FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

PERFECT 10, INC.,                      
                Plaintiff-Appellant,
                 v.
                                            No. 05-15170
VISA INTERNATIONAL SERVICE
ASSOCIATION; FIRST DATA                      D.C. No.
                                           CV-04-00371-JW
CORPORATION; CARDSERVICE
INTERNATIONAL, INC.; HUMBOLDT                 OPINION
BANK; MASTERCARD INTERNATIONAL,
INC.,
             Defendants-Appellees.
                                       
        Appeal from the United States District Court
          for the Northern District of California
          James Ware, District Judge, Presiding

                 Argued and Submitted
          December 4, 2006—Pasadena, California

                     Filed July 3, 2007

       Before: Stephen Reinhardt, Alex Kozinski, and
            Milan D. Smith, Jr., Circuit Judges.

           Opinion by Judge Milan D. Smith, Jr.;
                Dissent by Judge Kozinski




                            7829
               PERFECT 10 v. VISA INTERNATIONAL           7833


                         COUNSEL

Howard E. King (argued) and Stephen D. Rothschild, King,
Holmes, Paterno & Berliner, LLP, Los Angeles, California,
for the plaintiff-appellant.

Jeffrey N. Mausner, Berman, Mausner & Resser, Los Ange-
les, California, for the plaintiff-appellant.

Daniel J. Cooper, Los Angeles, California, for the plaintiff-
appellant.

Andrew P. Bridges (argued), John C. Nishi, Winston &
Strawn LLP, San Francisco, California, for defendant-
appellee Mastercard International Incorporated.

Mark T. Jansen, Nancy L. Tompkins, Anthony J. Malutta,
Townsend and Townsend and Crew LLP, San Francisco, Cal-
ifornia, for defendant-appellee Visa International Service
Association.

Robert A. Van Nest, Michael H. Page, R. James Slaughter,
Keker & Van Nest, LLP, San Francisco, California, for
defendants-appellees First Data Corp., Cardservice Interna-
tional, Inc., and Humboldt Bank.


                         OPINION

MILAN D. SMITH, JR., Circuit Judge:

  Perfect 10, Inc. (Perfect 10) sued Visa International Service
Association, MasterCard International Inc., and several affili-
7834           PERFECT 10 v. VISA INTERNATIONAL
ated banks and data processing services (collectively, the
Defendants), alleging secondary liability under federal copy-
right and trademark law and liability under California statu-
tory and common law. It sued because Defendants continue
to process credit card payments to websites that infringe Per-
fect 10’s intellectual property rights after being notified by
Perfect 10 of infringement by those websites. The district
court dismissed all causes of action under Federal Rule of
Civil Procedure 12(b)(6) for failure to state a claim upon
which relief can be granted. We affirm the decision of the dis-
trict court.

          FACTS AND PRIOR PROCEEDINGS

   Perfect 10 publishes the magazine “PERFECT10” and
operates the subscription website www.perfect10.com., both
of which “feature tasteful copyrighted images of the world’s
most beautiful natural models.” Appellant’s Opening Brief at
1. Perfect 10 claims copyrights in the photographs published
in its magazine and on its website, federal registration of the
“PERFECT 10” trademark and blanket publicity rights for
many of the models appearing in the photographs. Perfect 10
alleges that numerous websites based in several countries
have stolen its proprietary images, altered them, and illegally
offered them for sale online.

   Instead of suing the direct infringers in this case, Perfect 10
sued Defendants, financial institutions that process certain
credit card payments to the allegedly infringing websites. The
Visa and MasterCard entities are associations of member
banks that issue credit cards to consumers, automatically pro-
cess payments to merchants authorized to accept their cards,
and provide information to the interested parties necessary to
settle the resulting debits and credits. Defendants collect fees
for their services in these transactions. Perfect 10 alleges that
it sent Defendants repeated notices specifically identifying
infringing websites and informing Defendants that some of
their consumers use their payment cards to purchase infring-
               PERFECT 10 v. VISA INTERNATIONAL            7835
ing images. Defendants admit receiving some of these notices,
but they took no action in response to the notices after receiv-
ing them.

   Perfect 10 separately alleges that it formerly had a mer-
chant account with defendant First Data Corporation (FDC)
but that in the Spring of 2001 FDC terminated the account.
FDC’s stated reason for the termination is that the percentage
of Perfect 10’s customers who later disputed the charges attri-
buted to them (the chargeback rate) exceeded contractual lim-
its. Perfect 10 claims these chargeback rates were temporarily
and substantially inflated because Perfect 10 was the “victim
of hackers who were subsequently investigated by the Secret
Service.” Appellant’s Opening Brief at 13. Perfect 10 claims
that FDC was aware of this and was also aware that Perfect
10’s chargeback rate dropped to within association limits once
the hacking ceased, but that FDC nevertheless placed Perfect
10 on an industry-wide “black list” of terminated accounts.

   Perfect 10 filed suit against Defendants on January 28,
2004 alleging contributory and vicarious copyright and trade-
mark infringement as well as violations of California laws
proscribing unfair competition and false advertising, violation
of the statutory and common law right of publicity, libel, and
intentional interference with prospective economic advantage.
Defendants moved to dismiss the initial complaint under
FRCP 12(b)(6). The district court granted the motion, dis-
missing the libel and intentional interference claims with prej-
udice but granting leave to amend the remaining claims. In its
first amended complaint, Perfect 10 essentially repeated the
allegations in its original complaint concerning the surviving
causes of action and Defendants again moved to dismiss
under FRCP 12(b)(6). The district court granted the Defen-
dants’ second motion in full, dismissing all remaining causes
of action with prejudice. Perfect 10 appealed to this court.

                      JURISDICTION

   The district court had original jurisdiction over the copy-
right and trademark claims pursuant to 28 U.S.C. §§ 1331 and
7836           PERFECT 10 v. VISA INTERNATIONAL
1338 and supplemental jurisdiction over the related state law
claims pursuant to 28 U.S.C. § 1367. This court has appellate
jurisdiction pursuant to 28 U.S.C. § 1291.

                STANDARDS OF REVIEW

   We review de novo the district court’s dismissal for failure
to state a claim upon which relief can be granted pursuant to
FRCP 12(b)(6). Rodriguez v. Panayiotou, 

, 983
(9th Cir. 2002). On appeal, “we take all of the allegations of
material fact stated in the complaint as true and construe them
in the light most favorable to the nonmoving party. A com-
plaint should not be dismissed unless it appears beyond doubt
that plaintiff can prove no set of facts in support of his claim
which would entitle him to relief.” 

omit-
ted).

   Although a plaintiff’s allegations are generally taken as
true, the court need not accept conclusory allegations of law
or unwarranted inferences, and dismissal is required if the
facts are insufficient to support a cognizable claim. City of
Arcadia v. U.S. Envtl. Prot. Agency, 

, 1106 n.3
(9th Cir. 2005); see also Pena v. Gardner, 

, 471-
72 (9th Cir. 1992). The court may also affirm on any ground
supported by the record even if the district court did not con-
sider the issue. Fields v. Legacy Health Sys., 

,
958 n.13 (9th Cir. 2005); Arc Ecology v. United States Dep’t
of the Air Force, 

, 1096 (9th Cir. 2005).

   We review de novo the district court’s interpretation of
state law. 

.
                  PERFECT 10 v. VISA INTERNATIONAL                      7837
                             DISCUSSION

      SECONDARY LIABILITY UNDER FEDERAL
        COPYRIGHT AND TRADEMARK LAW

A.    Secondary Liability for Copyright Infringement

   Perfect 10 alleges that numerous websites based in several
countries—and their paying customers—have directly
infringed its rights under the Copyright Act, 17 U.S.C. § 101,
et. seq.1 In the present suit, however, Perfect 10 has sued
Defendants, not the direct infringers, claiming contributory
and vicarious copyright infringement because Defendants pro-
cess credit card charges incurred by customers to acquire the
infringing images.

   We evaluate Perfect 10’s claims with an awareness that
credit cards serve as the primary engine of electronic com-
merce and that Congress has determined it to be the “policy
of the United States—(1) to promote the continued develop-
ment of the Internet and other interactive computer services
and other interactive media [and] (2) to preserve the vibrant
and competitive free market that presently exists for the Inter-
net and other interactive computer services, unfettered by
Federal or State regulation.” 47 U.S.C. §§ 230 (b)(1), (2).2
  1
    While Perfect 10’s complaint does not clearly specify which of Perfect
10’s rights are being infringed, it appears that at least four such rights are
potentially at issue: reproduction (17 U.S.C. § 106(1)); derivative works
(17 U.S.C. § 106(2)); distribution of copies (17 U.S.C. § 106(3)); and pub-
lic display (17 U.S.C. § 106(5)).
  2
   Congress expressed similar sentiments when it enacted the Digital Mil-
lennium Copyright Act (DMCA), 17 U.S.C. § 512, one of the stated pur-
poses of which was to “facilitate the robust development and world-wide
expansion of electronic commerce, communications, research, develop-
ment, and education in the digital age.” S. Rep. 105-190, at 1-2 (1998).
7838              PERFECT 10 v. VISA INTERNATIONAL
  1.    Contributory Copyright Infringement

   Contributory copyright infringement is a form of secondary
liability with roots in the tort-law concepts of enterprise liabil-
ity and imputed intent. See Fonovisa, Inc. v. Cherry Auction,
Inc., 

, 264 (9th Cir. 1996); Perfect 10, Inc. v.
Amazon.com, Inc. et.al., ___ F.3d ___, 

(9th Cir. May 16, 2007). This court and the United States
Supreme Court (Supreme Court) have announced various for-
mulations of the same basic test for such liability. We have
found that a defendant is a contributory infringer if it (1) has
knowledge of a third party’s infringing activity, and (2) “in-
duces, causes, or materially contributes to the infringing con-
duct.” Ellison v. Robertson, 

, 1076 (9th Cir.
2004) (citing Gershwin Publ’g Corp. v. Columbia Artists
Mgmt., Inc., 

, 1162 (2d Cir. 1971)). In an Inter-
net context, we have found contributory liability when the
defendant “engages in personal conduct that encourages or
assists the infringement.” A&M Records, Inc. v. Napster, Inc.,

, 1019 (9th Cir. 2001) (internal citations omit-
ted). In Metro-Goldwin-Mayer Studios, Inc. v. Grokster, Ltd.,
the Supreme Court adopted from patent law the concept of
“inducement” and found that “[o]ne infringes contributorily
by intentionally inducing or encouraging direct infringement.”

, 930 (2005).3 Most recently, in a case also
brought by Perfect 10, we found that “an actor may be contri-
butorily liable [under Grokster] for intentionally encouraging
direct infringement if the actor knowingly takes steps that are
substantially certain to result in such direct infringement.”
Amazon.com, 

, at *17.
   3
     In her concurring opinion in Grokster, Justice Ginsburg identified
another strand of contributory liability in the Supreme Court’s jurispru-
dence, i.e., liability based on “distributing a product distributees use to
infringe copyrights, if the product is not capable of ‘substantial’ or ‘com-
mercially significant’ noninfringing uses.” 

(cit-
ing Sony Corp. of America v. Universal City Studios, Inc., 

,
442 (1984)). Even assuming Defendants offer a “product” for these pur-
poses, Perfect 10 does not claim that the “product” of credit card services
is incapable of substantial and commercially significant noninfringing
uses.
                  PERFECT 10 v. VISA INTERNATIONAL                     7839
   [1] We understand these several criteria to be non-
contradictory variations on the same basic test, i.e., that one
contributorily infringes when he (1) has knowledge of anoth-
er’s infringement and (2) either (a) materially contributes to
or (b) induces that infringement. Viewed in isolation, the lan-
guage of the tests described is quite broad, but when one
reviews the details of the actual “cases and controversies”
before the relevant court in each of the test-defining cases and
the actual holdings in those cases, it is clear that the factual
circumstances in this case are not analogous. To find that
Defendants’ activities fall within the scope of such tests
would require a radical and inappropriate expansion of exist-
ing principles of secondary liability and would violate the
public policy of the United States.

      a.   Knowledge of the Infringing Activity

   [2] Because we find that Perfect 10 has not pled facts suffi-
cient to establish that Defendants induce or materially contrib-
ute to the infringing activity, Perfect 10’s contributory
copyright infringement claim fails and we need not address
the Defendants’ knowledge of the infringing activity.4
  4
    We note that an anomaly exists regarding the concept of notice in sec-
ondary copyright infringement cases outside a FRCP 12(b)(6) context.
Congress addressed the issue of notice in the DMCA, which grants a safe
harbor against liability to certain Internet service providers, even those
with actual knowledge of infringement, if they have not received
statutorily-compliant notice. See Perfect 10 v. CCBill LLC, 

(9th Cir. 2007), amended and superceded, ___ F.3d ___, 

(9th Cir. May 31, 2007); 17 U.S.C. § 512(c)(3). Because Defen-
dants are not “service providers” within the scope of the DMCA, they are
not eligible for these safe harbors. The result, under Perfect 10’s theories,
would therefore be that a service provider with actual knowledge of
infringement and the actual ability to remove the infringing material, but
which has not received a statutorily compliant notice, is entitled to a safe
harbor from liability, while credit card companies with actual knowledge
but without the actual ability to remove infringing material, would benefit
from no safe harbor. We recognize that the DMCA was not intended to
displace the development of secondary liability in the courts; rather, we
simply take note of the anomalous result Perfect 10 seeks.
7840                 PERFECT 10 v. VISA INTERNATIONAL
      b.        Material Contribution, Inducement, or Causation

   [3] To state a claim of contributory infringement, Perfect
10 must allege facts showing that Defendants induce, cause,
or materially contribute to the infringing conduct. See, e.g.,

. Three key cases found defendants
contributorily liable under this standard: Fonovisa, 

; Napster, 

; and Grokster, 

. In
Fonovisa, we held a swap meet operator contributorily liable
for the sale of pirated works at the swap meet. In Napster, we
held the operator of an electronic file sharing system liable
when users of that system employed it to exchange massive
quantities of copyrighted music. In Grokster, the Supreme
Court found liability for the substantially similar act of dis-
tributing software that enabled exchange of copyrighted
music on a peer-to-peer, rather than a centralized basis.5 Per-
fect 10 argues that by continuing to process credit card pay-
ments to the infringing websites despite having knowledge of
ongoing infringement, Defendants induce, enable and contrib-
ute to the infringing activity in the same way the defendants
did in Fonovisa, Napster and Grokster. We disagree.

