Perfect 10, Inc. v. Visa International Service Association Et Al - Document No. 74

Perfect 10, Inc. v. Visa International Service Association et al Doc.
74
Case 5:04-cv-00371-JW Document 74 Filed 03/04/2005 Page 1 of 19
1 WINSTON & STRAWN LLP

Andrew P. Bridges (State Bar No. 122761)
2 Jennifer A. Golinveaux (State Bar No. 203056)
101 California Street, Suite 3900
3 San Francisco, California 94111-5894
Telephone: (415) 591-1000
4 Facsimile: (415) 591-1400
5 Attorneys For Defendant

MASTERCARD INTERNATIONAL INCORPORATED
6
(Additional counsel on second page)
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8 UNITED STATES DISTRICT COURT
9 NORTHERN DISTRICT OF CALIFORNIA
10 SAN JOSE DIVISION
11
San Francisco, CA 94111-5894
12 PERFECT 10, INC., a California corporation, Case No. C 04 0371 JW (PVT)

Winston & Strawn LLP
101 California Street
13 Plaintiff, JOINT REPLY MEMORANDUM OF POINTS

AND AUTHORITIES IN SUPPORT OF
14 vs. MOTION FOR AWARD OF ATTORNEYS’
FEES OF DEFENDANTS MASTERCARD
15 VISA INTERNATIONAL SERVICE INTERNATIONAL INCORPORATED, FIRST
ASSOCIATION; FIRST DATA CORP., a DATA CORP., CARDSERVICE
16 corporation; CARDSERVICE INTERNATIONAL, HUMBOLDT BANK,
INTERNATIONAL, INC., a corporation; AND VISA INTERNATIONAL SERVICE
17 MASTERCARD INTERNATIONAL ASSOCIATION
INCORPORATED, a corporation;
18 HUMBOLDT BANK, a national banking Date: March 21, 2005
association; and DOES 1 through 100, Time: 9:00 a.m.
19 inclusive, Dept: Courtroom 8, 4th Floor
Judge: Honorable James Ware
20 Defendants.
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REPLY MEMO OF P&A ISO MOTION FOR AWARD OF

ATTORNEYS’ FEES Case No. C 04 0371 JW (PVT)
Dockets.Justia.com
1 KEKER & VAN NEST, LLP

Robert A. Van Nest (State Bar No. 84065)
2 Michael H. Page (State Bar No. 154913)
3 R. James Slaughter (State Bar No. 192813)
710 Sansome Street
4 San Francisco, California 94111-1704
Telephone: (415) 391-5400
5 Facsimile: (415) 397-7188
6 Attorneys for Defendants
7 FIRST DATA CORP.; CARDSERVICE INTERNATIONAL, INC.;
and HUMBOLDT BANK
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TOWNSEND AND TOWNSEND AND CREW LLP
9 Daniel J. Furniss (State Bar No. 73531)
Mark T. Jansen (State Bar No. 114896)
10
John C. Baum (State Bar No. 167570)
11 Anthony J. Malutta (State Bar No.193587)
Two Embarcadero Center, Eighth Floor
12 San Francisco, California 94111

Telephone: (415) 576-0200

13 Facsimile: (415) 576-0300

14
Attorneys for Defendant
15 VISA INTERNATIONAL SERVICE ASSOCIATION
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1 TABLE OF CONTENTS
2 I. INTRODUCTION........................................................................................................... 1
3
II. DEFENDANTS ARE ENTITLED TO FULL REIMBURSEMENT OF THEIR
4 FEES IN THIS IMPORTANT AND BENEFICIAL DEFENSE AGAINST
EXTRAORDINARY CLAIMS...................................................................................... 3
5
A. Defendants Are Entitled to an Award of Their Fees Under the Copyright
6 Act.......................................................................................................................... 3
7 1. Defeating Perfect 10’s Claims Furthered the Purposes of the
Copyright Act. ........................................................................................... 4
8
2. Perfect 10's Claims Were Objectively Unreasonable. ............................... 6
9
3. Perfect 10’s First Amended Complaint Was Frivolous............................. 6
10
4. An Award of Attorneys' Fees Would Deter Perfect 10, and Others
11 Like Perfect 10, From Filing Similar Actions. .......................................... 7
12 B. Defendants Are Entitled to Recover Reasonable Attorneys’ Fees Under the

Lanham Act. .......................................................................................................... 8

