedent, and just as importantly, it should be so distinguished.

"If this is a drug deal" is irrelevant, since this case is completely and easily distinguishable from a drug deal. It seems that implicitly, that Kozinski is referring to a specific drug deal where the financial processor is "in the game" taking a "piece of the action," so to speak. Obviously, in that case, you would have vicarious liability.

This case is different. Imagine that a credit card company "facilitated" a drug deal by approving a transaction for the purpose of purchasing gasoline for an automobile (drug dealers need to drive too), even though they had knowledge from some source that their customer was a drug dealer. Does the credit card company have an affirmative duty to investigate the accuracy of this claim, and if it turns out to be accurate, not allow the drug dealer to buy gasoline (which might be used to enable a drug deal)? Clearly, there need to be limits on the liability of credit card companies for the bad actions of its customers. They should not be expected to investigate whether their customer is a drug dealer or other bad actor before approving the purchase of gasoline, which can be used for either good or evil.

Of course, if the drug dealer had been deprived of gasoline, perhaps they wouldn't have been able to transport drugs. The frequency of gasoline purchases by drug dealers is surely increased by the availability of credit. (Yes, sometimes even drug dealers are short of cash.) Thus, the frequency of drug deals that depend on transportation increase. Credit card companies approval of these transactions (and others) is a "but for" cause of quite a few drug deals. But it would be ridiculous to hold that this is a "cause" that should lead to liability for credit card companies.

The question is whether we want to, in effect, force credit card companies to become copyright police (instead of mostly being part of a neutral and background general purpose financial infrastructure that efficiently processes transactions) who have an affirmative duty to expend massive resources surfing the web verifying complaints of copyright infringement. This would be an inefficient use of scarce credit card company resources. And the costs ultimately would be paid by consumers. If sites like Perfect10 want to direct more of societies resources to stopping copyright infringement, they should go lobby Congress and have them raise our taxes to pay for it, not "tax" society indirectly by forcing what should be neutral general purpose financial infrastructure to enforce their narrow interests.

This case is surely distinguishable from a swap meet, the Napster case, and Grokster as well. In those cases, the infringers very existence and a major part of their business was part and parcel with illegal infringement. This simply is not the case with credit card companies, which are a general purpose defacto part of our financial infrastructure.

Having established that a distinction can be made, the question is should it be made. The answer in this case is yes. I am not sure what social value there is in Perfect10s exploitation of women's bodies. But one thing is for sure, the optimal amount of "tax" that we pay as a society to protect the commercial value of Perfect10's exploitation of women should be determined by Congress, not a lawsuit that forces credit card companies to become copyright police who then pass their enforcement costs onto consumers.
7.3.2007 4:37pm
Don Miller (mail) (www):
I think the majority got the case right but for the wrong reasons.

Perfect10 wanted the Credit Card companies to be filters for "legal" vs "illegal" purchases. The strikes several bad chords with me.
1. It would require credit card companies to gather more information about the nature of the transaction than most people are comfortable with. My personal privacy is important enough to me that I am uncomfortable enough that the credit card company has a list of what companies I deal with. Imagine if they also had a list of every item I ever bought from those companies.

2. Perfect10 wanted the case settled according to the laws they wanted to pick from. Most striking is that many of the websites they complained about were owned and operated overseas. I am not familiar enough with the case to know, but at least some of these companies may have been acting in full compliance of the law in their own country. Perfect10 was either unwilling or unable to get the authorities in those various countries to help them, so they tried to go outside the international legal system and impose US Trademark and Copywright law via proxy ie Credit Card Companies.

For many years one of the things I have loved about the Internet is it's Internationality. People in various countries put up servers and give information or goods to people around the world. Companies and individuals, by and large, set up their business models for these websites with regard to the local laws and customs of their home country. They welcomed visitors from around the world and served them all equally.

Governments all around the world, including the US, have been frustrated by their attempts to apply their own laws and standards to the operations of these businesses.