           1.    Material Contribution

   [4] The credit card companies cannot be said to materially
contribute to the infringement in this case because they have
no direct connection to that infringement. Here, the infringe-
ment rests on the reproduction, alteration, display and distri-
bution of Perfect 10’s images over the Internet. Perfect 10 has
not alleged that any infringing material passes over Defen-
dants’ payment networks or through their payment processing
systems, or that Defendants’ systems are used to alter or dis-
play the infringing images. In Fonovisa, the infringing mate-
rial was physically located in and traded at the defendant’s
  5
   Because the Grokster court focused primarily on an “inducement” the-
ory rather than a “material contribution” theory, our primary discussion of
Grokster is located below in the “inducement” section of this opinion.
               PERFECT 10 v. VISA INTERNATIONAL             7841
market. Here, it is not. Nor are Defendants’ systems used to
locate the infringing images. The search engines in Ama-
zon.com provided links to specific infringing images, and the
services in Napster and Grokster allowed users to locate and
obtain infringing material. Here, in contrast, the services pro-
vided by the credit card companies do not help locate and are
not used to distribute the infringing images. While Perfect 10
has alleged that Defendants make it easier for websites to
profit from this infringing activity, the issue here is reproduc-
tion, alteration, display and distribution, which can occur
without payment. Even if infringing images were not paid for,
there would still be infringement. See 

(Napster users infringed the distribution right by upload-
ing file names to the search index for others to copy, despite
the fact that no money changed hands in the transaction).

   Our analysis is fully consistent with this court’s recent
decision in Perfect 10 v. Amazon.com, where we found that
“Google could be held contributorily liable if it had knowl-
edge 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.” 

, at *19. The dissent claims
this statement applies squarely to Defendants if we just substi-
tute “payment systems” for “search engine.” Dissent at 7866.
But this is only true if search engines and payment systems
are equivalents for these purposes, and they are not. The
salient distinction is that Google’s search engine itself assists
in the distribution of infringing content to Internet users,
while Defendants’ payment systems do not. The Amazon.com
court noted that “Google substantially assists websites to dis-
tribute their infringing copies to a worldwide market and
assists a worldwide audience of users to access infringing
materials.” 

not provide such a service. They
in no way assist or enable Internet users to locate infringing
material, and they do not distribute it. They do, as alleged,
make infringement more profitable, and people are generally
more inclined to engage in an activity when it is financially
7842              PERFECT 10 v. VISA INTERNATIONAL
profitable. However, there is an additional step in the causal
chain: Google may materially contribute to infringement by
making it fast and easy for third parties to locate and distrib-
ute infringing material, whereas Defendants make it easier for
infringement to be profitable, which tends to increase finan-
cial incentives to infringe, which in turn tends to increase
infringement.6

   [5] The dissent disagrees with our reading of Amazon.com
and charges us with wishful thinking, dissent at 7866, and
with “draw[ing] a series of ephemeral distinctions,” dissent at
7890. We respectfully disagree and assert that our construc-
tion of the relevant statutes and case law is completely consis-
tent with existing federal law, is firmly grounded in both
commercial and technical reality and conforms to the public
policy of the United States. Helping users to locate an image
might substantially assist users to download infringing
images, but processing payments does not. If users couldn’t
pay for images with credit cards, infringement could continue
on a large scale because other viable funding mechanisms are
available. For example, a website might decide to allow users
to download some images for free and to make its profits
from advertising, or it might develop other payment mecha-
nisms that do not depend on the credit card companies.7 In
either case, the unlicensed use of Perfect 10’s copyrighted
images would still be infringement.8 We acknowledge that
  6
     As discussed in note 11, infra, the dissent’s claims that payment pro-
cessing is “an essential step in the infringement process,” dissent at 7867,
and that “Defendants are directly involved in every infringing transaction
where payment is made by credit card,” dissent at 7873, suggests that the
dissent believes that the Defendants are directly infringing when they pro-
cess these payments.
   7
     As discussed more fully in the vicarious infringement section, infra,
Perfect 10’s factual allegations are not to the contrary.
   8
     We recognize that Google is not the only search engine available to
Internet users, and that users do not necessarily need Google to locate
infringing images. The distinction we draw, however, is not specific to
                  PERFECT 10 v. VISA INTERNATIONAL                      7843
Defendants’ payment systems make it easier for such an
infringement to be profitable, and that they therefore have the
effect of increasing such infringement, but because infringe-
ment of Perfect 10’s copyrights can occur without using
Defendants’ payment system, we hold that payment process-
ing by the Defendants as alleged in Perfect 10’s First
Amended Complaint does not constitute a “material contribu-
tion” under the test for contributory infringement of copyrights.9

Google; it is between location services and payment services. Because
location services lead Internet users directly to infringing images and often
display them on the website of the service itself, we find that location ser-
vices are more important and more essential—indeed, more “material”—
to infringement than payment services are.
   9
     Our dissenting colleague assures us that we would not jeopardize Inter-
net commerce by finding Defendants liable because he has “every confi-
dence” that this court will simply find that other providers of essential
services may contribute to infringement, but not materially so. Dissent at
7875. We take little comfort in his assurances because the predicate of our
colleague’s optimistic view of future judicial refinement of his new world
of secondary liability is a large number of expensive and drawn-out pieces
of litigation that may, or may not, ever be filed. Meanwhile, what would
stop a competitor of a web-site from sending bogus notices to a credit card
company claiming infringement by its competitor in the hope of putting
a competitor out of business, or, at least, requiring it to spend a great deal
of money to clear its name? Threatened with significant potential second-
ary liability on a variety of fronts under the dissent’s proposed expansion
of existing secondary liability law, perhaps the credit card companies
would soon decline to finance purchases that are more legally risky. They,
after all, are as moved by Adam Smith’s “invisible hand” as the next set
of merchants. If that happened, would First Amendment rights of consum-
ers be trampled? Would Perfect 10 itself be adversely impacted because
no credit card company would want to take a chance on becoming second-
arily liable?
   We similarly take little comfort in the dissent’s resurrection of the
“dance-hall-owner/absentee-landlord” cases as a source of any principled
distinction in this area. Dissent at 7874-75. Those tests were developed for
a brick-and-mortar world, and, as the Napster and Grokster courts implic-
itly recognized by paying little attention to them, they do not lend them-
selves well to application in an electronic commerce context. In deciding
this case, we are well-advised to follow the lead of the Supreme Court’s
and our own court’s cases confronting online commerce issues.
7844           PERFECT 10 v. VISA INTERNATIONAL
   Our holding is also fully consistent with and supported by
this court’s previous holdings in Fonovisa and Napster. While
there are some limited similarities between the factual scenar-
ios in Fonovisa and Napster and the facts in this case, the dif-
ferences in those scenarios are substantial, and, in our view,
dispositive. In Fonovisa, we held a flea market proprietor lia-
ble as a contributory infringer when it provided the facilities
for and benefitted from the sale of pirated works. 

.
The court found that the primary infringers and the swap meet
were engaged in a mutual enterprise of infringement and
observed that “it would be difficult for the infringing activity
to take place in the massive quantities alleged without the
support services provided by the swap meet. These services
include, among other things, the provision of space, utilities,
parking, advertising, plumbing, and 

. But the swap meet owner did more to encourage the
enterprise. In 1991, the Fresno County Sheriff raided the swap
meet and seized 38,000 counterfeit recordings. 

The
Sheriff sent a letter to the swap meet operator the following
year notifying it that counterfeit sales continued and remind-
ing it that it had agreed to provide the Sheriff with identifying
information from each vendor, but had failed to do so. 

court found liability because the swap meet operator
knowingly provided the “site and facilities” for the infringing
activity. 

   In Napster, this court found the designer and distributor of
a software program liable for contributory infringement. 

. Napster was a file-sharing program which, while
capable of non-infringing use, was expressly engineered to
enable the easy exchange of pirated music and was widely so
used. See 

n.5 (quoting document
authored by Napster co-founder which mentioned “the need
to remain ignorant of users’ real names and IP addresses
‘since they are exchanging pirated music’ ”). Citing the
Fonovisa standard, the Napster court found that Napster
materially contributes to the users’ direct infringement by
                  PERFECT 10 v. VISA INTERNATIONAL                   7845
knowingly providing the “site and facilities” for that infringe-

.

   Seeking to draw an analogy to Fonovisa and, by extension,
Napster, Perfect 10 pleads that Defendants materially contrib-
ute to the infringement by offering services that allow it to
happen on a larger scale than would otherwise be possible.
Specifically, because the swap meet in Fonovisa created a
commercial environment which allowed the frequency of that
infringement to increase, and the Napster program increased
the frequency of infringement by making it easy, Perfect 10
argues that the Defendants have made available a payment
system that allows third-party infringement to be profitable,
and, consequently, more widespread than it otherwise might
be. This analogy fails.

   The swap meet operator in Fonovisa and the administrators
of the Napster and Grokster programs increased the level of
infringement by providing a centralized place, whether physi-
cal or virtual, where infringing works could be collected,
sorted, found, and bought, sold, or exchanged.10 The provision
of parking lots, plumbing and other accoutrements in
Fonovisa was significant only because this was part of pro-
viding the environment and market for counterfeit recording
sales to thrive.

   Defendants, in contrast, do no such thing. While Perfect 10
has alleged that it is easy to locate images that infringe its
copyrights, the Defendants’ payment systems do not cause
this. Perfect 10’s images are easy to locate because of the very
nature of the Internet—the website format, software allowing
  10
     In fact, as virtually every interested college student knew—and as the
program’s creator expressly admitted—the sole purpose of the Napster
program was to provide a forum for easy copyright infringement. See Nap-

n.5. Perfect 10 does not contend that Defendants’
payment systems were engineered for infringement in this way, and we
decline to radically expand Napster’s cursory treatment of “material con-
tribution” to cover a credit card payment system that was not so designed.
7846              PERFECT 10 v. VISA INTERNATIONAL
for the easy alteration of images, high-speed connections
allowing for the rapid transfer of high-resolution image files,
and perhaps most importantly, powerful search engines that
can aggregate and display those images in a useful and effi-
cient manner, without charge, and with astounding speed.
Defendants play no role in any of these functions.

   Perfect 10 asserts otherwise by arguing for an extremely
broad conception of the term “site and facilities” that bears no
relationship to the holdings in the actual “cases and controver-
sies” decided in Fonovisa and Napster. Taken literally, Per-
fect 10’s theory appears to include any tangible or intangible
component related to any transaction in which infringing
material is bought and sold. But Fonovisa and Napster do not
require or lend themselves to such a construction. The actual
display, location, and distribution of infringing images in this
case occurs on websites that organize, display, and transmit
information over the wires and wireless instruments that make
up the Internet. The websites are the “site” of the infringe-
ment, not Defendants’ payment networks. Defendants do not
create, operate, advertise, or otherwise promote these web-
sites. They do not operate the servers on which they reside.
Unlike the Napster (and Grokster) defendants, they do not
provide users the tools to locate infringing material, nor does
any infringing material ever reside on or pass through any net-
work or computer Defendants operate.11 Defendants merely
provide a method of payment, not a “site” or “facility” of
infringement. Any conception of “site and facilities” that
  11
     Moreover, if the processing of payment for an infringing transaction
were as central to the infringement as the dissent believes it to be—see,
e.g., dissent at 7867 (payment processing is “an essential step in the
infringement process”), dissent at 7873 (“Defendants are directly involved
in every infringing transaction where payment is made by credit card”)—
it is difficult to see why Defendants would be not be direct infringers of
the distribution right. Not even Perfect 10 has gone so far as to allege that
theory here—Perfect 10 would undoubtedly be quite surprised to learn,
after years of litigation attempting to expand the scope of secondary liabil-
ity, that Defendants are direct infringers after all.
                 PERFECT 10 v. VISA INTERNATIONAL                 7847
encompasses Defendants would also include a number of
peripherally-involved third parties, such as computer display
companies, storage device companies, and software compa-
nies that make the software necessary to alter and view the
pictures and even utility companies that provide electricity to
the Internet.