13
1. Perfect 10’s Trademark Claims Were Groundless and Unreasonable....... 8
14
2. Perfect 10's Amended Trademark Claims Were Pursued in Bad Faith. .... 8
15
C. The Court Should Award All The Fees Requested By Defendants....................... 9
16
D. Defendants Have Submitted Sufficient Supporting Documentation For This
17 Fee Petition. ......................................................................................................... 10
18 E. The Amount Of Fees Requested By Defendants Is Reasonable And Should
Be Awarded. ........................................................................................................ 11
19
1. The Number Of Hours Requested Is Reasonable. ................................... 11
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2. Defendants' Claimed Hourly Rates Are Reasonable. .............................. 13
21
22 III. CONCLUSION ............................................................................................................. 14

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ATTORNEYS’ FEES (i) Case No. C 04 0371 JW (PVT)
1 TABLE OF AUTHORITIES
2 FEDERAL CASES
3 Assessment Technologies v. WIREData, Inc., 361 F.3d 434 (7th Cir. 2004) ......................3
4 Blum v. Stenson, 465 U.S. 886 (1984)...............................................................................13
5 Cairns v. Franklin Mint Co., 292 F.3d 1139 (9th Cir. 2002) ..............................................8
6 Compaq Computer Corp. v. Ergonome Inc., 387 F.3d 403 (5th Cir. 2004) .......................1
7 Diamond Star Building Corp. v. Freed, 30 F.3d 503 (4th Cir. 2004) .................................6
8 Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994) ........................................................2, 3, 4, 5
9 Hensley v. Eckerhart, 461 U.S. 424 (1983).......................................................................10
10 In re Keegan Management Co. Sec. Litigation, 78 F.3d 431 (9th Cir. 1996) .....................9
11 Mattel v. Walking Mountain Productions, 353 F.3d 792 (9th Cir. 2003)............................4
12 Mattel v. Walking Mountain Productions, 2004 WL 1454100

(C.D. Cal. 2004).............................................................................................................4

13
Metropolitan-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 380 F.3d 1154
14 (9th Cir. 2004), cert. granted, 2004 WL 2289054.........................................................1
15 Venegas v. Mitchell, 495 U.S. 82 (1990)...........................................................................13
16 Woodhaven Homes & Realty v. Hotz, 396 F.3d 822 (7th Cir. 2005)...................................3
17 Yahoo! Inc. v. Net Games, Inc., 329 F. Supp. 2d 1179 (N.D. Cal 2004)...........................13
18
STATUTES
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15 U.S.C § 1117 ..................................................................................................................8
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28 U.S.C. § 1338..................................................................................................................9
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28 U.S.C. § 1927..................................................................................................................9
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Cal. Civ. Code § 3344........................................................................................................10
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ATTORNEYS’ FEES (ii) Case No. C 04 0371 JW (PVT)
1 I. INTRODUCTION
2 Plaintiff Perfect 10 seeks to avoid the natural consequences of its own actions. Like
3 the proverbial defendant who killed his parents and then pleaded for mercy as an orphan,
4 Perfect 10 exhibits a brazen approach to its opposition to this motion. Perfect 10 itself was
5 not shy about claiming attorneys' fees for itself in its complaint. See, e.g., Amended
6 Complaint at ¶¶ 100, 115, 147, 153 and Prayer for Relief ¶ 10.
7 In seeking to avoid an award of fees, Perfect 10 now describes a case very different
8 in its opposition from the one it presented to the Court. The Napster decision, which Perfect
9 10's counsel characterized as the foundation of its case, is banished to a minor citation.
10 Instead, Perfect 10 now invokes the grant of certiorari in Metro-Goldwyn-Mayer Studios,
11 Inc. v. Grokster, Ltd., 380 F.3d 1154 (9th Cir. 2004), cert. granted, 2004 WL 2289054, to
12 create the illusion that the issues in this case may be unsettled. In doing so, Perfect 10
13 disingenuously avoids the fact that the defendants in Grokster -- unlike the Defendants in
14 this case -- were accused of facilitating the actual reproduction and distribution of
15 copyrighted works, not of providing "critical business support" to alleged infringers. See
16 Grokster, 380 F. 3d 1154 (9th Cir. 2004). Even though the Court made the distinction
17 crystal clear in both its dismissal orders, Perfect 10 still does not get the difference.
18 Perfect 10 castigates the five Defendants, using three law firms, for having spent
19 over $700,000 in defense of the case. That is small change, however, compared to the
20 $8,000,000 Perfect 10 alone claims to have spent on attorneys' fees over the 30 months
21 before it filed its first complaint in this case. See Complaint at ¶ 24. Moreover, other cases
22 have approved fees much greater than those sought in this case. See, e.g., Compaq
23 Computer Corp. v. Ergonome Inc., 387 F.3d 403 (5th Cir. 2004)(affirming district court's
24 award of nearly $2.8 million in attorneys' fees to prevailing defendant).
25 Taking a different angle of attack, Perfect 10 shamelessly argues for a billing rate of
26 $190 per hour as appropriate for the defense of this case, one that it optimistically describes
27 as "novel." Perfect 10 did not likely hold its own counsel to such a rate.
28
1
JOINT REPLY MEMO OF P&A ISO MOTION FOR AWARD OF
1 Most importantly, however, Perfect 10 is fundamentally misguided when it argues
2 that the purpose of copyright law is to maximize the position of the copyright holder. As
3 discussed below, copyright law confers a public benefit upon society as a whole, not merely
4 upon copyright owners. The Supreme Court's decision in Fogerty v. Fantasy, Inc., 510 U.S.
5 517 (1994), is an important reflection of balance as a principle of copyright law. Equal
6 access of defendants and plaintiffs to attorney's fee awards reflects the fact that successful
7 copyright defenses are as important as successful claims.
8 This Court's decisions were important ones and this was an important copyright
9 defense. Perfect 10 did not miss its mark by inches, through a failure to persuade a trier of
10 fact about a critical factual detail. Perfect 10 missed the mark by miles because it sought to
11 alter dramatically the landscape of copyright law.