I believe we shouldn't have jurisdiction. What right does the US have to tell a website operator in Pakistan that he needs to shut down his website for any reason? Can we tell a shoe shop or a record store in Pakistan that they can't do business either?

The US Courts have tried to exert jurisdiction by claiming that overseas web sites do business in the US whenever a user accesses the web site. Frankly, while it fits their desire to have control, it is a poor model of how the Internet really works. A better model is that a web user is a tourist in a foreign country when they visit an overseas website. The US can retain jurisdiction over the actions of our residents, but not the web sites themselves.

Of course, my theory removes a lot of government power so it is unlikely to ever win.
7.3.2007 4:57pm
Steve:
I think Kozinski's analogy to drug dealing is absurd and not persuasive in the least.
7.3.2007 5:14pm
Hunter McDaniel (mail):
What is it about copyright owners that makes them think that preventing infringement should be a primary concern for all unrelated businesses? What makes Paramount's interests paramount to all others?

I personally see no reason for credit card companies, Google, ISPs or anyone else to be spending my money on such efforts, money that they could instead be spending on developments that benefit their customers, like ME.
7.3.2007 5:57pm
Eugene Volokh (www):
r78: The Ninth Circuit has already held that google et al. may be held liable for contributory infringement if they continue linking to material they know to be infringing. That was one of the precedents the majority tried to distinguish (in my view, unpersuasively).

Steve: The analogy isn't that copyright infringement is the same as drug dealing. Rather, it's that once the law makes a certain form of conduct legally actionable (civilly or criminally), those who knowingly assist that conduct by carrying the money are legally tantamount to those who knowingly assist that conduct by finding the seller.
7.3.2007 5:59pm
Steve:
The analogy isn't that copyright infringement is the same as drug dealing.

Yes, I know. But "carrying the money" in the context of drug dealing seems clearly different from "carrying the money" in the context of processing credit card transactions. The analogy simply doesn't pass my smell test.
7.3.2007 6:00pm
Avatar (mail):
So if you pay by check, should your bank then be liable?
7.3.2007 6:03pm
Oren (mail):

. . . once the law makes a certain form of conduct legally actionable (civilly or criminally), those who knowingly assist that conduct by carrying the money are legally tantamount to those who knowingly assist that conduct by finding the seller. (my emph)


EV, taking your formulation literally, the burden would be on the plaintiff to prove that the defendant knew that the action they were assisting was illegal/infringing. By that standard, one would simply have to make an effort not to find out anything about your clients and thus be free from liability.
7.3.2007 6:31pm
Eugene Volokh (www):
Oren: Plaintiffs did allege, and apparently were prepared to prove, that the defendants knew this. Plaintiffs let Visa know about the infringements; if it weren't for that, then there'd be no credible claim of liability. (Contributory liability may rest on the defendant's having "reason to know" of the direct infringement, but given the volume and nature of Visa's activity, Visa wouldn't have such reason to know until it was told that its merchant was using Visa to sell infringing matter.)

Folks, this isn't a matter of what the law should be as a matter of first principles. It's a matter of how the existing body of contributory copyright infringement law, which does allow liability for knowingly materially facilitating infringement (including by providing links), should be interpreted when the defendant is providing the financial services used by customers buying infringing material from infringers.
7.3.2007 6:44pm
Adam J:
I'm with Kozinski on this. The drug analogy is quite appropriate. Processing credit card transactions is quite clearly "carrying money." Simply because it happens in the world of bits and bytes doesn't mean their hands are any cleaner.
While I think as a whole copyright is far too expansive, limiting it in a way that conflicts with already established vicarious liability law doesn't make alot of sense. The credit card companies aren't liable until they know that they are contributing to infringement. By not attaching vicariously liability credit card companies will benefit financially by assisting an illegal act.
7.3.2007 7:42pm
Mr. Impressive (mail):

Folks, this isn't a matter of what the law should be as a matter of first principles.