   Perfect 10 seeks to side-step this reality by alleging that
Defendants are still contributory infringers because they could
refuse to process payments to the infringing websites and
thereby undermine their commercial viability.12 Even though
we must take this factual allegation as true, that Defendants
have the power to undermine the commercial viability of
infringement does not demonstrate that the Defendants mate-
rially contribute to that infringement. As previously noted, the
direct infringement here is the reproduction, alteration, dis-
play and distribution of Perfect 10’s images over the Internet.
Perfect 10 has not alleged that any infringing material passes
over Defendants’ payment networks or through their payment
processing systems, or that Defendants designed or promoted
their payment systems as a means to infringe. While Perfect
10 has alleged that Defendants make it easier for websites to
profit from this infringing activity, the infringement stems
from the failure to obtain a license to distribute, not the pro-
cessing of payments.

       2.   Inducement

  [6] In Grokster, the Supreme Court applied the patent law
concept of “inducement” to a claim of contributory infringe-
ment against a file-sharing program. 

. The court
found that “one who distributes a device with the object of
promoting its use to infringe copyright, as shown by clear
expression or other affirmative steps taken to foster infringe-
ment, is liable for the resulting acts of infringement by third
  12
   This allegation is considered below under vicarious infringement, but
we also address it here in terms of contributory infringement.
7848           PERFECT 10 v. VISA INTERNATIONAL
parties.” 

Perfect 10 claims that Grokster is anal-
ogous because Defendants induce customers to use their cards
to purchase goods and services, and are therefore guilty of
specifically inducing infringement if the cards are used to pur-
chase images from sites that have content stolen from Perfect
10. This is mistaken. Because Perfect 10 alleges no “affirma-
tive steps taken to foster infringement” and no facts suggest-
ing that Defendants promoted their payment system as a
means to infringe, its claim is premised on a fundamental mis-
reading of Grokster that would render the concept of “induce-
ment” virtually meaningless.

   [7] The Grokster court announced that the standard for
inducement liability is providing a service “with the object of
promoting its use to infringe copyright.” 

edge of infringing potential or actual infringing uses would
not be enough here to subject [a defendant] to liability.” 

Instead, inducement “premises liability on purposeful,
culpable expression and conduct, and thus does nothing to
compromise legitimate commerce or discourage innovation
having a lawful promise.” 

establish induce-
ment liability, it is crucial to establish that the distributors
“communicated an inducing message to their . . . users,” the
classic example of which is an “advertisement or solicitation
that broadcasts a message designed to stimulate others to
commit violations.” 

court summarized the
“inducement” rule as follows:

    In sum, where an article is good for nothing else but
    infringement, there is no legitimate public interest in
    its unlicensed availability, and there is no injustice in
    presuming or imputing an intent to infringe. Con-
    versely, the doctrine absolves the equivocal conduct
    of selling an item with substantial lawful as well as
    unlawful uses, and limits liability to instances of
    more acute fault than the mere understanding that
    some of one’s products will be misused. It leaves
               PERFECT 10 v. VISA INTERNATIONAL              7849
    breathing room for innovation and a vigorous com-
    

(internal citations and quotation marks
omitted).

   Perfect 10 has not alleged that any of these standards are
met or that any of these considerations are present here.
Defendants do, of course, market their credit cards as a means
to pay for goods and services, online and elsewhere. But it
does not follow that Defendants affirmatively promote each
product that their cards are used to purchase. The software
systems in Napster and Grokster were engineered, dissemi-
nated, and promoted explicitly for the purpose of facilitating
piracy of copyrighted music and reducing legitimate sales of
such music to that extent. Most Napster and Grokster users
understood this and primarily used those systems to purloin
copyrighted music. Further, the Grokster operators explicitly
targeted then-current users of the Napster program by sending
them ads for its OpenNap program. 

In contrast,
Perfect 10 does not allege that Defendants created or promote
their payment systems as a means to break laws. Perfect 10
simply alleges that Defendants generally promote their cards
and payment systems but points to no “clear expression” or
“affirmative acts” with any specific intent to foster infringe-
ment.

   [8] The Amazon.com court recognized this distinction and
applied it in a matter fully consistent with our analysis in this
case. While the Amazon.com court did not bifurcate its analy-
sis of contributory liability into “material contribution” liabil-
ity and “inducement” liability, it did recognize that
contributory liability “may be predicated on actively encour-
aging (or inducing) infringement through specific acts.” Ama-
zon.com, 

, at *16 (quoting 

(Ginsburg, J., concurring)). It also found that
Google could be held contributorily liable if it has “actual
knowledge that specific infringing material is available using
7850            PERFECT 10 v. VISA INTERNATIONAL
its system, and can take simple measures to prevent further
damage,” but does not. 

(internal citations and quo-
tation marks omitted). While this test is read more naturally
as a test for “material contribution” than as a test for “induce-
ment,” under an “inducement” analysis Defendants are not
within its scope. As discussed above, Perfect 10 has not
alleged any “specific acts” intended to encourage or induce
infringement. And moreover, Defendants are distinguishable
under the Amazon.com test because, unlike Google, infringing
material is not “available using [their] system” of payment
processing. 

does not “facilitate access to web-
sites,” id.; infringers do not use it to copy, alter, distribute or
display infringing material; and consumers do not use it to
locate, view or download the infringing images. Rather, all
parties involved simply use Defendants’ system to process
payments for that infringing material.

   [9] Finally, we must take as true the allegations that Defen-
dants lend their names and logos to the offending websites
and continue to allow their cards to be used to purchase
infringing images despite actual knowledge of the
infringement—and perhaps even bending their association
rules to do so. But we do not and need not, on this factual
basis, take as true that Defendants “induce” consumers to buy
pirated content with their cards. “Inducement” is a legal deter-
mination, and dismissal may not be avoided by characterizing
a legal determination as a factual one. We must determine
whether the facts as pled constitute a “clear expression” of a
specific intent to foster infringement, and, for the reasons
above noted, we hold that they do not.

  2.   Vicarious Copyright Infringement

   [10] Vicarious infringement is a concept related to, but dis-
tinct from, contributory infringement. Whereas contributory
infringement is based on tort-law principles of enterprise lia-
bility and imputed intent, vicarious infringement’s roots lie in
the agency principles of respondeat superior. See Fonovisa,
                  PERFECT 10 v. VISA INTERNATIONAL                     

. To state a claim for vicarious copyright
infringement, a plaintiff must allege that the defendant has (1)
the right and ability to supervise13 the infringing conduct and
(2) a direct financial interest in the infringing activity. 

; 

(citations omit-
ted). The Supreme Court has recently offered (in dictum) an
alternate formulation of the test: “One . . . infringes vicari-
ously by profiting from direct infringement while declining to
exercise a right to stop or limit it.” 

(internal citations omitted). Perfect 10 alleges that Defendants
have the right and ability to control the content of the infring-
ing websites by refusing to process credit card payments to
the websites, enforcing their own rules and regulations, or
both. We hold that Defendants’ conduct alleged in Perfect
10’s first amended complaint fails to state a claim for vicari-
ous copyright infringement.

       a.   Right and Ability to Supervise the Infringing
            Activity

   [11] In order to join a Defendant’s payment network, mer-
chants and member banks must agree to follow that Defen-
dant’s rules and regulations. These rules, among other things,
prohibit member banks from providing services to merchants
engaging in certain illegal activities and require the members
and member banks to investigate merchants suspected of
engaging in such illegal activity and to terminate their partici-
pation in the payment network if certain illegal activity is
found. Perfect 10 has alleged that certain websites are infring-
ing Perfect 10’s copyrights and that Perfect 10 sent notices of
this alleged infringement to Defendants. Accordingly, Perfect
10 has adequately pled that (1) infringement of Perfect 10’s
copyrights was occurring, (2) Defendants were aware of the
  13
    Fonovisa essentially viewed “supervision” in this context in terms of
the swap meet operator’s ability to control the activities of the 

, and Napster essentially viewed it in terms of Napster’s ability
to police activities of its 

.
7852           PERFECT 10 v. VISA INTERNATIONAL
infringement, and (3) on this basis, Defendants could have
stopped processing credit card payments to the infringing
websites. These allegations are not, however, sufficient to
establish vicarious liability because even with all reasonable
inferences drawn in Perfect 10’s favor, Perfect 10’s allega-
tions of fact cannot support a finding that Defendants have the
right and ability to control the infringing activity.

   In reasoning closely analogous to the present case, the
Amazon.com court held that Google was not vicariously liable
for third-party infringement that its search engine facilitates.
In so holding, the court found that Google’s ability to control
its own index, search results, and webpages does not give
Google the right to control the infringing acts of third parties
even though that ability would allow Google to affect those
infringing acts to some degree. Amazon.com, 

, at *20-21. Moreover, and even more importantly,
the Amazon.com court rejected a vicarious liability claim
based on Google’s policies with sponsored advertisers, which
state that it reserves “the right to monitor and terminate part-
nerships with entities that violate others’ copyright[s].” 

(alteration in original). The court found that

    Google’s right to terminate an AdSense partnership
    does not give Google the right to stop direct
    infringement by third-party websites. An infringing
    third-party website can continue to reproduce, dis-
    play, and distribute its infringing copies of Perfect
    10 images after its participation in the AdSense pro-
    gram has ended.

is equally applicable to the Defendants in
this case. Just like Google, Defendants could likely take cer-
tain steps that may have the indirect effect of reducing
infringing activity on the Internet at large. However, neither
Google nor Defendants has any ability to directly control that
activity, and the mere ability to withdraw a financial “carrot”
does not create the “stick” of “right and ability to control” that
                  PERFECT 10 v. VISA INTERNATIONAL                   7853
vicarious infringement requires. A finding of vicarious liabil-
ity here, under the theories advocated by the dissent, would
also require a finding that Google is vicariously liable for
infringement—a conflict we need not create, and radical step
we do not take.

   Perfect 10 argues that this court’s decision in Napster com-
pels a contrary result. The Napster court found a likelihood of
vicarious liability because Napster “had the right and ability
to police its system and failed to exercise that right to prevent
the exchange of copyrighted 

. The
Napster program created a forum for the exchange of digital
music files and the program administrators had the ability to
block certain users from accessing that forum to upload or
download such files. As pled by Perfect 10, Defendants also
provide a system that allows the business of infringement for
profit to operate on a larger scale than it otherwise might, and
Defendants have the ability to deny users access to that pay-
ment system.

   This argument fails. The Napster program’s involvement
with—and hence its “policing” power over—the infringement
was much more intimate and directly intertwined with it than
Defendants’ payment systems are. Napster provided users
with the tools to enable the easy reproduction and distribution
of the actual infringing content and to readily search out and
identify infringing material. Defendants’ payment systems do
not. Napster also had the right and ability to block user access
to its program and thereby deprive particular users of access
to their forum and use of their location and distribution tools.
Defendants can block access to their payment system, but
they cannot themselves block access to the Internet, to any
particular websites, or to search engines enabling the location
of such websites. Defendants are involved with the payment
resulting from violations of the distribution right, but have no
direct role in the actual reproduction, alteration, or distribu-
tion of the infringing images.14 They cannot take away the
  14
    The same analysis of Defendants’ role in any violation of the distribu-
tion right under 17 U.S.C. §106(3), discussed in note 

, is equally
7854              PERFECT 10 v. VISA INTERNATIONAL
tools the offending websites use to reproduce, alter, and dis-
tribute the infringing images over the Internet. They can only
take away the means the websites currently use to sell them.15

   Perfect 10 offers two counter-arguments. Perfect 10 first
claims that Defendants’ rules and regulations permit them to
require member merchants to cease illegal activity—
presumably including copyright infringement—as a condition
to their continuing right to receive credit card payments from
the relevant Defendant entities. Perfect 10 argues that these
contractual terms effectively give Defendants contractual con-
trol over the content of their merchants’ websites, and that
contractual control over content is sufficient to establish the
“right and ability” to control that content for purposes of
vicarious liability. In the sense that economic considerations
can influence behavior, these contractual rules and regulations
do give Defendants some measure of control over the offend-
ing websites since it is reasonable to believe that fear of los-
ing access to credit card payment processing services would
be a sufficient incentive for at least some website operators to

applicable here. While the Napster program allowed its operators to block
users from violation of the distribution right, Defendants’ “policing”
power is limited to refusing to process payments resulting from such vio-
lations and does not extend to directly stopping the violations themselves.
   15
      The conclusion that the Defendants operate outside the scope of the
Napster rule is further bolstered by consideration—though as persuasive
authority only—of this court’s opinion in Metro-Goldwyn-Mayer Studios,
Inc. v. Grokster Ltd., 

(9th Cir. 2004), which the Supreme
Court vacated on other grounds, 

(2005). In Grokster, we
found the defendants not vicariously liable in part because they could not
block individual users or remove copyrighted material from the network.

