Closing arguments end in delayed attorney fees trial

LOS ANGELES -- The jury began deliberating Wednesday in a battle over attorney fees following a case that helped clarify American copyright law as it relates to internet platforms that provide the means and services for users to share and upload copyrighted material.

At the center of the dispute is hedge fund manager, professional gambler, author, former university professor, mathematician, and CEO of adult magazine Perfect 10, Norman Zada. Serial litigant to some, champion of copyrights to others, Zada faced fraud accusations brought by usenet provider Giganews for allegedly transferring funds from Perfect 10 into his own account, in attempts to frustrate Giganews from collecting attorney fees awarded in a related copyright case.

Giganews has demanded $2.2 million in actual damages and $4.4 million in punitive damages for alleged fraud and nonpayment of the attorney fees owed when Giganews successfully defended against the underlying infringement claim.

While the trial was supposed to be about alleged fraud and attorney fees, to the dismay of U.S. District Judge Andre Birotte Jr., much of it was spent debating copyright issues.

"We've argued this issue ad nauseum," Birotte said on the second day of trial, which began last week.

"This case is about a debt Perfect 10 owed that Mr. Zada did everything he could to avoid paying," Andrew P. Bridges of Fenwick and West LLP told the jury in his closing on behalf of Giganews.

Matthew C. Mickelson of Encino

"Longstanding fraud? Did I hear that correctly?" one of Zada's defense attorneys, Eran Lagstein of Los Angeles, asked the jury incredulously in his closing. "Have you heard of Perfect 10 being sued by any other company other than Giganews? 'Dr. Zada developed a taste for litigation'? How dare they say that?"

Zada testified Tuesday as the jury trial neared its close. "My understanding of the attorney fee provision of the copyright law was designed to help copyright holders, not misappropriaters of copyright," he said.

When Birotte granted partial summary judgment against Perfect 10 in its copyright infringement lawsuit against Giganews in 2015, Perfect 10 was ordered to pay over $5.6 million in attorney fees and an important precedent in copyright law was set.

Internet platforms can only be found directly liable if they themselves made the decision to copy the infringed work. If defendants simply provide the means or services that allow others to make and share copies, they can only be found indirectly liable for copyright infringement, under indirect liability doctrines.

Backed by amicus briefs filed by the Motion Picture Association of America and Recording Industry of America, Zada appealed Birotte's ruling to the 9th U.S. Circuit Court of Appeals but was again denied by a three-judge panel in 2017.

After Perfect 10, which had been operating at a loss for much of its existence, lost its case against Giganews, it was auctioned off and purchased by Giganews for $500,000.

Zada, who is also represented by Matthew C. Mickelson of Encino, said he attempted to pay the debt by offering Giganews $2 million in cash and a lien on his home.

U.S. District Judge Andre Birotte Jr.

Giganews, an internet platform providing an old technology called usenet which allows paying subscribers access to shared messages in which all types of files can be uploaded and shared. They claim Zada transferred over $1.7 million in cash and assets from Perfect 10's account into his own, shortly after the judgment was upheld at the 9th Circuit, in an effort to make it difficult for Giganews to collect the fees.

One of the key findings, leading to the court's decision to dismiss Perfect 10's infringement claims, is Perfect 10 failed to provide Giganews with the information they say was needed to find and take down the infringed material. In the eyes of the court, had Perfect 10 provided Giganews with a message ID number allegedly needed to locate the message containing the intellectual property in question, they would have removed it. By proving this was the case, Giganews avoided the much harder to prove "indirect" liability. Perfect 10 Inc., v. Giganews Inc, 2017 DJDAR 640.

While being examined by Bridges, Zada said Giganews lied to both the district and 9th Circuit courts when it told them message IDs were not included in his take-down notices.

"We provided your company with 54,000 readable message ids, and your company did not process any of them and then they lied about it in their summary judgment motions," Zada told Bridges.

"Are you saying every court ratified a lie in the underlying case?" Bridges asked Zada incredulously.