Perfect 10, Inc. v. Megaupload Ltd., 2011 WL 3203117 (S.D. Cal.)
It’s not too surprising that Megaupload lost the bulk of its motion to dismiss this copyright complaint, given that the court has to accept all the well-pleaded allegations as true. A few points of interest: First, the list of actions the court accepts as evidence of “volitional” conduct potentially making Megaupload directly, not just secondarily, liable: Megaupload “has created distinct websites, presumably in an effort to streamline users' access to different types of media (e.g., megaporn.com, megavideo.com); it encourages and, in some cases pays, its users to upload vast amounts of popular media through its Rewards Programs; it disseminates URLs for various files throughout the internet; it provides payouts to affiliate websites who maintain a catalogue of all available files; and last, at a minimum, it is plausibly aware of the ongoing, rampant infringement taking place on its websites.” The court says that “taken together,” this is enough, but doesn’t explain why awareness contributes to volition.
Unsurprisingly, the contributory infringement claims also survived (there wasn’t enough information to evaluate DMCA compliance), but—a bit unusually—not the vicarious infringement claims, because Megaupload URLs are public and thus Megaupload couldn’t control who downloaded them, lacking the right and ability to supervise the infringing activity. This seems to ignore the upload part of the infringement. However, this video says that one need not create an account to send a file up to 2000 mb via Megaupload. (I think I used Megaupload to transfer my notes/slides as a zip file before I got Dropbox; the service does have substantial noninfringing uses, though I also don’t doubt for a second the substantial presence of unauthorized, unaltered video on the service as well.)
The trademark claims were largely dismissed because of Dastar, but without prejudice. To the extent the claims were based on “the potential for confusion as to the source of Perfect 10's creative works,” Dastar barred them. However, Perfect 10 might be able to plead that its marks were used in a manner beyond their appearance on copyrighted works. Also, the dilution claim was not barred by Dastar. (I guess they can plead it, but there is no way that Perfect 10 is famous among the general consuming public.) Disturbingly, the court finds that tarnishment was sufficiently pled by the allegation that “Megaupload, acting through its affiliates, intermingles Perfect 10's high quality images with images of poor quality or of an offensive or illegal nature.” This is not use as a mark for defendant’s own services, and thus not federal dilution as it ought to be understood; I can only hope that, at least, the court wouldn’t apply the same rationale to someone who had legitimate copies to sell as part of his collection of bad porn.
The court reached a similar result with the right of publicity claims: to the extent that Perfect 10 was complaining about unauthorized reproduction of its models’ performances, the right of publicity claim was preempted, but to the extent that it could allege use of its models’ names beyond that, it could maintain a claim: “According to Perfect 10, Megaupload uses the models' names to drive traffic from its affiliates to its websites.…Perfect 10 points out that in some cases, Megaupload uses the models' names to drive traffic to content entirely unrelated to the copyrighted works.” But these allegations were absent from the complaint, so the claim was dismissed without prejudice. (One might think, after years of this, Perfect 10 would be able to plead the elements of its claim on a first try.)