Similarly, because none of the infringing images resides on
or passes through present Defendants’ own systems or any systems over
which Defendants exercise direct control, Defendants have no ability to
actually remove infringing material from the Internet or directly block its
distribution. This distinguishes credit card companies from Napster, which
could block access to the tools needed for the easy reproduction and distri-
bution of the actual infringing content.
                  PERFECT 10 v. VISA INTERNATIONAL                    7855
comply with a content-based suggestion from Defendants. But
the ability to exert financial pressure does not give Defen-
dants the right or ability to control the actual infringing activ-
ity at issue in this case. Defendants have no absolute right16
to stop that activity—they cannot stop websites from repro-
ducing, altering, or distributing infringing images. Rather, the
credit card companies are analogous to Google, which we
held was not liable for vicarious copyright infringement even
though search engines could effectively cause a website to
disappear by removing it from their search results, and reserve
the right to do so. Like Google, the credit card companies
“cannot stop any of the third-party websites from reproduc-
ing, displaying, and distributing unauthorized copies of Per-
fect 10’s images because that infringing conduct takes place
on the third-party websites.” Amazon.com, 

, at *20. Defendants can only refuse to process credit
card payments to the offending merchant within their payment
network, or they can threaten to do so if the merchant does
not comply with a request to alter content. While either option
would likely have some indirect effect on the infringing activ-
ity, as we discuss at greater length in our analysis of the Grok-
ster “stop or limit” standard below, so might any number of
actions by any number of actors. For vicarious liability to
attach, however, the defendant must have the right and ability
to supervise and control the infringement, not just affect it,
and Defendants do not have this right or ability.

   Perfect 10 relies heavily on the reasoning of Fonovisa and
Napster to support this argument, but that reliance is mis-
placed. The swap meet operator in Fonovisa and the software
operator in Napster both had the right to remove individual
  16
    We do not, as the dissent suggests, hold that an absolute right to stop
the infringement is a prerequisite for vicarious liability. Dissent at 7878-
79. Rather, we consider the Defendants’ inability to directly control the
actual infringing activities of third-party websites—reproduction, alter-
ation, display, and distribution over the Internet, not over Defendants’
payment systems—as evidence that they, much like Google, lack the right
and ability to control those activities.
7856               PERFECT 10 v. VISA INTERNATIONAL
infringers from the very place the infringement was happen-
ing. Defendants, like the defendants in Amazon.com, have no
such right. As already discussed, Defendants cannot take
away the software the offending websites use to copy, alter,
and distribute the infringing images, cannot remove those
websites from the Internet, and cannot themselves block the
distribution of those images over the Internet. Defendants can
refuse to process credit card payments for those images, but
while this refusal would reduce the number of those sales, that
reduction is the result of indirect economic pressure rather
than an affirmative exercise of contractual rights.17

   Perfect 10 also argues that were infringing websites barred
from accepting the Defendants’ credit cards, it would be
impossible for an online website selling adult images to com-
pete and operate at a profit.18 While we must take this allega-
  17
      We do not hold, as the dissent suggests, that the ability to exert finan-
cial pressure is categorically insufficient to establish sufficient control for
vicarious liability. We recognize that financial pressure is often very pow-
erful, but it is precisely for this reason that we hesitate to expand the law
of vicarious liability to encompass the sort of financial pressure Defen-
dants may exert. The dissent believes that the gravamen of “right and abil-
ity to control” is the “practical ability” to limit infringement. Dissent at
7878-79. But if this were true, despite the dissent’s protestations to the
contrary, there are many providers of essential services who could limit
infringement by refusing to offer those services. If “practical ability” is the
test, it does not matter if software operators, network technicians, or even
utility companies do not have a contractual right to affect the websites’
content. It is an article of faith of the free market that, subject to certain
limited exceptions, one can refuse to deal with anyone for any reason, and
by refusing to deal with the offending websites, these providers could limit
infringement.
   18
      Specifically, Perfect 10 defines “Stolen Content Websites” as “web-
sites . . . that routinely offer for sale to the public stolen [images],” First
Am. Compl. at 2, ¶ 6 (emphasis added), and alleges that “Stolen Content
Websites cannot exist without the knowledge and direct participation of
the financial institutions that process the credit card transactions for such
unlawful material,” 

¶ 7. We do acknowledge that at this proce-
dural stage, Perfect 10 is entitled to all reasonable inferences, but we
                  PERFECT 10 v. VISA INTERNATIONAL                    7857
tion as true, it still fails to state a claim because it conflates
the power to stop profiteering with the right and ability to
control infringement. Perfect 10’s allegations do not establish
that Defendants have the authority to prevent theft or alter-
ation of the copyrighted images, remove infringing material
from these websites or prevent its distribution over the Inter-
net. Rather, they merely state that this infringing activity
could not be profitable without access to Defendants’ credit
card payment systems. The alleged infringement does not turn
on the payment; it turns on the reproduction, alteration and
distribution of the images, which Defendants do not do, and
which occurs over networks Defendants do not control.

   [12] The Supreme Court’s recent decision in Grokster does
not undermine the validity of this distinction. As we held in
Amazon.com, 

, at *19-20, Grokster does
not stand for the proposition that just because the services
provided by a company help an infringing enterprise generate
revenue, that company is necessarily vicariously liable for
that infringement. Numerous services are required for the
third party infringers referred to by Perfect 10 to operate. In
addition to the necessity of creating and maintaining a web-
site, numerous hardware manufacturers must produce the
computer on which the website physically sits; a software
engineer must create the program that copies and alters the
stolen images; technical support companies must fix any hard-
ware and software problems; utility companies must provide
the electricity that makes all these different related operations
run, etc. All these services are essential to make the busi-
nesses described viable, they all profit to some degree from
those businesses, and by withholding their services, they

understand this to be a factual allegation that the “Stolen Content Web-
sites” could not continue to exist as websites offering images for sale
online should defendants withdraw their services, not an allegation that the
websites would completely vanish or that infringement by these sites in all
its forms would necessarily cease.
7858              PERFECT 10 v. VISA INTERNATIONAL
could impair—perhaps even destroy—the commercial viabil-
ity of those business. But that does not mean, and Grokster by
no means holds, that they are all potentially liable as vicarious
infringers. Even though they have the “right” to refuse their
services, and hence the literal power to “stop or limit” the
infringement, they, like Defendants, do not exercise sufficient
control over the actual infringing activity for vicarious liabil-
ity to attach.

       b.    Obvious and Direct Financial Interest in the
             Infringing Activity

   [13] Because Perfect 10 has failed to show that Defendants
have the right and ability to control the alleged infringing con-
duct, it has not pled a viable claim of vicarious liability.
Accordingly, we need not reach the issue of direct financial
interest.

B.     Secondary Liability for Trademark Infringement

   The tests for secondary trademark infringement are even
more difficult to satisfy than those required to find secondary
copyright infringement. See Sony Corp. v. Universal City Stu-
dios, 

, 439 n.19 (1984); 

(noting that “trademark infringement liability is more nar-
rowly circumscribed than copyright infringement”). While the
tests for such infringement are somewhat different in the
trademark context, Perfect 10’s factual allegations in support
of these claims are essentially identical to those alleged in
Perfect 10’s copyright claims, and they fail to state a claim for
similar reasons.

  1.        Contributory Trademark Infringement

   [14] To be liable for contributory trademark infringement,
a defendant must have (1) “intentionally induced” the primary
infringer to infringe, or (2) continued to supply an infringing
product to an infringer with knowledge that the infringer is
               PERFECT 10 v. VISA INTERNATIONAL              7859
mislabeling the particular product supplied. Inwood Labs.,
Inc. v. Ives Labs., Inc., 

, 855 (1982). When the
alleged direct infringer supplies a service rather than a prod-
uct, under the second prong of this test, the court must “con-
sider the extent of control exercised by the defendant over the
third party’s means of infringement.” Lockheed Martin Corp.
v. Network Solutions, Inc., 

, 984 (9th Cir. 1999).
For liability to attach, there must be “[d]irect control and
monitoring of the instrumentality used by a third party to
infringe the plaintiff’s mark.” 

has failed to plead a viable claim under either
prong of Inwood Labs—and, by extension, Lockheed Martin.
First, it has not pled facts showing that Defendants “intention-
ally induced” infringement of Perfect 10’s mark. Perfect 10
has alleged that Defendants are providing critical support to
websites that are using the PERFECT 10 mark in a manner
that is likely to cause the public to believe that they are autho-
rized by Perfect 10. Its factual allegations in support of this
claim are identical to those it made in support of its copyright
claims. These allegations, however, cite no affirmative acts by
Defendants suggesting that third parties infringe Perfect 10’s
mark, much less induce them to do so.

   [15] Second, Perfect 10 has failed to allege facts sufficient
to show “[d]irect control and monitoring of the instrumental-
ity used by a third party to infringe the plaintiff’s mark.”
Lockheed 

. Perfect 10 claims that the
“product” or “instrumentality” at issue here is the credit card
payment network through which Defendants process pay-
ments for infringing material. Appellant’s Opening Brief at
39. As discussed at length above, this network is not the
instrument used to infringe Perfect 10’s trademarks; that
infringement occurs without any involvement of Defendants
and their payment systems. Perfect 10 has not alleged that
Defendants have the power to remove infringing material
from these websites or directly stop their distribution over the
Internet. At most, Perfect 10 alleges that Defendants can
7860           PERFECT 10 v. VISA INTERNATIONAL
choose to stop processing payments to these websites, and
that this refusal might have the practical effect of stopping or
reducing the infringing activity. This, without more, does not
constitute “direct control.” See Lockheed 

(“While the landlord of a flea market might reasonably be
expected to monitor the merchandise sold on his premises,
[defendant] NSI cannot reasonably be expected to monitor the
Internet.”) (citation omitted).

  2.   Vicarious Trademark Infringement

   Vicarious liability for trademark infringement requires “a
finding that the defendant and the infringer have an apparent
or actual partnership, have authority to bind one another in
transactions with third parties or exercise joint ownership or
control over the infringing product.” Hard Rock Café Licens-
ing Corp. v. Concession Servs., Inc., 

, 1150 (7th
Cir. 1992) (internal quotations omitted), followed by Sym-
antec Corp. v. CD Micro, Inc., 

, 1275
(D. Or. 2003).

   Perfect 10 argues that Defendants are liable as follows:
“Defendants and the Stolen Content Websites are in a symbi-
otic financial partnership pursuant to which the websites oper-
ate their businesses according to defendants’ rules and
regulations and defendants share the profits, transaction by
transaction.” Appellant’s Opening Brief at 40. For the same
reasons that this relationship does not establish “right and
ability to control” for copyright purposes, neither does it
establish such a “symbiotic” relationship or “joint ownership
or control” for trademark purposes. Defendants process pay-
ments to these websites and collect their usual processing
fees, nothing more.

   [16] Perfect 10 further argues that “Defendants’ acceptance
of a charge binds the Stolen Content Website to provide the
infringing images to third parties.” Appellant’s Opening Brief
at 40. Even if legally relevant, Perfect 10’s allegation is
                  PERFECT 10 v. VISA INTERNATIONAL                   7861
legally incorrect. It is the websites’ contracts with the con-
sumers that bind the websites to provide the infringing
images, not the websites’ relationship with Defendants.19 The
websites’ contracts with Defendants are merely a means of
settling the resulting debits and credits among the websites
and the relevant consumers. We hold that Perfect 10 fails to
state a claim for vicarious trademark infringement.

  CALIFORNIA STATUTORY AND COMMON LAW
                 CLAIMS

   [17] In addition to its federal copyright and trademark
claims, Perfect 10 pled causes of action for unfair competi-
tion, false advertising, violation of the right of publicity, libel,
and intentional interference with economic relations. We hold
that the district court properly dismissed all these claims with
prejudice.

A.     California State Law Claims of Unfair Competition
       and False Advertising

   Defendants do not dispute Perfect 10’s claims that the web-
sites themselves are potentially violating California state and
common law prohibiting unfair competition and false adver-
tising. See Cal. Bus. & Prof. Code §§ 17200, et. seq., and
17500, et. seq. Defendants do, however, argue that Emery v.
Visa International Service Association, 

(2002), precludes liability for Defendants in this case, both
under secondary liability and aiding and abetting theories.
Defendants are correct on both counts.
  19
     The dissent claims that no contractual relationship arises between the
infringers and consumers until Defendants process a payment. Dissent at
7886. Even if true as a factual and legal matter—and given the absence
of any citation, it is difficult to know whether this is true—this results
from a decision of the websites to delay formation of the relationship, not
from any requirement Defendants impose on the transaction.
7862               PERFECT 10 v. VISA INTERNATIONAL
   In Emery, a California appellate court affirmed a grant of
summary judgment in favor of Visa, finding that Visa did not
exercise the requisite control over merchants marketing for-
eign lottery tickets to impose secondary liability under the
state’s unfair competition or false advertising laws. 