12 As the Court recognized, Perfect 10 brought this action on profoundly misguided

13 theories. In Perfect 10's perfect world, everyone but a copyright holder would have a duty to
14 look after the copyright holder. Any third party doing business with an alleged infringer
15 would act at his or her peril, because some copyright holder could swoop in and allege
16 "critical business support" as a basis for liability and damages. The intimidating effect of
17 Perfect 10's proposed theory would chill commerce because the net of "critical business
18 support" would sweep in vast reaches of commerce. As shown by Defendants in their briefs
19 on the motions to dismiss, Perfect 10's theories would have resulted in severe
20 overenforcement of copyright. The defense of this case was crucial to the maintenance of a
21 just, principled, and practical copyright liability regime by thwarting Perfect 10's radical
22 proposal. For that reason the Court should grant Defendants' full request for attorneys' fees.
23 The fees are justified with respect to all aspects of the case, not just the copyright
24 aspect. The entire case had one theme, centered on copyright. The Court recognized that
25 Perfect 10 flubbed its trademark law claims by confusing the standards of indirect copyright
26 and trademark infringement. The fact that Perfect 10 twice pleaded the wrong, copyright-
27 based standard for its trademark claims shows how pervasive the copyright issue was in this
28 case. Whether Perfect 10's trademark case was "exceptional" because Perfect 10 ignored the
2
1 applicable legal standard, or whether its trademark case was merely a copyright claim
2 dressed up in different statutory clothing, the result is the same: Defendants are entitled to
3 their trademark-related fees as well as their copyright fees. In addition, the state law claims
4 were little more than padding as evidenced by the scant attention given them at the hearings
5 on the motions to dismiss. If trademark was the tail on the copyright dog, the state law
6 claims were but a flea. Case law authorizes the award of full fees in such a context, and the
7 Defendants urge the Court to award them their full attorneys' fees for their meritorious and
8 important defense.
10 II. DEFENDANTS ARE ENTITLED TO FULL REIMBURSEMENT OF THEIR
11 FEES IN THIS IMPORTANT AND BENEFICIAL DEFENSE AGAINST