On the contrary, yes it is a matter of what the law should be as a matter of first principles. The two alternatives advanced by the majority and the dissent respectively have major alternative impacts on what the law will be as a matter of first principles.

To distinguish or not to distinguish this case from previous cases is not an entirely objective exercise. Thinking about the policy behind copyright law may help us make that judgment call.

Every case is different. So, the first question is can it be distinguished. Most cases can be distinguished. But we may think that the factors that would allow us to distinguish the case shouldn't matter. But, what is objective in determining whether a distinction that can be made should be made?

Perhaps Eugene Volokh is more of a formalist than I am and thinks that we only need to look to Euclid for our answers. In contrast, as a realist, I recognize that, whether we like it or not, distinguishing or not distinguishing one case from another is subjective art and not objective science. There is no mathematical precision here.

Objectively speaking, a credit card company is different from a swap meet, different than Napster, and different than Grokster. Do these differences matter or not, that is the non-objective question. Given that the question is not objective, of course we should look to the consequences of making the distinction. In this case, the distinction should be made. Unlike with the swap meet mentioned above, Napster, and Grokster, the business model of credit card companies does not majorly depend on copyright infringement. Courts should not enable porn peddlers to tax consumers (through credit card companies) to pay for the enforcement of the copyright in their "creative" works. The optimal amount of copyright enforcement for smut peddlers should be determined by Congress, not the courts. When deciding whether to distinguish a credit card company from Napster, one should take into consideration the consequences. In this case, the consequences of a Kozinski victory would be a massive shift in societal resources into enforcing the copyright of porn merchants. That clearly and obviously was not the intent of Congress when it made individuals and entities potentially secondarily liable for copyright infringement.
7.3.2007 8:41pm
Mark Seecof:
Perfect 10 (and sundry others) want a shortcut scheme to shut down website operators they don't like. Their proposal is: they will send bare-allegation notices directly to payment-processors; payment processors will then become liable for gargantuan statutory damages (for contributory infringement) if they do not immediately boycott the website operators in question; payment processors will promptly adminster a no-cards-for-you death penalty to targeted website operators. If this scheme were in place it would certainly be abused (cf. DMCA takedown notices).

I wonder if Kozinski is mounting a "work to rule" attack on current law. He may have the most plausible reading of the 9th's precedents, but his reading obviously supports a bad policy result. Perhaps if Kozinski got his way the payment processors would galvanize Congress into providing a better solution. (One that would require copyright plaintiffs to get a court order, by a fair process, to bar payment-processors doing business with some website operator.)
7.3.2007 9:00pm
Adam J:
Mr. Impressive,
I'm not sure how we reach "the massive shift in societal resources into enforcing the copyright of porn merchants" conclusion- it strikes me of a slippery slope argument that suggests far more harm will occur then is likely. Also, if you don't think porn should recieve copyright protection there should argue that there should be a law that porn peddlers cannot recieve copyright protection. Instead, this decision seems to say that credit card companies can benefit financially when they knowingly violate copyright law.
7.3.2007 9:08pm
Adam J:
Sorry, I meant credit card companies can benefit financially when they knowingly ASSIST ANOTHER in violating copyright law
7.3.2007 9:11pm
Mr. Impressive (mail):
Adam J,

There are two questions that you are mixing up. (1) Whether something should be protected by copyright and (2) how much in social resources should be devoted to enforcement.

Here, what companies like Perfect 10 are trying to do is coerce credit card companies into enforcing their copyrights. The costs that credit card companies are forced to spend on this will be passed onto consumers, of course. In effect, if credit card companies were liable, porn companies like Perfect 10 would be the beneficiaries of kind of "tax" on society, as more social resources are coercively directed to protecting and enforcing their copyrights in pornography.

Congress's intent in creating secondary liability was obviously and definitely not to tax consumers and funnel more social resources into enforcing copyright on pornography, thereby making its production more lucrative, increasing the quantity produced, and increasing the wealth of porn producers. But that is what would have been the result if Kozinski had gotten his way on this one.