964. Emery found that an “unfair practices claim under sec-
tion 17200 cannot be predicated on vicarious liability. . . . A
defendant’s liability must be based on his personal participa-
tion in the unlawful practices and unbridled control over the
practices that are found to violate section 17200 or 17500.”

(internal citations omitted). Because “Visa itself
played no part in preparing or sending any ‘statement’ that
might be construed as untrue or misleading under the unfair
business practices statutes,” it could not be liable for unfair
competition. 

The false advertising claim also nec-
essarily failed because “even if Visa allowed the merchants to
use its logo, trade name, or trademark, it would not be liable
for false advertising. There is no duty to investigate the truth
of statements made by others.” 

Emery
is dispositive of Perfect 10’s claims that the Defendants are
secondarily liable under California unfair competition and
false advertising laws and the district court properly dismissed
them.20

   In an attempt to avoid the impact of Emery, Perfect 10
argues on appeal that it alleged aiding and abetting theories of
liability in its complaints, and further, that the district court
improperly dismissed these civil claims under a criminal stan-
dard of aiding and abetting. Perfect 10 fails to establish a via-
  20
     The dissent argues that Emery does not preclude Perfect 10’s claims
because the only defendant in Emery was Visa International Service Asso-
ciation, whereas Perfect 10 has also sued the member merchant banks who
issue cards and process payments from merchants. Dissent at 7886-87.
This distinction is only relevant if the activities of the member banks con-
stitute personal participation in the infringing activity, and for all the rea-
sons discussed above, those banks are not personally involved in the
reproduction, alteration, or distribution of the infringing images. Rather,
they merely process payments related to those activities.
               PERFECT 10 v. VISA INTERNATIONAL              7863
ble claim on these theories as well. The only authority offered
by Perfect 10 in support of such liability is an opinion which
is now uncitable in California: Schulz v. Neovi Data Corpora-
tion, 

(Cal. App. 4th Dist. 2005), super-
ceded by 

(Cal. 2005), cause transferred
by 

(Cal. 2007), transferred to -- Cal.
Rptr. 3d --, 

(Cal. App. 4th Dist. Jun 15,
2007).

   Furthermore, even under the standards announced in the
superceding Schulz opinion, Defendants would not be liable.
The Schulz court found a credit card company potentially lia-
ble for its role in facilitating an illegal online lottery because
that company “went far beyond merely processing credit
cards.” 

, at *6. In support, the court cited
specific statements from a company representative in which
he “personally assured” an agent of the website that the defen-
dant company “did not have any problem with the operation
of the [illegal] lottery site” and had a “stronger stomach” than
other payment processors. 

alleges no similar
conduct here—Defendants merely process credit card pay-
ments.

B.   Aiding and Abetting the Websites’ Violations of
     Perfect 10’s Right of Publicity

   Perfect 10 alleges that Defendants aided and abetted the
websites’ violations of Perfect 10’s rights of publicity,
acquired by assignment from its models, in violation of Cal.
Civil Code § 3344 and the common law right of publicity.
This aiding and abetting claim fails for the same reasons as
the aiding and abetting claims under unfair competition and
false advertising. Even if such liability is possible under Cali-
fornia law—a proposition for which Perfect 10 has provided
no clear authority—Defendants lack sufficient control or per-
sonal involvement in the infringing activities to be so liable.
See Schulz, 

, at *5-6; Emery, 

at 962-63.
7864              PERFECT 10 v. VISA INTERNATIONAL
C.     Libel and Intentional Interference with Prospective
       Economic Advantage

   The district court dismissed Perfect 10’s claims of libel and
intentional interference with prospective economic advantage
with prejudice on multiple grounds. We affirm on the ground
that both are time-barred. Under California law, a libel claim
must be filed within one year of publication of the allegedly
libelous statement, Cal. Civ. Proc. § 340(c), and an intentional
interference claim must be filed within two years of the
underlying harmful act, Cal. Civ. Proc. § 339. Perfect 10
claims the same underlying wrongful act as the basis for both
claims: its placement on the industry “black list” in the Spring
of 2001. However, Perfect 10 failed to file suit until January
2004—well beyond the statute of limitations applicable to
each claim—and has failed to show any possible exception
under either statute. Those claims are time-barred.

                           CONCLUSION

   We decline to create any of the radical new theories of lia-
bility advocated by Perfect 10 and the dissent and we affirm
the district court’s dismissal with prejudice of all causes of
action in Perfect 10’s complaint for failure to state a claim
upon which relief can be granted.

     AFFIRMED.



KOZINSKI, Circuit Judge, dissenting for the most part:1

  Federal law gives copyright owners the exclusive right to
“distribute copies [of their works] . . . to the public by sale.”
  1
   I join part C of the “California Statutory and Common Law Claims”
section of the opinion, dealing with plaintiff’s libel and prospective eco-
nomic advantage claims.
                   PERFECT 10 v. VISA INTERNATIONAL                      7865
17 U.S.C. § 106(3). Plaintiff alleges that certain third parties
it refers to as the “Stolen Content Websites” unlawfully copy
its protected images and sell them to the public, using defen-
dants’ payment systems as financial intermediaries. Accord-
ing to plaintiff, the Stolen Content Websites “maintain no
physical presence in the United States in order to evade crimi-
nal and civil liability for their illegal conduct.” First Am.
Compl. at 8 ¶ 26. Plaintiff also claims that “Defendants do not
enforce their own rules against [the] Stolen Content Websites
because Defendants do not want to lose the substantial reve-
nues and profits they receive from the websites.” 

¶ 35. Plaintiff has repeatedly notified defendants that they are
abetting the sale of stolen merchandise by “knowingly provid-
ing crucial transactional support services for the sale of mil-
lions of stolen photos and film clips worth billions of dollars,”

¶ 5, but to no avail. Frustrated in its effort to protect
the rights Congress has given it, plaintiff turns to the federal
courts for redress. We should not slam the courthouse door in
its face.

   Accepting the truth of plaintiff’s allegations, as we must on
a motion to dismiss, the credit cards2 are easily liable for indi-
rect copyright infringement: They knowingly provide a finan-
cial bridge between buyers and sellers of pirated works,
enabling them to consummate infringing transactions, while
making a profit on every sale. If such active participation in
infringing conduct does not amount to indirect infringement,
   2
     Throughout this dissent, I refer to defendants collectively as credit card
companies or credit cards. In so doing, I am adopting the same simplifying
assumptions as the majority. I am aware that Visa and MasterCard don’t
deal directly with merchants; rather, merchants obtain credit card accounts
from banks, which are in turn authorized by Visa or MasterCard to use
their respective payment systems. Some of the other defendants are
involved in clearing these transactions. For a description of how the sys-
tem works, see Emery v. Visa Int’l Serv. Ass’n, 

, 956
(2002). It may well be that some of the defendants will be absolved of lia-
bility because they have no direct contact with merchants or consumers,
but that is a matter to be sorted out after discovery.
7866              PERFECT 10 v. VISA INTERNATIONAL
it’s hard to imagine what would.3 By straining to absolve
defendants of liability, the majority leaves our law in disarray.

                    Contributory Infringement

   We have long held that a defendant is liable for contribu-
tory infringement if it “materially contributes to the infringing
conduct.” A&M Records, Inc. v. Napster, Inc., 

,
1019 (9th Cir. 2001) (internal quotations omitted) (citing
Gershwin Publ’g Corp. v. Columbia Artists Mgmt., Inc., 

, 1162 (2d Cir. 1971)). Our recent opinion in Per-
fect 10, Inc. v. Amazon.com, Inc., slip op. at 5751 (9th Cir.
2007), canvasses the caselaw in this area and concludes that
Google “could be held contributorily liable if it had knowl-
edge 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. My colleagues
engage in wishful thinking when they claim that “Google’s
search engine itself assists in the distribution of infringing
content to Internet users, while Defendants’ payment systems
   3
     As the majority points out, maj. op. at 7842 n.6, 7846 n.11, plaintiff’s
allegations might also support a theory of direct infringement. See First
Am. Compl. at 8 ¶ 30 (“Defendants, jointly with the Stolen Content Web-
sites, are engaged in . . . the willful and systematic infringement of the
intellectual property rights of” plaintiff and others). Because plaintiff has
not argued this theory on appeal, we have no occasion to address it. But
the fact that defendants may also be committing direct infringement does
not diminish their responsibility as indirect infringers for providing essen-
tial services to buyers and sellers of stolen merchandise. A defendant can
be liable for both direct and indirect infringement based on the same con-
duct. See, e.g., Alcatel USA, Inc. v. DGI Technologies, Inc., 

,
791 (5th Cir. 1999).
                 PERFECT 10 v. VISA INTERNATIONAL                  7867
do not” and that “[h]elping users to locate an image might
substantially assist users to download infringing images, but
processing payments does not.” Maj. op. at 7841, 7842.4

   The majority struggles to distinguish Amazon by positing
an “additional step in the causal chain” between defendants’
activities and the infringing conduct. 

According
to the majority, “Google may materially contribute to
infringement by making it fast and easy for third parties to
locate and distribute infringing material, whereas Defendants
make it easier for infringement to be profitable, which tends
to increase financial incentives to infringe, which in turn tends
to increase infringement.” 

is mistaken; there
is no “additional step.” Defendants participate in every credit
card sale of pirated images; the images are delivered to the
buyer only after defendants approve the transaction and pro-
cess the payment. This is not just an economic incentive for
infringement; it’s an essential step in the infringement pro-
cess.

   In any event, I don’t see why it matters whether there is an
“additional step.” Materiality turns on how significantly the
activity helps infringement, not on whether it’s characterized
as one step or two steps removed from it. The majority recog-
nizes that “Defendants make it easier for websites to profit
from this infringing activity,” maj. op. at 7841; that defen-
dants’ conduct “tends to increase infringement,” 

that defendants “have the effect of increasing . . . infringe-
ment,” 

that “Defendants have the power to under-
mine the commercial viability of” the Stolen Content
  4
    Neither Google nor the credit cards here were designed for infringe-
ment. The majority tries to distinguish this case from Napster and Metro-
Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 

(2005),
where defendants’ services were designed for no other purpose. Maj. op.
at 7845 n.10, 7849. 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.
7868              PERFECT 10 v. VISA INTERNATIONAL
Websites and that they “make it easier for websites to profit
from this infringing activity,” 

that “Defendants
could likely take certain steps that may have the indirect
effect of reducing infringing activity on the Internet,” 

and that defendants could “reduce the number of
those [infringing] sales,” 

Taking the majority at
its word, it sounds like defendants are providing very signifi-
cant help to the direct infringers.

   My colleagues recognize, as they must, that helping con-
sumers locate infringing content can constitute contributory
infringement,5 but they consign the means of payment to sec-
ondary status. Maj. op. at 7846 (“Defendants merely provide
a method of payment . . . .”); 

(“[A]ll parties
involved simply use Defendants’ system to process payments
for that infringing material.”); 

(“They can only
take away the means the websites currently use to sell [the
infringing images].”); 

(“Defendants can only
refuse to process credit card payments to the offending mer-
chant within their payment network . . . .”). But why is locat-
ing infringing images more central to infringement than
paying for them? If infringing images can’t be found, there
can be no infringement; but if infringing images can’t be paid
for, there can be no infringement either. Location services and
payment services are equally central to infringement; the
majority’s contrary assertion is supported largely by disparag-
ing use of “merely,” “simply” and “only.” See also 

(“[M]ere ability to withdraw a financial ‘carrot’ does not
create the ‘stick’ of ‘right and ability to control’ . . . .”).6
  5
    Amazon, as well as Napster and Grokster, hold as much.
  6
    The majority argues that “[b]ecause location services lead Internet
users directly to infringing images, and often display them on the website
of the service itself, we find that location services are more important and
more essential—indeed, more ‘material’—to infringement than payment
services are.” Maj. op. at 7842-43 n.8. Skipping lightly over the fact that
we lack the power to “find” anything, the majority admits that payment
services are important, essential and material. That location services may
—or may not—be more so, is of no consequence; this is not a race where
there can be only one winner.
                  PERFECT 10 v. VISA INTERNATIONAL                      7869
   The majority dismisses the significance of credit cards by
arguing that “infringement could continue on a large scale
[without them] because other viable funding mechanisms are
available.” Maj. op. at 7842.7 Of course, the same could be
said about Google. As the majority admits, if Google were
unwilling or unable to serve up infringing images, consumers
could use Yahoo!, Ask.com, Microsoft Live Search, A9.com
or AltaVista instead. 

n.8. Even if none of these
were available, consumers could still locate websites with
infringing images through e-mails from friends, messages on
discussion forums, tips via online chat, “typo-squatting,”
peer-to-peer networking using BitTorrent or eDonkey, offline
and online advertisements (see pp. 7882 infra), disreputable
search engines hosted on servers in far-off jurisdictions or
even old-fashioned word of mouth. The majority’s claim that
search engines “could effectively cause a website to disappear
by removing it from their search results,” maj. op. at 7855, is
quite a stretch.