12 EXTRAORDINARY CLAIMS.
13 A. Defendants Are Entitled to an Award of Their Fees Under the Copyright

Act.
14
15 Perfect 10 concedes, as it must, that under Fogerty v. Fantasy, Inc., 510 U.S. 517
16 (1994), prevailing defendants are as entitled to recover fees as are prevailing plaintiffs. In
17 fact, courts have held that when the prevailing party is the defendant, "the presumption in
18 favor of awarding fees is very strong." Assessment Technologies v. WIREData, Inc., 361
19 F.3d 434, 439 (7th Cir. 2004)(awarding fees to prevailing defendant); Woodhaven Homes &
20 Realty v. Hotz, 396 F.3d 822, 824 (7th Cir. 2005)(vacating and remanding denial of
21 attorneys' fees to prevailing defendant for reconsideration in light of Assessment
22 Technologies, 361 F.3d 434).
23 Perfect 10 also concedes that the factors the Court must consider in determining
24 whether to award fees under the Copyright Act include whether defeating the claims
25 furthered the purposes of the Copyright Act, whether Perfect 10’s claims were objectively
26 unreasonable, whether the decision to file the First Amended Complaint was frivolous, and
27 whether an award of attorneys’ fees would deter similar suits. From there on, however,
28 Perfect 10 misstates the law and how it applies to the facts of this action.
3
1
1. Defeating Perfect 10’s Claims Furthered the Purposes of the
2 Copyright Act.
3 Perfect 10 fundamentally misunderstands the single most important copyright fee
4 award case. Perfect 10, citing Fogerty, claims “Defendants here have not furthered the
5 purposes of the Copyright Act, since they produce no new works.” Opposition at 8:8-9.
6 That, however, is not at all the standard. Perfect 10 essentially seeks to revert to the pre-
7 Fogerty standard where only prevailing plaintiffs could recover fees.
8 But, as Fogerty itself shows, prevailing defendants can further the purposes of the
9 Copyright Act. John Fogerty was not, contrary to Perfect 10’s assertion, “defending his
10 copyright claim” (Opposition at 8:10) in Fogerty. Mr. Fogerty was the accused infringer,
11 not the copyright holder. Fantasy, the plaintiff in Fogerty, accused Mr. Fogerty of
12 infringing Fantasy’s copyright. Mr. Fogerty convinced the jury that he had not infringed
13 Fantasy’s copyright and, after the Supreme Court ruled, was awarded his fees as a prevailing
14 defendant.1 Applying Fogerty, the Ninth Circuit has emphasized that "the question is
15 whether a successful defense of the action furthered the purpose of the [Copyright] Act . . .
16 ." Mattel v. Walking Mountain Productions, 353 F.3d 792, 815-16 (9th Cir. 2003)( citing
17 Fogerty, 510 U.S. at 527, vacating and remanding denial of defendant's attorneys' fees to
18 prevailing defendant for reconsideration)(emphasis in original); Mattel v. Walking Mountain
19 Productions, 2004 WL 1454100, *1 (C.D. Cal. 2004)(on remand holding that defendant's
20 defense furthered the purposes of the Copyright Act because it was "meritorious" and
21 "demarcated more clearly the boundaries of copyright law . . . ." and awarding defendant his
22 attorney's fees totalling $1,584,089 spent defending both copyright and trademark claims).
23 Moreover, it makes sense that a defendant non-copyright-holder can further the
24 purposes of the Copyright Act. As the Supreme Court noted, “because copyright law
25 ultimately serves the purpose of enriching the general public through access to creative
26 works, it is peculiarly important that the boundaries of copyright law be demarcated as
27
1
Mr. Fogerty had written the original work and then assigned it to Fantasy, but that fact had nothing to do with
28 the analysis.
4
1 clearly as possible.” Fogerty, 510 U.S. at 527 (emphasis added). Perfect 10's theory here
2 would have broken down all boundaries of copyright law by holding literally any provider
3 of “critical business support” secondarily liable for copyright infringement. Nowhere in its
4 opposition does Perfect 10 deny that the purpose and effect of its lawsuit was to realign the
5 copyright law. Defendants' successful defense of this action furthered the purpose of the
6 Copyright Act by preventing Perfect 10 from obliterating the boundaries of copyright
7 protection.
8 The copyright regime that would have followed if Perfect 10 had prevailed would
9 have been appalling. The chilling effect of liability for doing business with alleged
10 infringers would have resulted in an effective blockade of businesses on the basis of a mere
11 accusation. Perfect 10's method is to dump infringement notices on third parties and then
12 demand that they patrol the world on Perfect 10's behalf. In this case it involved payment
13 systems and the Internet, but there was no limit to the principle proposed by Perfect 10. In
14 the next case it could be the telephone company or the electric company, or payroll services,
15 or the postage meter company, or any of countless other companies that provide products or
16 services that are necessary to the functioning of a modern business. Moreover, by chilling
17 such business relationships, a copyright claimant could severely damage a company merely
18 by making an allegation and demand, because intermediaries in such a regime could not
19 afford to take the risk of a continued business relationship. The statutory damages sought by
20 Perfect 10 in this case were gigantic.2 Under Perfect 10's proposed regime, a company
21 faced with even a small risk of such liability could not afford the potential catastrophic
22 consequences of doing business with an accused infringer, and by making an accusation a
23 copyright holder could kill all business relationships of an accused company. This would be
24 a severe overenforcement of copyright law, contrary to any rational purpose of copyright.
25
26
2
Calculated at $150,000 per work, see Complaint at ¶ 87, for over 120 works pleaded in paragraph 24 of the
27 Complaint (not counting individual photographs within the magazines), they come to $18 million. Taking the
allegation of 20,000 works in paragraph 81 of the Complaint, the statutory damages figure becomes an
28 astounding $3 billion.
5
1 2. Perfect 10's Claims Were Objectively Unreasonable.
2 Perfect 10 concedes that “where the plaintiff ha[s] no evidence to support its claims,”
3 the copyright claims are objectively unreasonable. Opposition, 4:8. According to Perfect
4 10, “in those situations, courts properly award fees.” Opposition, 4:9. Indeed, a court can
5 conclude that a plaintiff has acted unreasonably when pursuing a meritless copyright
6 infringement action. Diamond Star Building Corp. v. Freed, 30 F.3d 503 (4th Cir. 1994).
7 This Court twice held that, accepting all facts alleged in the complaints as true, Perfect 10
8 could not state a claim. Nonetheless, Perfect 10 asserts that it can support its claims because
9 “the ongoing infringement by the Stolen Content Websites is undisputed, as is Defendants’
10 knowledge of that infringement.” Opposition, 4:19-20. This, however, is not an action
11 against the accused infringers. The standard is not whether Perfect 10 can allege facts to
12 support its claims against the accused infringers who are not before this Court. The question
13 in this case (and this motion) is whether Perfect 10 could state facts to support its claims
14 against these Defendants. This Court concluded twice that it did not.
15 Perfect 10's theory of liability against Defendants was premised on Defendants'
16 economic influence upon the alleged infringers. As this Court held, however, the law
17 requires that Perfect 10 demonstrate that Defendants actively contributed to the infringing
18 activity, not just the general business, of the alleged third-party infringers. Perfect 10's
19 theory of liability was contrary to settled copyright law and therefore objectively
20 unreasonable.
21 3. Perfect 10’s First Amended Complaint Was Frivolous.
22 At the hearing on Defendants’ motion to dismiss Perfect 10’s original complaint,
23 Perfect 10 assured the Court that it could allege facts that demonstrated that Defendants
24 materially contributed to and had the ability to control the allegedly infringing conduct.
25 Perfect 10’s Amended Complaint is frivolous because, in fact, Perfect 10 could not plead
26 any such facts. Rather, Perfect 10 simply added detail to its previous allegations concerning
27 the relationship between Defendants and the alleged infringers. See First Amended
28 Complaint ¶¶ 14-29. In dismissing the Amended Complaint, the Court concluded that the
6
1 amended allegations did not “materially differ from Plaintiff’s averment in its original
2 complaint.” December 3, 2004, Order at 4. In opposition to this motion, Perfect 10 claims
3 that its original complaint was not frivolous. Having lost the first motion to dismiss, and
4 with no materially different facts to plead, it was clearly frivolous to file an amended
5 complaint. Perfect 10 has unwittingly conceded the issue by alleging that Defendants' two
6 motions to dismiss the two different complaints were "largely similar." Opposition, 1:12.
7 They indeed were similar because Perfect 10's fundamental, flawed, theory of the case
8 persisted, with the result that Perfect 10's amended allegations made no difference -- as the
9 Court recognized.
10 4. An Award of Attorneys' Fees Would Deter Perfect 10, and Others

