Adult entertainment company Perfect 10, Inc. sued an online file storage company for copyright and trademark infringement after users uploaded certain Perfect 10 content to the defendant’s service without authorization. The defendant moved to dismiss the complaint, arguing that it cannot be held liable for direct infringement because it is merely a passive conduit, and cannot be liable for contributory infringement because Perfect 10 failed to allege that the defendant had specific knowledge of the infringement. In denying the motion to dismiss, the District Court for the Southern District of California found that the defendant was more than a passive conduit or “file storage” company because it created distinct websites “in an effort to streamline” users’ access to different types of media, offered Rewards Programs that pays users to upload popular media, disseminated URLs for files throughout the internet, and was “plausibly aware of the online, rampant infringement taking place on its websites.” The court concluded that, in light of these facts, Perfect 10 adequately alleged that the defendant engaged in volitional conduct sufficient to hold it liable for direct infringement. In addition, the court found that Perfect 10 pleaded specific knowledge of contributory infringement, in part, because even if the defendant lacked knowledge of the infringing activity, Perfect 10’s “allegations suggest such a lack of knowledge is willful.” The court did dismiss Perfect 10’s vicarious copyright infringement claim without prejudice because Perfect 10 did not allege that the defendant has the right and ability to supervise the infringing conduct as required to state a claim for vicarious copyright infringement.

TIP:   It is high risk to offer incentives to users to upload copyrighted content to online storage sites.