But to address your point more directly, thus far I am not addressing the question of (1) does pornography deserve copyright protection at all, but rather (2) what is the optimal level of enforcement for copyright on pornography and (3) who should decide to allocate a large increase in social resources to enforcing the copyright on pornography, Congress or the courts.

Apparently, Kozinski thought that seeing to it that a massive increase in the quantity of social resources that are allocated to enforcing copyright on pornography was either a desirable good or an acceptable price to pay to advance his clearly subjective views of whether one case should be distinguished from another, despite the fact that such a result is clearly and obviously contrary to the intent of Congress when it established secondarily liability in the first place.

In establishing secondary liability, Congress wanted to prevent people from actively benefiting from copyright infringement by making it a major part of their business model. It emphatically did not want to give pornographers an affirmative right to coerce credit card companies and ultimately consumers into massively increasing expenditures of scarce social resources in order to enforce these copyrights, which, after all, have questionable social value.

A distinction between this case and previous cases is easy to make. Credit card companies only incidentally benefit from expenditures involving infringement, just as they only incidentally benefit when a drug dealer uses a credit card to put gas in his or her car in order to transport drugs.

Ultimately, the decision to increase or decrease social spending on the enforcement of copyright on pornography should be made by Congress, not the courts. Thus, the distinction between credit card companies on one hand, and the swap market case, Napster, and Grokster on the other not only easily can be made, it should be made.
7.3.2007 9:57pm
ReaderY:
If the infringer had used newly-minted paper money instead of a Visa card, would the relevant Federal Reserve Bank be liable?

Since it would be the one supplying the money in such a case, what's the difference?
7.3.2007 10:44pm
Adam J:
Impressive- you are truly suggesting that courts should make a distinction under point 2?!?!? That would clearly be the worst sort of judicial activism- judges would be making moral judgements on the optimal level of enforcement for various types of copyright. You should probably read the decision- it was in no way based on the content of the copyrighted work. The court made it's decision by determining that processing payments was not substantial assistance.
7.3.2007 11:31pm
Michael Kleber (mail):
Perfect 10 proposes that the credit cards should stop processing all transactions for the offending web sites, not merely transactions that contribute to infringement. This would be analogous to asking Google to delist a site entirely, not merely to stop providing links to infringing pictures. I wouldn't call this "simple measures to prevent further damage" — shutting down the internet would prevent further damage too, but that's not being sought.
7.3.2007 11:57pm
Ryan Waxx (mail):
> Eugene Volokh (www):
> Oren: Plaintiffs did allege, and apparently were prepared to prove, that the defendants knew this. Plaintiffs let Visa know about the infringements; if it weren't for that, then there'd be no credible claim of liability.

So let them prove that it was infringing material in a court of law: otherwise all Visa had was an allegation that there was copyright infringement. Visa is not required to investigate, judge, and pass sentence on who owns what material... and until there's a ruling that someone owns something, they aren't required to shut down transactions the moment someone alleges they they own something.

To put it in simpler terms, the Visa corporation is the wrong forum to judge ownership and assess penalties.
7.4.2007 1:26am
Mr. Impressive (mail):
Adam J,

You are misunderstanding me. Please read more carefully. I agree that such a decision should be made by the courts. Which is why Kozinski should not make a decision that ignores the intent of Congress and results in a massive increase in enforcement.
7.4.2007 3:09am
Mr. Impressive (mail):
In my previous comment...

Change:

I agree that such a decision should be made by the courts.

To:

I agree that such a decision should not be made by the courts.
7.4.2007 3:56am
Adam J:
Impressive-

I've read what you said, I assure you I am not confused. You've said "Courts should not enable porn peddlers to tax consumers (through credit card companies) to pay for the enforcement of the copyright in their 'creative' works. The optimal amount of copyright enforcement for smut peddlers should be determined by Congress, not the courts."