Like Perfect 10, From Filing Similar Actions.
11
12 The deterrence factor also strongly supports an award of fees. Perfect 10 agrees that
13 deterrence is a factor to be considered in deciding whether to award fees under the
14 Copyright Act. But Perfect 10 argues that it and others in its situation “should not be
15 ‘deterred’” from filing actions like this one. Opposition, 9:25. Perfect 10's argument makes
16 no sense. Why should Perfect 10 and other plaintiffs like it be encouraged to bring baseless
17 litigation, against payment systems providers like Defendants (or other providers of content-
18 neutral business services), who have no role in causing the alleged infringing conduct? As
19 the Court found twice, the action did not have merit. Plaintiff filed a factually unsupported
20 and objectively baseless copyright infringement lawsuit with the goal of fundamentally
21 shifting the responsibility for enforcing copyrights from itself to third parties with no
22 connection to the allegedly infringing activity. This is precisely the type of plaintiff and
23 lawsuit that should be deterred. Perfect 10, and others like it, must understand that the
24 consequence of filing such a lawsuit is that it must bear the costs of the defense. Thus, the
25 deterrence factor strongly supports the full award of all attorneys' fees incurred.
26 ///
27 ///
28 ///
7
1 B. Defendants Are Entitled to Recover Reasonable Attorneys’ Fees Under