   If the test for contributory infringement really were whether
“infringement could continue on a large scale [without the aid
of the defendant] because other viable . . . mechanisms are
available,” Amazon should have absolved Google of liability
because of the availability of such obvious alternatives. But
Amazon held that Google could be liable for contributory
infringement because it “substantially assists” users in finding
infringing materials; the existence of other means of infringe-
   7
     The majority’s claim that “Perfect 10’s factual allegations are not to
the contrary,” maj. op. at 7842 n.7, is simply not accurate. Indeed, else-
where in the opinion, the majority concedes that plaintiff has made “a fac-
tual allegation” that the Stolen Content Websites “could not continue to
exist as websites offering images for sale online.” 

n.18. How
then can the majority hold here, apparently as a matter of law, that defen-
dants are absolved of liability because “other viable funding mechanisms
are available”? Maj. op. at 7842. If we accept as true, as the majority says
it does, that the Stolen Content Websites will no longer be able to sell their
images, how can we hold that they could still do so by developing other
(unknown and unsuspected) ways to get paid?
7870              PERFECT 10 v. VISA INTERNATIONAL
ment was not even considered because no case has suggested
this to be a relevant consideration. The majority’s “other via-
ble . . . mechanisms” test conflicts with Amazon, Napster,
Grokster and every other material assistance case that I know
of.

   The majority does even worse when it tries to describe the
“other viable funding mechanisms” that could serve as alter-
natives to credit cards: According to the majority, the Stolen
Content Websites “might . . . make [their] profits from adver-
tising” or “might develop other payment mechanisms that do
not depend on the credit card companies.” Maj. op. at 7842
(emphasis added). This shows that my colleagues have a
healthy imagination but contravenes our responsibilities, the
most fundamental of which is that we must work with the
facts the parties presented below, not invent new facts on
appeal. Defendants have presented no evidence that the
pirates could survive without credit cards, nor could they, as
the case is still at the motion to dismiss stage. Even if specula-
tion as to what the Stolen Content Websites “might” do were
admissible evidence, which I seriously doubt, we must still
wait for one of the parties to present it, not conjure it up our-
selves.8 At the pleadings stage, we must accept plaintiff’s alle-
gations that credit cards are indispensable to the operation of
the Stolen Content Websites, and that these websites would be
forced out of business without them. See First Am. Compl. at
2 ¶ 7 (“Stolen Content Websites cannot exist without the
knowledge and direct participation of [defendants].”); 

0 ¶ 35 (“[T]he Stolen Content Websites would be eradicat-
ed.”). If my colleagues can’t justify their result without con-
  8
    I note in passing that, even if we were to accept the majority’s specula-
tions, they would be insufficient. That the Stolen Content Websites
“might” change the way they do business or develop alternative payment
mechanisms hardly proves that “other viable funding mechanisms are
available.” Maj. op. at 7842 (emphasis added). The majority’s prognosti-
cation as to what “might” happen in the future leaves open the likelihood
that it will not happen, and positively admits that there are no viable alter-
native payment mechanisms today.
                PERFECT 10 v. VISA INTERNATIONAL              7871
tradicting plaintiff’s allegations, this is a pretty good hint that
they’re wrong. See also p. 7869 n.7 supra; pp. 7878 n.15,
7848-50 infra.

   The majority’s attempt to distinguish location services from
payment services by trying to show that there are viable alter-
natives for the latter but not the former cuts entirely against
them. As plaintiff alleges, and experience tells us, there are
numerous ways of locating infringing images on the Internet,
but there are no adequate substitutes for credit cards when it
comes to paying for them. A few consumers might use checks
or money orders to pay for infringing images, but this would
be far more cumbersome, time-consuming and risky than
using credit cards. See pp. 7845-46 & n.14 infra. If it mattered
whether search engines or credit cards are more important to
peddling infringing content on the Internet, the cards would
win hands down.

   But it doesn’t matter. Material assistance turns on whether
the activity in question “substantially assists” infringement.
Amazon, slip op. at 5793. It makes no difference whether the
primary infringers might do without it by finding a wor-
karound, which is why the majority can cite no case support-
ing its analysis. We presume that primary infringers have
good reasons for selecting a particular means to infringe, and
that other ways to do so will be more costly, more cumber-
some and less efficient. Moreover, infringement can always
be carried out by other means; if the existence of alternatives
were a defense to contributory infringement then there could
never be a case of contributory infringement based on mate-
rial assistance. The majority makes some very new—and very
bad—law here.

   The majority also makes a slightly different argument:
“While Perfect 10 has alleged that Defendants make it easier
for websites to profit from this infringing activity, the issue
here is reproduction, alteration, display and distribution,
which can occur without payment. Even if infringing images
7872           PERFECT 10 v. VISA INTERNATIONAL
were not paid for, there would still be infringement.” Maj. op.
at 7840-41. What the majority seems to be arguing here is that
helping an infringer get paid cannot materially assist infringe-
ment because the actual process of infringement—
“reproduction, alteration, display and distribution”—does not
include payment. There are two problems with this argument.
The first is that the Stolen Content Websites are alleged to
infringe plaintiff’s right of distribution “by sale.” 17 U.S.C.
§ 106(3). It’s not possible to distribute by sale without receiv-
ing compensation, so payment is in fact part of the infringe-
ment process. Second, this argument runs head-on into
Amazon, where we held that helping to find infringing images
materially assists infringement, even though locating infring-
ing images also isn’t “reproduction, alteration, display [or]
distribution.” To be sure, locating images, like paying for
them, makes it a lot easier to infringe, but neither is intrinsic
to the infringement process, as the majority conceives it.

   Nor can today’s opinion be squared with Fonovisa, Inc. v.
Cherry Auction, Inc., 

(9th Cir. 1996). In
Fonovisa, defendant allowed known infringers to sell pirated
works from stalls at its swap meet. We found material assis-
tance based on the fact that “it would [have been] difficult for
the infringing activity to take place in the massive quantities
alleged without the support services provided by the swap

. The pivotal role played by the swap
meet in Fonovisa is played by the credit cards in cyberspace,
in that they make “massive quantities” of infringement possi-
ble that would otherwise be impossible. Indeed, the assistance
provided here is far more material than in Fonovisa. A pirate
kicked out of a swap meet could still peddle his illicit wares
through newspaper ads or by word of mouth, but you can’t do
business at all on the Internet without credit cards. Plaintiff
thus plausibly alleges that the “Stolen Content Websites
would be eradicated” if defendants withdrew their support.
First Am. Compl. at 10 ¶ 35.
                  PERFECT 10 v. VISA INTERNATIONAL                    7873
   The majority rejects Fonovisa by pointing out that the swap
meet there provided a “centralized place” for the infringement
to take place, maj. op. at 7845, whereas defendants here “have
no direct connection to [the] infringement,” 

But
material assistance does not depend on physical contact with
the infringing activity. If you lend money to a drug dealer
knowing he will use it to finance a drug deal, you materially
assist the transaction, even if you never see the drugs. Or, if
you knowingly drive a principal to the scene of the crime, you
provide material assistance, even if nothing happens during
the ride. See United States v. Lopez, 

, 1076-79
(9th Cir. 2007). Material assistance turns on whether the con-
duct assists infringement in a significant way, not on pedantic
factual distinctions unrelated to how much the activity facili-
tates infringement.

   Sure, a marketplace for pirated works (as in Fonovisa) or
an index for such works (as in Napster and Grokster) is
important to infringement, but so is a means of getting paid.
Defendants are directly involved in every infringing transac-
tion where payment is made by credit card, which (according
to plaintiff) amounts to virtually every sale of pirated works.
First Am. Compl. at 9 ¶ 35. Credit cards don’t provide some
tangential service that marginally affects sales; they are the
financial lifeblood of the Stolen Content Websites.

  The majority’s concern that imposing liability on defen-
dants here would implicate vast numbers of other actors who
provide incidental services to infringers, maj. op. at 7847, is
unfounded. Line-drawing is always a bit tricky, but courts
have shown themselves adept at dealing with it from time out
of mind, in resolving such issues as proximate causation and
  9
    The majority seeks to distinguish Napster and Grokster on similar
grounds by arguing that the defendants do not provide the “tools to locate
infringing material,” 

and that the infringing material “[n]ever
reside[s] on or pass[es] through any network or computer Defendants
operate,” 

10 v. VISA INTERNATIONAL
reasonable suspicion. Contributory infringement requires
material assistance to the infringing activity, and those the
majority worries about would doubtless be absolved of liabil-
ity because their contribution to the infringing activity is
insufficiently material.

   Courts have, in fact, had no difficulty in distinguishing
those who are materially involved in copyright infringement
from those who are not. As Fonovisa explains, two lines of
cases developed in the first part of the last century: the absen-
tee landlord cases and the dance hall cases. The first line
involved landlords who “lacked knowledge of the infringing
acts of [their] tenant[s] and who exercised no control over the
leased premises.” 

. These were held
not liable for the infringement committed by tenants on the
premises. See, e.g., Deutsch v. Arnold, 

, 688 (2d
Cir. 1938). In the second line of cases, “the operator of an
entertainment venue was held liable for infringing perfor-
mances when the operator (1) could control the premises and
(2) obtained a direct financial benefit from the audience, who
paid to enjoy the infringing 

(cit-
ing Buck v. Jewell-LaSalle Realty Co., 

(1931),
and Dreamland Ball Room, Inc. v. Shapiro, Bernstein & Co.,

(7th Cir. 1929)).10
  10
     The majority consigns the dance hall/absentee landlord cases to obliv-
ion by holding that they have no relevance to the Internet. Maj. op. at 7843
n.9. It is true that these cases were developed in a brick and mortar world,
but the distinction they draw between those who materially assist infringe-
ment (and are therefore liable) and those who are more remotely involved
(and are therefore not liable) is equally important—perhaps even more
important—in cyberspace than in real space. That Napster and Grokster
did not consider these cases is hardly significant. The defendants there
were centrally involved in the infringing transactions—indeed, as the
majority reminds us, their systems were created solely to promote
infringement, maj. op. at 7845 n.10, 7849—and thus there could be no
argument that their involvement in the infringing transactions was too
peripheral to give rise to a claim of secondary infringement. The Seventh
Circuit managed to apply the dance hall cases to the Internet, see In re
Aimster Copyright Litig., 

, 654 (7th Cir. 2003), and I’m con-
fident that federal judges west of the Rockies could have figured out how
to do the same.
                   PERFECT 10 v. VISA INTERNATIONAL                      7875
   These cases show that courts are able to forestall the major-
ity’s parade of horribles. But our case does not present a close
or difficult question: Defendants here are alleged to provide
an essential service to infringers, a service that enables
infringement on a massive scale. Defendants know about the
infringements; they profit from them; they are intimately and
causally involved in a vast number of infringing transactions
that could not be consummated if they refused to process the
payments; they have ready means to stop the infringements.
Were we to rule for plaintiff, as we should, I have every con-
fidence that future courts would be able to distinguish this
case when and if they are confronted with lawsuits against
utility companies, software vendors and others who provide
incidental services to infringers.

                       Vicarious Infringement

   A party “infringes vicariously by profiting from direct
infringement while declining to exercise a right to stop or
limit it.” Amazon, slip op. at 5794 (quoting 

) (internal quotation marks omitted).11 There is no
doubt that defendants profit from the infringing activity of the
Stolen Content Websites; after all, they take a cut of virtually
every sale of pirated material. First Am. Compl. at 4 ¶ 13, 7
¶ 25. The majority does not dispute this point so I need not
belabor it. Maj. op. at 7857-58.

   Defendants here also have a right to stop or limit the
infringing activity, a right they have refused to exercise. As
the majority recognizes, “Perfect 10 . . . claims that Defen-
dants’ rules and regulations permit them to require member
merchants to cease illegal activity—presumably including
copyright infringement—as a condition to their continuing
right to receive credit card payments from the relevant Defen-
  11
    Amazon interprets the “stop or limit” language as requiring “a legal
right to stop or limit the allegedly infringing conduct, as well as the practi-
cal ability to do so.” Amazon, slip op. at 5786-87.
7876                PERFECT 10 v. VISA INTERNATIONAL
dant entities.” Maj. op. at 7854.12 Assuming the truth of this
allegation,13 the cards have the authority, given to them by
contract, to force the Stolen Content Websites to remove
infringing images from their inventory as a condition for
using defendants’ payment systems. If the merchants comply,
their websites stop peddling stolen content and so infringe-
ment is stopped or limited. If they don’t comply, defendants
have the right—and under copyright law the duty—to kick the
pirates off their payment networks, forcing them to find other
means of getting paid or go out of business. In that case, too,
infringement is stopped or limited. The swap meet in
Fonovisa was held vicariously liable precisely because it did
not force the pirates to stop infringing or leave; there is no
reason to treat defendants here differently.

