In battle over attorney fees, counsel appear to be relitigating copyright infringement case

LOS ANGELES -- As the European Union made sweeping changes to its copyright laws, making internet platforms responsible for copyright infringement committed by their users, a case that resulted from a 9th U.S. Circuit Court of Appeals panel taking the exact opposite stance began in a Los Angeles federal court this week.

After the 9th Circuit upheld U.S. District Judge André Birotte Jr.'s partial summary judgment against an adult website, Perfect 10, in its copyright infringement lawsuit against usenet access-provider Giganews, Perfect 10 was ordered to pay over $5.6 million in attorney fees. While the current suit, also before Birotte, was brought by Giganews in an effort to collect these fees, it quickly became apparent, for Perfect 10 and its attorneys, Matthew C. Mickelson and Eran Lagstein, it was still about copyright infringement. Giganews Inc. v. Perfect 10 Inc., 17-CV05075 (C.D. filed July 10, 2017).

"Your testimony, sir, is that your company takes copyright infringement seriously," Lagstein said while questioning Giganews' Chief Financial Officer Shane Menking, who had just testified he did not know what kind of content the users posted through messages.

"I'd like to know, we all would like to know, how does your company take copyright infringement seriously if it doesn't even know what is contained in its own messages?" Lagstein pressed.

After the jury left the courtroom, Birotte reminded both sides they had a 10-hour limit to make arguments, and he was not particularly interested in hearing about copyright infringement.

"Wrong or right, you can call me and the other judges in the 9th Circuit we may all be idiots, but the stuff you're talking about now has been litigated ad nauseam, and the courts have made rulings with respect to," Birotte said. "If you want to spend your 10 hours doing that, so be it, but at some point it's going to go beyond relevance and into accumulative, so keep that in mind."

Giganews, represented by Andrew P. Bridges and Todd Richard Gregorian of Fenwick and West LLP, is a provider of an old technology that allows paying subscribers access to shared messages in which all types of files can be uploaded and shared. Seemingly central to Giganews' legal strategy is to depict Perfect 10 and its CEO Norman Zada as serial litigants. In Bridge's opening statements, he told the eight-person jury much of Perfect 10's revenue was generated by copyright litigation, brought against companies such as Google, Microsoft, and Amazon.

"He developed a taste for litigation, and Perfect 10 brought about 30 lawsuits against online services and ecommerce companies, primarily based on accusations that they should be liable for infringement of copyrights of Perfect 10 images by their customers or users," said Bridges.

In 2011, Perfect 10 filed a copyright infringement suit against Giganews after finding thousands of images, for which it said it owned the copyrights, had been distributed on Giganews by its users.

However, after failing to prove infringement in district court, Perfect 10 appealed to the 9th Circuit as multiple organizations chimed in with amicus curiae briefs in support and in opposition to the lower court's findings.

At the center of the debate was the question of whether a website's conduct, enabling users to share all types of files, copyrighted or not, should be considered "volitional."

The 9th Circuit, which eventually ruled against Perfect 10 in 2017, found "the volitional conduct requirement was not met on Perfect 10's theories that the defendants directly infringed its display rights and distribution rights."

When it comes to copyright infringement, the panel reasoned defendants can only be directly liable if they themselves made the decision to copy the infringed work. If defendants simply provides the means or services which allow others to make copies, they can only be indirectly liable for copyright infringement, under indirect liability doctrines.

Since Giganews successfully demonstrated to the panel that had Perfect 10 provided them with certain information needed to locate the infringed material, they would have removed it, Giganews avoided the much harder to prove "indirect" liability. Perfect 10 Inc., v. Giganews Inc., 2017 DJDAR 640.

After the panel upheld the lower court's attorneys fees order, Zada allegedly transferred over $1.7 million through multiple transactions from Perfect 10's account to his own, in attempts to make it difficult for Giganews to collect the moneys owed to them, Giganews has said in court documents.

Menking admitted Zada offered Giganews $2 million, and the mortgage of his home to settle the debt, but Giganews refused the offer because it came with other stipulations.

Giganews now seeks more than $6 million to cover additional legal fees accrued by additional litigation and punitive damages.