the Lanham Act.
2
3 A prevailing defendant may recover its reasonable attorneys under the Lanham Act if
4 the plaintiff’s claims are “exceptional.” 15 U.S.C. 1117(a). Cases are exceptional if they
5 are “groundless, unreasonable, vexatious, or pursued in bad faith.” Cairns v. Franklin Mint
6 Co., 292 F.3d 1139, 1156 (9th Cir. 2002)(citations omitted). A case can be considered
7 “exceptional” if it is “uncommon, not run-of-the-mill.” This case easily meets the standard
8 for awarding fees to defendants. It is not every day that a plaintiff denies the differences
9 between copyright and trademark laws in an attempt to use United States trademark law to
10 reconfigure world commerce by converting every provider of “critical business support” into
11 an enforcer of intellectual property rights. This case was anything but run-of-the-mill.
12 1. Perfect 10’s Trademark Claims Were Groundless and

Unreasonable.
13
Perhaps the clearest evidence that Perfect 10’s trademark claims were groundless and
14
unreasonable is that Perfect 10 did not plead the correct standard for contributory trademark
15
infringement. As the Court noted in its August 5 Order, “Plaintiff’s complaint indicates that
16
Plaintiff [erroneously] believed the standard for contributory trademark infringement to be
17
the same as that for contributory copyright infringement.” In opposition to this motion,
18
Perfect 10 does not attempt to dispute the correctness of this finding. Perfect 10’s
19
arguments and allegations supporting its trademark infringement claims mirrored its
20
copyright claims. As a result, Perfect 10’s trademark claims were not only groundless and
21
unreasonable for the same reasons as its copyright claims, but also because Perfect 10 would
22
not candidly apply the proper standard.
23
2. Perfect 10's Amended Trademark Claims Were Pursued in Bad
24 Faith.
25 Perfect 10 was granted leave to amend its copyright and trademark claims upon a
26 representation to the Court that it could add new and materially different facts to support its
27 claims. Contrary to Perfect 10’s assertion in its opposition to this motion, it made no
28 changes whatsoever to its trademark claims in its amended complaint. Its failure to address
8
1 the concerns specifically raised by the Court about the correct standard demonstrates bad
2 faith. Perfect 10’s bad faith justifies attorneys' fees under the Lanham Act.
3 Perfect 10’s bad faith also justifies fees under 28 U.S.C. § 1927, which provides that
4 an attorney “who so multiplies the proceedings in any case unreasonably and vexatiously
5 may be required by the court to satisfy personally the excess costs, expenses and attorneys’
6 fees reasonably incurred because of such breach.” Perfect 10 unreasonably multiplied the
7 proceedings in this matter by the filing of its substantially identical amended complaint.
8 Perfect 10’s reliance on In re Keegan Mgmt. Co. Sec. Litig., 78 F.3d 431 (9th Cir. 1996), is
9 misplaced. The sole question at issue in Keegan was whether the attorneys could be
10 sanctioned for initiating a lawsuit. Id. at 433. The Court held that an attorney could not be
11 sanctioned for initiating a lawsuit because initiating a suit would not multiply the
12 proceedings. Perfect 10 and its attorneys here unreasonably multiplied the proceedings in
13 this case by filing a baseless amended complaint that was functionally identical to the
14 original and that did not address the Court's specific concerns. Moreover, in what was
15 concededly a "test" case, Perfect 10 multiplied proceedings by suing five Defendants to
16 make one point.
17 C. The Court Should Award All The Fees Requested By Defendants.