   That the pirates might find some other way of doing busi-
ness is of no consequence; our cases make this perfectly clear.
It didn’t matter in Fonovisa that the infringers there could
have continued their illegal sales by mail order or by hawking
their unlawful merchandise on street corners. Nor did it matter
  12
    Plaintiff’s allegation on this point, as on many others, is very specific:
       When MasterCard or Visa learns of a merchant engaged in ille-
       gal, fraudulent, or otherwise improper business practices, their
       own regulations require them to cause member banks to investi-
       gate and, depending on the nature of the misconduct, terminate
       the merchants from the Visa and MasterCard systems. The rules
       of both associations strictly prohibit members from servicing ille-
       gal businesses.
First Am. Compl. at 6 ¶ 20.
   13
      In fact, there can be no doubt that it’s true. For example, the Master-
Card Merchant Rules Manual provides that “[a] Payment Transaction may
not be effected for any of the following reasons: . . . to transfer gambling
winnings or funds related to chips, currency, or other value usable for
gambling that were purchased in connection with gambling; for any illegal
purpose or any other purpose deemed by MasterCard to be impermissi-
ble.” MasterCard International, Merchant Rules Manual § 2.1.11.3(6)
(2006) (emphasis added), available at http://www.mastercard.com/us/wce/
PDF/12999_MERC-Entire_Manual.pdf.
                  PERFECT 10 v. VISA INTERNATIONAL                   7877
in Napster or Grokster that the direct infringers might find
some other means of illegally sharing their protected content
with others. Indeed, there is no case involving secondary
infringement, going back to the dance hall cases of the last
century, where the secondary infringer’s refusal to do busi-
ness with the direct infringer could have stopped infringement
altogether and forever. Yet, courts have presumed that remov-
ing the particular means of infringement challenged in each
case would make direct infringement more difficult and
thereby diminish the scale of infringing activity.

   Here, the Stolen Content Websites have chosen credit cards
as a form of payment, and for good reason. Credit cards are
ubiquitous and permit the transfer of funds electronically in a
matter of seconds. Consumers need not wait days or weeks
for a check to reach its destination and clear before gaining
access to the salacious pictures they crave. Consumers also
know that, if goods bought by credit card are not delivered,
the cards will likely reverse the transaction.14 Credit cards thus
act as informal escrow agents, effectively guaranteeing that
their merchants will deliver the goods. Blocking the ability to
accept credit cards would be a heavy blow to the Stolen Con-
tent Websites because cards are “overwhelmingly the primary
way by which customers pay to view Stolen Content Web-
sites.” First Am. Compl. at 9 ¶ 35. Even if the pirates could
find an alternative way of plying their illegal trade, being
denied their preferred means of doing business would sharply
curtail their unlawful activities.
  14
     Visa’s website, for example, explains that “Visa and its card issuers
and acquirers have in place an efficient dispute resolution process.” Visa
USA, Chargebacks & Dispute Resolution, http://www.usa.visa.com/
merchants/operations/chargebacks_dispute_resolution/index.html (last vis-
ited March 24, 2007). It also notes that “[c]hargebacks arise for many rea-
sons, primary among which are customer disputes, fraud, processing
errors, authorization issues, and non-fulfillment of copy requests.” 

7878               PERFECT 10 v. VISA INTERNATIONAL
   The majority toils to resist this obvious conclusion but its
arguments are not persuasive. For example, it makes no dif-
ference that defendants control only the means of payment,
not the mechanics of transferring the material. Maj. op. at
7850, 7856, 7858. In a commercial environment, distribution
and payment are (to use a quaint anachronism) like love and
marriage—you can’t have one without the other. If cards
don’t process payment, pirates don’t deliver booty. The credit
cards, in fact, control distribution of the infringing material.

   The majority also disparages defendants’ ability to control
the Stolen Content Websites as just “financial pressure”
which doesn’t give them an “absolute right to stop [the
infringing] activity—they cannot stop websites from repro-
ducing, altering, or distributing infringing images.” 

(footnote omitted).15 But we have never required an “ab-
solute right to stop [the infringing] activity” as a predicate for
vicarious liability; it’s enough if defendants have the “practi-
cal ability” to do so. Amazon, slip op. at 5794, 5796. While
proclaiming its fidelity to Amazon, maj. op. at 7841, 7852, the
  15
     The majority tries to take back in a footnote what it says in text by
claiming that an “absolute right to stop” is not “a prerequisite” to vicarious
liability, but that its absence is “evidence that [defendants], much like
Google, lack the right and ability to control those [infringing] activities.”
Maj. op. at 7855 n.16. Alas, it won’t work. If not having an “absolute right
to stop” is merely “evidence” that defendants lack sufficient control for
vicarious infringement, then this can be offset by other evidence that they
do have such control. Conflicts in the evidence must be resolved after dis-
covery and trial, not on a motion to dismiss.
   “Practical ability,” the standard announced in Amazon, is a capacious
concept, far broader than “absolute right to stop.” Even if the majority
were right that defendants lack the “absolute right to stop” the infringe-
ments, plaintiff would be entitled to show that defendants have the “practi-
cal ability” to do so. If the majority means what it says in its footnote, then
what it says in text is beside the point. In fact, there can be no doubt that
the majority means what it says in text, because it upholds dismissal of the
complaint on the ground that defendants lack the “absolute right to stop”
the infringers; the footnote is merely an unpersuasive attempt to sweep the
conflict with Amazon under the rug.
                  PERFECT 10 v. VISA INTERNATIONAL                    7879
majority jettisons Amazon’s “practical ability” standard and
substitutes its own “absolute right to stop” standard. 

.16

   It’s perfectly clear that the cards do have the “practical abil-
ity” to force websites that display their logos and use their
payment systems to remove unlawful merchandise. As the
majority admits, “Defendants can . . . refuse to process credit
card payments to the offending merchant within their payment
network, or they can threaten to do so if the merchant does
not comply with a request to alter content.” Maj. op. at 7855
(disparaging “only” omitted). Commercial websites are
dependent on credit cards as a form of payment, and the
Stolen Content Websites are uniquely so, as virtually all of
their illicit sales are paid for by card. First Am. Compl. at 9
¶ 35. A threat by credit card companies to withdraw use of
their payment systems couldn’t be ignored. After all, how
many consumers would be willing to send a check or money
order to a far-off jurisdiction in the hope that days or weeks
later they will be allowed to download some saucy pictures?
If the Stolen Content Websites cannot get paid for their
unlawful products, or if payment is made more difficult or
cumbersome, this will dramatically affect their operations.
Some may lose customers who are unwilling to use alterna-
tive forms of payment;17 others may go out of business; still
others may remove the infringing content from their websites.
Even the majority admits that “fear of losing access to credit
card payment processing services would be a sufficient incen-
tive for at least some website operators to comply with a
content-based suggestion from Defendants.” Maj. op. at 7854-
55.18 As a consequence, infringing activity would be
“stop[ped] or limit[ed].” See Amazon, slip op. at 5794.
  16
     The conflict with Amazon is clearly drawn in footnote 17, where the
majority explicitly disavows “practical ability” as the standard for vicari-
ous infringement. Maj. op. at 7856 n.17. The majority is free to disagree
with the standard adopted by our caselaw, but it is not free to reject it.
  17
     Those customers may take their patronage to plaintiff’s website.
  18
     The majority disparages this as mere “financial pressure,” but I am
aware of no prior case holding that the legal right to exercise “financial
7880              PERFECT 10 v. VISA INTERNATIONAL
   The majority also reads the complaint for less than it’s
worth by “understand[ing]” plaintiff to allege “that the ‘Stolen
Content Websites’ could not continue to exist as websites
offering images for sale online should defendants withdraw
their services, not [to allege] that the websites would com-
pletely vanish or that infringement by these sites in all its
forms would necessarily cease.” Maj. op. at 7856-57 n.18. But
plaintiff expressly alleges what the majority “understand[s]”
it not to allege, namely that the sites “cannot exist” without
defendants, First Am. Compl. at 2 ¶ 7, and that “the Stolen
Content Websites would be eradicated” if they could not use
credit cards, 

¶ 35. It is hornbook law that we must
construe complaints liberally on a motion to dismiss. See Glus
v. Brooklyn Eastern Dist. Terminal, 

, 235
(1959); Conley v. Gibson, 

, 47-48 (1957). A lib-
eral construction means reading ambiguous provisions in a
way that would save the complaint from dismissal, and some-
times even reading between the lines to give plaintiff the ben-
efit of every reasonable inference. I have never heard of
reading a complaint liberally by ignoring allegations that are
clearly present.

   But let’s say the majority “understand[s]” plaintiff’s allega-
tions correctly: So what? To sustain a vicarious infringement
claim, plaintiff need not allege that the Stolen Content Web-

pressure” over infringing activity is insufficient to support a finding of
vicarious infringement. This is a dangerous precedent. We live in a com-
mercial world and economic incentives are often the strongest possible
motivators—far stronger than the often empty threat of litigation. As this
case demonstrates, litigation can be costly and protracted, and its results
uncertain. By contrast, the threat of stopping an essential service can be
implemented at once, without hiring an army of lawyers or persuading
judges and juries of the rightness of one’s cause. In an economy marked
by competition, financial pressure which raises costs or diminishes patron-
age can be a powerful weapon. By holding that the legal right to exercise
financial pressure is an insufficient basis for establishing vicarious
infringement, my colleagues take a hasty and unwise step in the develop-
ment of the law.
                  PERFECT 10 v. VISA INTERNATIONAL                     7881
sites “would completely vanish or that infringement by these
sites in all its forms would necessarily cease.” Maj. op. at
7856-57 n.18. The standard is “stop or limit” the infringing
conduct. Amazon, slip op. at 5787 (emphasis added) (quoting

). And my colleagues admit that
plaintiff has alleged that “at least some website operators
[would] comply with a content-based suggestion from Defen-
dants.” Maj. op. at 7854-55. Q.E.D.

   To resolve this case, however, we need not adopt a rule
holding all credit cards responsible for all infringing Internet
sales because plaintiff has alleged far more than the ordinary
credit card/merchant relationship. According to plaintiff,
defendants have adopted special rules and practices that apply
only to the Stolen Content Websites, and that are designed to
make it easier for these websites to ply their illegal trade. First
Am. Compl. at 9-11 ¶¶ 33-37. Plaintiff claims that the credit
cards have singled out the Stolen Content Websites for prefer-
ential treatment because of the unusual and substantial profits
they make on such transactions. Read fully and fairly, the
complaint alleges that defendants are not merely passive pro-
viders of services available on equal terms to legal and illegal
businesses alike; they are actually in cahoots with the pirates
to prop up their illegal businesses and share their ill-gotten
gains. If this is not vicarious infringement, nothing is.

   The majority claims that Amazon employs “reasoning
closely analogous” to its own, maj. op. at 7852, but it is mis-
taken. Amazon addressed two questions of vicarious infringe-
ment, one involving third-party websites whose images are
picked up by Google’s search engine, the other involving
websites that participate in its AdSense program. As to the
first, Google could not be vicariously liable because “Perfect
10 ha[d] not shown that Google has contracts with third-party
websites that empower Google to stop or limit them from
reproducing, displaying, and distributing infringing copies of
Perfect 10’s images on the Internet.” Slip op. at 5795.19 In the
  19
    Amazon also relied on the district court’s finding that Google “lacks
the practical ability to police the third-party websites’ infringing conduct”
7882              PERFECT 10 v. VISA INTERNATIONAL
absence of such a contractual relationship, there could be no
vicarious infringement, because Google lacked “the legal
right to stop or limit the direct infringement of third-party
websites.” 

Why the majority believes this is in
any way analogous, or even remotely instructive, to our situa-
tion, where the credit cards do have contracts giving them a
right to control what merchants sell on their websites, is a
mystery.

   Google’s relationship with websites that participate in its
AdSense program presents a somewhat closer analogy
because Google did have contracts that would have allowed
it to kick websites out of AdSense for displaying infringing
images. But that’s as far as the similarity goes: AdSense is an
advertising program; Google pays participating merchants to
host third-party ads on their websites. This is the cyberspace
analogue of renting out space on your land for a billboard.
The ads have no effect on the operation of the host websites;
users can download infringing content whether or not ads are
present. Being excluded from AdSense would thus mean
some loss of revenue, but would have no effect on the opera-
tion of the business itself. It is therefore far from certain that
merchants would be induced to modify their businesses to
avoid being excluded from AdSense.20

because the technical means for doing so suggested by plaintiff “were not
workable.” 

(citing district court’s 

& n.25). There is not, and cannot be, such a finding here as the
case is presented on a 12(b)(6) motion.
   20
      Anecdotal evidence suggests that the AdSense program produces
vastly less revenue for most program members than what they earn
through their businesses. One poll found that 45% of AdSense members
surveyed earned less than $30 per month from the program, and only a
small percentage earned a substantial amount. Darren Rowse, AdSense
Earnings for November—Poll Results, Problogger (Dec. 19, 2005), http://
www.problogger.net/archives/2005/12/19/adsense-earnings-for-november-
poll-results/.
                  PERFECT 10 v. VISA INTERNATIONAL                      7883
   Because plaintiff had not presented proof that any third-
party websites would stop infringing if they were threatened
with exclusion from AdSense, Amazon concluded that plain-
tiff there had not met its burden for a preliminary injunction.
Our case is presented on a motion to dismiss and plaintiff here
need only make allegations. And plaintiff alleges that the
infringing websites could not continue doing business at all
without the use of credit cards. Amazon’s reasoning on this
point gives the majority no help.