Here, you are quite clearly saying the courts should not apply the vicarious liability because they are "smut peddlers." However, such a decision would quite clearly be judicial activism- of which you wrongly accuse Kozinski. Kozinski, and the other judges are interpreting what kind of assistance amounts to vicarious liability- a concept that is applied throughout the law and for judges to not do so here would be abdication of their duty. The SC ruled Grokster and Napster were guilty of vicarious liability- was that judicial activism because the legislature should have done so? Or is that okay in your book because it was music- not porn.

I reitinerate- you should read the case, because the case is about determining how far vicarious liability extends for copyright infringement. It has nothing to do with the nature of the copyright, be it smut or mickey mouse, the judges don't give a shit (nor should they). Nor does it have anything to do with enforcement, that's executive branch business, and this is a civil suit. Impressive, in fact, you seem to be the one confused.
7.4.2007 2:14pm
Mr. Impressive (mail):

Here, you are quite clearly saying the courts should not apply the vicarious liability because they are "smut peddlers."


I never wrote that. Proof, that you, despite denials to the contrary, are confused. Maybe you should read more carefully.

Unfortunately, a useful conversation does not usually arise out of the false premises that arise from sloppy reading.
7.4.2007 3:38pm
markm (mail):

Here, what companies like Perfect 10 are trying to do is coerce credit card companies into enforcing their copyrights.

Their alleged copyrights. Perfect 10 is also asking for a guilty-until-proven-innocent standard for alleged copyright infringement.
7.4.2007 4:53pm
Adam J:
Mr. Impressive-

So let me get this straight- now you're denying you were making a distinction based on their smut peddling? Cause you also said; "Congress's intent in creating secondary liability was obviously and definitely not to tax consumers and funnel more social resources into enforcing copyright on pornography."

Now, obviously your quote is wrong- Congress never intended "smut" to have different copyright protection than other works (so long as it doesn't meet the definition of obscenity anyways)- otherwise they would have said so.

That said- I'm pretty sure this debate should be concluded since you've now denied that you were saying the court should be making a distinct based on pornography, and that was what I took umbrage with in the first place.
7.4.2007 5:07pm
Adam J:
Nevermind the obscenity stuff I put in the last post- I think I'm trying to mix in 1st amendment law for some reason.
7.4.2007 5:59pm
Mr. Impressive (mail):
Adam J,


Congress's intent in creating secondary liability was obviously and definitely not to tax consumers and funnel more social resources into enforcing copyright on pornography.


This is a true statement, is it not? And it is different than saying that smut peddlers should receive a different sort of copyright protection.

I am not saying that courts should distinguish between copyright protecting pornography and other things, absent Congressional direction. But, when a certain interpretation leads to perverse results that Congress clearly never intended, as here, that is reason to choose one interpretation over another.

But the law should be the same, regardless of the content of the copyrighted item. Thus, a site selling pictures of kittens who claims that site X infringes on those pictures should have no more claim to coerce credit card companies into enforcing their copyright than porn merchants. I never said that the sellers of kitten pictures should be treated differently than porn merchants. But, that the Kozinski decision would lead to a massive forced subsidization of porn by all consumers (whether they consume pornography or not) is relevant in assessing whether Kozinski's interpretation is reasonable.
7.4.2007 7:52pm
Deoxy (mail):
Actually, someone "carrying the money" for a drug deal SHOULD have no liability for the deal unless it can be proven that they were IN on the deal... and possibly not even then, depending on the circumstances.

Example: Bob says to Joe, "Hey, I owe Jim $20. Since you're seeing Jim later today, here's $20 - please give it to him."

Now, Joe has been heard a rumor that Bob is on drugs and Jim is his dealer... but, whether he believes it or not, that $20 isn't his, and the guy who gave it to him says it belongs to Jim.

Now, if Bob asked Jim to bring him back a little baggie, that would be different. But that's not the case in my example, OR with a credit card. Some claim from a third party (with conflicting interest, when it comes to telling the truth, as, in this case, it was a competitor) just isn't remotely sufficient.
7.5.2007 4:15pm