18 Established law supports Defendants' position that they should not be required to
19 apportion fees attributable to each of the claims asserted in the complaint by Perfect 10.
20 Perfect 10 provides no legal argument or factual support for apportionment, relying only on
21 the assertion, contradicted in its Complaint, that the state law claims "are not related to or
22 intertwined with the copyright and Lanham Act claims." Opposition Brief at 19.
23 As discussed in the Opening Brief, apportionment is not required when all claims are
24 "intertwined" or "related." Perfect 10 conceded the relatedness of the claims when it
25 invoked 28 U.S.C. § 1338(b), which applies to state-law claims "joined with a substantial
26 and related claim under the copyright . . . or trademark laws." See Complaint ¶ 1.
27 Moreover, the legal rationale underlying this Court's dismissal of Perfect 10's state
28 law claims for trademark disparagement, wrongful use of a registered mark, violation of
9
1 right of publicity and unfair competition rested on the same justification as its dismissal of
2 the copyright and Lanham Act claims. In each analysis, dismissal resulted from Perfect 10's
3 inability to allege sufficient facts to justify imposition of contributory, vicarious, or aider-
4 and-abettor liability on Defendants. Perfect 10's pervasive reliance on these theories of
5 indirect liability contradicts its disingenuous argument that apportionment is required
6 because its "legal claims … involve distinctly different theories (tort versus copyright, etc.),
7 and there is no overlap in the legal research relevant to the two motions to dismiss."
8 Opposition Brief at 19. The Supreme Court verified in Hensley v. Eckerhart, 461 U.S. 424
9 (1983), that apportionment of fees is not appropriate in those cases, such as this one, where
10 all of the claims involve a common core of facts or are based on related legal theories. 3
11 Moreover, while Defendants urge the Court to base the award of full attorneys' fees
12 upon the Copyright Act and Lanham Act without apportionment, if the Court were to
13 demand apportionment of the fees, Defendants would be entitled to recover fees for the
14 publicity claim on the basis of Cal. Civil Code §3344(a)("The prevailing party in any action
15 under this section shall also be entitled to attorney's fees and costs.").
16 D. Defendants Have Submitted Sufficient Supporting Documentation For

This Fee Petition.
17
18 Local Rule 54-5(b) does not require the fee petitioner in the first instance to submit
19 detailed invoices or timesheets. It requires only that the petition be "supported by
20 declarations or affidavits containing . . . [a] statement of the services rendered by each
21 person for whose services fees are claimed together with a summary of the time spent by
22 each person, and a statement describing the manner in which time records were
23 maintained."4 Defendants have complied with the Rule. Perfect 10, however, complains
24 3
Even if one concedes for the sake of argument that there is an independent basis for some aspects of Perfect
10's state law claims, the amount of fees associated with any unrelated claims would be insignificant in
25 comparison to the related claims. See Bridges Decl. ¶ 15, Page Decl. ¶ 7, as attached to Opening Brief.
4
26 Local Rule55-4(b)(2) reads:
(b) Form of Motion. Unless otherwise ordered, the motion for attorney fees must be supported by declarations
27 or affidavits containing the following information:
28 ...
10
1 that Defendants should be required to "submit detailed invoices or timesheets reflecting the
2 tasks performed" and that "defendants have made no showing of time spent other than
3 conclusory attorney declarations …." Opposition Brief at 18 (citations omitted). The Local
4 Rule, of course, renders irrelevant Perfect 10's argument and the cases it cites. If the Court
5 would find examination of Defendants' detailed invoices or timesheets appropriate in the
6 circumstances, Defendants will of course promptly make them available to the Court for in
7 camera review.
8 E. The Amount Of Fees Requested By Defendants Is Reasonable And