   The majority’s attempt to distinguish Napster is equally
thin. My colleagues argue that “[t]he Napster program’s
involvement with . . . the infringement was much more inti-
mate and directly intertwined with it than Defendants’ pay-
ment systems are.” Maj. op. at 7853-54. But I don’t see how
much more “directly intertwined” you can get in a purchase
transaction than carrying the payment from buyer to seller. If
this were a drug deal, for example, 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. Both would be held equally culpable.

   Thus, the majority’s insistence that defendants “cannot
themselves block access to the Internet, to any particular web-
sites, or to search engines enabling the location of such web-
sites,” maj. op. at 7853, is beside the point. Physical control
over the infringing activity is one way to stop infringers, but
it’s certainly not the only way. Withdrawing crucial services,
such as financial support, can be just as effective, and some-
times more effective, than technical measures that can often
be circumvented.21
   21
      Providing financial support has long been held to be a basis for vicari-
ous infringement, where that financial support carries with it the contrac-
tual right to approve the infringing activity. See Davis v. E.I. DuPont de
Nemours & Co., 

(S.D.N.Y. 1965). In Davis, DuPont
sponsored a dramatization of “Ethan Frome,” which was alleged to
infringe several copyrights. DuPont was held vicariously liable, even
though it did not own the studio or the broadcast facilities, and could not
have prevented airing of the show with another sponsor.
7884               PERFECT 10 v. VISA INTERNATIONAL
   Finally, the majority dismisses the Supreme Court’s opin-
ion in Grokster by suggesting that the Court could not have
meant what it said because the standard it announced (and
which we adopted in Amazon) would sweep in too many
goods and services that contribute to infringing activity. See
maj. op. at 7857 (listing hardware manufacturers, software
engineers, technical support companies and utilities). The
majority misreads the Court’s opinion. Providing a crucial
service to an infringer may give someone the practical ability
to stop infringement, but that’s only half of what it takes to
be a vicarious infringer. The other half is a right, found in
contract, to control the infringer’s actions. See Amazon, slip
op. at 5795 (requiring “contracts with [direct infringers] that
empower [defendant] to stop or limit them from reproducing,
displaying, and distributing infringing copies”). Those third
parties the majority worries about could not be held vicari-
ously liable because they lack the legal right to stop the
infringement. So far as I know, utilities are provided by public
franchise, not by contract, and a utility has no right to stop
providing electricity or phone service because it learns that its
electrons are being put to illegal use.22 Computer manufactur-
ers don’t usually retain the right to reclaim computers they
have sold because they are being used unlawfully. Ditto for
software producers and repairmen. Having no contract that
authorizes them to stop providing services on account of ille-
gality, these actors do not meet the first prong of the test for
vicarious infringement. See p. 7845 n.10 supra.23
  22
      See, e.g., Rules and General Orders of the Vermont Public Service
Board § 3.302, available at http://www.state.vt.us/psb/rules/Official
AdoptedRules/RulesComplete.pdf (last visited May 14, 2007) (“[N]o util-
ity shall disconnect residential service of gas, electric, or water unless pay-
ment of a valid bill or charge is delinquent.”); State of New Hampshire,
Consumer Rights and Responsibilities, at 5 (1996), available at http://
services.unitil.com/content/info/consumer_rights.html.
   23
      The majority is also mistaken when it suggests that parties would be
held vicariously liable for infringement simply becaause, in a market
economy, they are free not to deal with one another. Maj. op. at 7856 n.17.
                   PERFECT 10 v. VISA INTERNATIONAL                      7885
                      Trademark Infringement

   For precisely the same reasons, I disagree with the majority
when it claims that defendants do not contributorily infringe
on Perfect 10’s trademark because they lack “[d]irect control
and monitoring of the instrumentality used by a third party to
infringe the plaintiff’s mark.” Maj. op. at 7859 (internal quo-
tation marks omitted). The Lanham Act forbids “use in com-
merce . . . of a registered mark in connection with the sale,
offering for sale, distribution, or advertising of any goods or
services on or in connection with which such use is likely to
cause confusion.” 15 U.S.C. § 1114(1)(a). Plaintiff alleges
that the Stolen Content Websites sell images marked with
Perfect 10’s trademark. First Am. Compl. at 17 ¶ 65. Without
defendants’ payment systems, the infringers would find it
much harder to peddle their infringing goods. Plaintiff thus
pled facts sufficient to state a claim for contributory trade-
mark infringement.

   The cases on which the majority relies are not to the con-
trary. Inwood Laboratories, Inc. v. Ives Laboratories, Inc.,

(1982), involved a manufacturer and says noth-
ing of consequence bearing on our situation. Lockheed Martin
Corp. v. Network Solutions, Inc., 

, 984 (9th Cir.

Our cases have been very clear that more is required for vicarious
infringement; defendant must have a formal contractual or principal-agent
relationship with the infringer. It is that contract or relationship that forms
the predicate for vicarious liability, and plaintiff must point to some term
in the contract or formal relationship that gives defendant a right to stop
the infringing activity. See, e.g., 

; 

; Amazon, slip. op. at 5794-95. Responding to a service call,
in the absence of a contract which provides that the service may be discon-
tinued in the event of illegal conduct, cannot form the basis of vicarious
liability and thus the fact that the technician is free to leave can’t render
him vicariously liable. The requirement that plaintiffs point to a relation-
ship explicitly spelled out in a contract or other legal arrangement is an
important limitation on who may be held to answer for vicarious infringe-
ment. It should not be casually discarded.
7886           PERFECT 10 v. VISA INTERNATIONAL
1999), turned on the fact that the defendant there, a registrar
of Internet domain names, lacked sufficient control “over the
third party’s means of infringement,” because it lacked “con-
trol and monitoring of the instrumentality used by a third
party to infringe the plaintiff’s marks.” 

credit
cards are directly involved in every infringing transaction; not
only do they process the payment for virtually every sale of
pirated images by the Stolen Content Websites, they control
whether such transactions will go forward. This is more than
enough to establish the “control and monitoring” that Lock-
heed Martin requires for contributory trademark infringement.

   As to vicarious trademark infringement, the majority claims
that there is neither a symbiotic partnership between the direct
infringers and defendants, nor authority to bind one another
in transactions with third parties. Maj. op. at 7860 (citing
Hard Rock Cafe Licensing Corp. v. Concession Servs., Inc.,

(7th Cir. 1992)). But plaintiff alleges that the
Stolen Content Websites cannot operate without the use of
credit cards, First Am. Compl. at 2 ¶ 7, while defendants
make huge profits by processing these illegal transactions. See
also 

. If this is not symbiosis, what is? Likewise,
while “the websites’ contracts with the consumers . . . bind
the websites to provide the infringing images,” maj. op. at
7861 (emphasis removed), it is defendants’ actions that bind
the websites to that contract. Only after the credit cards
approve and process the payment does the obligation to
deliver the stolen content come into existence. The majority
thus errs in absolving defendants of vicarious trademark
infringement.

                      State Law Claims

   The majority disposes of the state law claims on the same
theory as the copyright claims, namely, that defendants are
not directly involved in the infringing activity. Maj. op. at
7861-62. But defendants are involved, because they provide
the means to pay for the infringing content and thus make
                  PERFECT 10 v. VISA INTERNATIONAL                    7887
“massive quantities” of infringement possible. First Am.
Compl. at 18 ¶ 73.

   The case on which the majority relies, Emery v. Visa Inter-
national Service Association, 

(2002), is
not on point because, in that case, plaintiff sued only Visa, not
the merchant banks that had a direct relationship with the
alleged wrongdoer or the consumers. 

962. Plaintiff
there also based his theory of liability on advertising letters
bearing the credit card logo. Emery held that plaintiff hadn’t
proven Visa could police the use of its logo in letters peddling
an illegal lottery sent by merchants directly to consumers. By
contrast, plaintiff here alleges that defendants are knowing
participants in thousands of transactions that amount to unfair
trade practices and infringe on the right of publicity of the
women depicted in the stolen images. I see nothing in Emery
that would preclude plaintiff’s state law claims, as alleged in
the complaint.

                                *    *   *

   It would certainly be much easier for us if plaintiff were
suing the Stolen Content Websites rather than the credit cards.
No doubt, they would if they could.24 But direct infringers are
sometimes too ubiquitous, too small or too difficult to find.
That’s why we have cases such as Fonovisa, Napster, Aim-
ster, Grokster and Amazon. Here, plaintiff alleges that many
direct infringers have no physical presence in the United
States. They operate from far-off jurisdictions, where lawsuits
are difficult to bring and remedies impossible to enforce
because the infringers can easily move their operations to
servers in other remote jurisdictions.
  24
    In fact, Perfect 10 has brought suit against some direct infringers. See
Perfect 10, Inc. v. CCBill, LLC, 

(9th Cir. 2007) (reversing
summary judgment on direct infringement claim); Perfect 10, Inc. v. Tal-
isman Commc’ns Inc., No. CV99-10450, 

(C.D. Cal.
Mar. 27, 2000).
7888              PERFECT 10 v. VISA INTERNATIONAL
   The weak link in the pirates’ nefarious scheme is their need
to get paid; for this they must use the services of legitimate
financial institutions. If plaintiff’s allegations are to be
believed, the financial institutions (defendants here) collect
billions for sellers of stolen merchandise; in a very real sense,
they profit from making piracy possible. I can see no reason
they should not be held responsible.

   The majority’s refrain that imposing liability on defendants
here would violate “the public policy of the United States,”
maj. op. at 7839, 7844, is equally off base. While the majority
correctly identifies that policy as facilitating the development
of electronic commerce, 

n.2, that solicitude does
not extend to commerce in illegal merchandise. I am aware of
no policy of the United States to encourage electronic com-
merce in stolen goods, illegal drugs or child pornography.
When it comes to traffic in material that violates the Copy-
right Act, the policy of the United States is embedded in the
FBI warning we see at the start of every lawfully purchased
or rented video: Infringers are to be stopped and prosecuted.
Preventing financial intermediaries from servicing such shady
transactions is entirely consistent with that policy. If Congress
believes that this places too heavy a burden on credit cards,
it can grant the cards immunity (along with corresponding
responsibilities), as it did for ISPs in passing the DMCA.25

   The majority’s solicitude for “credit cards . . . as the pri-
mary engine of electronic commerce,” and for preserving “the
vibrant and competitive free market that presently exists for
the Internet,” maj. op. at 7837, is understandable but mis-
guided. It does not serve the interests of a free market, or a
  25
     The majority finds it “anomalous” to hold credit cards liable without
DMCA-compliant notice, while ISPs are immune unless they receive such
a notice. Maj. op. at 7839 n.4. But there is no anomaly in treating parties
that are covered by the statute differently from those that are not. Plaintiff
here did give ample notice to the credit cards, see p. 7889 infra, and
should not have its claim dismissed for failing to allege compliance with
a statute that does not apply to them.
               PERFECT 10 v. VISA INTERNATIONAL             7889
free society, to abet marauders who pilfer the property of law-
abiding, tax-paying rights holders, and who turn consumers
into recipients of stolen property. Requiring defendants to
abide by their own rules, which “strictly prohibit members
from servicing illegal businesses,” First Am. Compl. at 6
¶ 20, will hardly impair the operation of a “vibrant and com-
petitive free market,” any more than did the recent law pro-
hibiting the use of credit cards for Internet gambling. See 31
U.S.C. § 5364.

   Nor does plaintiff seek to hold the credit cards responsible
for illegal activities of which they are unaware. Plaintiff
claims that it has repeatedly written to defendants, “putting
them on notice of more than 240 specifically identified Celeb-
rity Porn Websites with obvious stolen content that they were
supporting.” First Am. Compl. at 19 ¶ 75. Plaintiff has also
sent defendants “[d]eclarations from celebrities [such as Brit-
ney Spears, Christina Aguilera, Anna Kournikova and Yas-
mine Bleeth] stating that they have not authorized the use of
their name, likeness, or identity on pornographic websites and
that they do not want their images and names so used . . . .”

¶ 77. Credit cards already have the tools to police the
activities of their merchants, which is why we don’t see credit
card sales of illegal drugs or child pornography. According to
plaintiff, “defendants inspect websites and business premises,
and obtain and review merchants’ bank statements, tax
returns, credit reports, and a merchant’s other financial infor-
mation . . . .” 

¶ 26. Plaintiff is not asking for a huge
change in the way credit cards do business; they ask only that
defendants abide by their own rules and stop doing business
with crooks. Granting plaintiff the relief it seeks would not,
I am confident, be the end of Capitalism as we know it.

   This is an easy case, squarely controlled by our precedent
in all material respects. Fairly applying our cases to the facts
alleged by Perfect 10, we should reverse the district court and
give plaintiff an opportunity to prove its case through discov-
ery and trial. In straining to escape the strictures of our
7890           PERFECT 10 v. VISA INTERNATIONAL
caselaw, the majority draws a series of ephemeral distinctions
that are neither required nor permitted; the opinion will prove
to be no end of trouble.