Should Be Awarded.
9
1. The Number Of Hours Requested Is Reasonable.
10
11 Defendants' fee petitions request reimbursement for a total of 1889.33 hours, spread
12 among five defendants and three distinct sets of counsel.5 In light of the complexity and
13 number of claims asserted by Perfect 10, the number of defendants, and the considerable
14 litigation burdens imposed on Defendants by Perfect 10, the number of hours invested in the
15 litigation by counsel for the five Defendants is quite reasonable.
16 Perfect 10 argues that expenditure of this number of hours is excessive because the
17 suit involved "claims that defendants contend were 'frivolous.'" Opposition Brief at 14. A
18 "frivolous" claim, however, is not necessarily one that is simple or that is cavalierly disposed
19 of. To the contrary, in this case the claims were both numerous and complex, and the stakes
20 were enormous. Perfect 10's success would have required this Court to extend existing
21 doctrines of indirect liability and to create new law. Moreover, Perfect 10's theories, if
22
23 (2) A statement of the services rendered by each person for whose services fees are claimed
together with a summary of the time spent by each person, and a statement describing the manner
24 in which time records were maintained. Depending on the circumstances, the Court may require
production of an abstract of or the contemporary time records for inspection, including in camera
25 inspection, as the Judge deems appropriate . . . .
(3) A brief description of relevant qualifications and experience and a statement of the customary
26 hourly charges of each such person or of comparable prevailing hourly rates or other indication of
value of the services.
27 5
The hours break down as follows: 567.30 hours for Defendant MasterCard, 475.53 hours for Defendants
First Data, Card Service International and Humboldt Bank, and 846.50 hours for Defendant Visa (an average
28 of approximately 380 hours per defendant and 630 hours per set of counsel).
11
1 successful, would have imposed on each of Defendants the dramatically increased burdens
2 of policing the activities of its clients. In addition, the damages claimed in the case were
3 enormous. In light of the high-stakes nature of the litigation and the complexity of the
4 radical (and ultimately, unsupportable) legal theories advanced by Perfect 10, Defendants
5 had no choice by to pursue their defenses vigorously.
6 With the hope of crystallizing the issues presented in this case, and to make this
7 Court's review more efficient, the five Defendants agreed to submit consolidated briefs in
8 connection with their motions to dismiss under Rule 12(b)(6). It does not follow, however,
9 that the Defendants' cooperation on the briefs resulted in reduced costs for each Defendant.
10 If anything, the consolidated briefing increased the complexity of the case for the individual
11 Defendants; preparing a defense that would be effective as to all claims and all Defendants
12 was significantly more difficult than would have been a defense tailored to fending off the
13 specific factual claims directed to a particular Defendant. The Defendants concluded,
14 however, that consolidation of the briefing ultimately would be economical because it
15 allowed more efficient review of the issues by the Court and ultimately made early dismissal
16 more likely.
17 Perfect 10 has labeled "unreasonable" the expenditure of less than 1900 hours and
18 just over $730,000 for the defense of five Defendants in extremely complex litigation
19 involving Perfect 10's efforts to extend existing law. This claim rings hollow in light of (1)
20 the huge damages award sought by Perfect 10 (see fn. 2 at page 5 above), (2) the business-
21 altering burdens of policing the Internet that Perfect 10 sought to impose on Defendants, and
22 (3) Perfect 10's own assertion in the Complaint that it had spent over $8,000,000 in barely
23 two and one half years to enforce its intellectual property rights. See Complaint ¶ 24.
24 Moreover, Perfect 10 fails to mention aspects of the litigation that did not reach the
25 Court's attention. It falsely argues that "the only substantive activity in the case involving
26 Defendants was their two motions to dismiss under Rule 12(b)(6). There was no discovery."
27 Opposition Brief at 14. Perfect 10 neglects to mention that, at the outset of the case, it
28 served on each of the Defendants 70 compact discs, comprising approximately 22,000
12
1 documents and six million pages with images from the Internet, which Perfect 10 claimed to
2 infringe or violate someone's rights (not necessarily Perfect 10) and for which Perfect 10
3 wanted to hold the Defendants responsible. Review of those materials required substantial
4 time not associated with preparation of the motions to dismiss.
5 In light of the complexity of the issues presented, the business-critical nature of the
6 litigation to each Defendant, and the added complexities associated with consolidation of
7 efforts, an average of 380 hours per Defendant, and 630 hours per counsel, is remarkably
8 efficient, and hardly unreasonable.
9 2. Defendants' Claimed Hourly Rates Are Reasonable.

10 The appropriate rate for computation of a fee award is the rate "prevailing in the
11 community for similar services by lawyers of reasonably comparable skill, experience, and
12 reputation." Blum v. Stenson, 465 U.S. 886, 895 (1984). The goal of a fee award is to give
13 the prevailing parties an award sufficient to "enable them to secure reasonably competent
14 counsel." Venegas v. Mitchell, 495 U.S. 82, 89 (1990). The rates listed in Defendants' fee
15 petitions meet these criteria. It is no coincidence that the rates charged by the three firms
16 involved in the case are comparable. The consistency of the rates among the three firms
17 indicates that they accurately reflect the rates prevalent in the market.
18 Perfect 10 argues that the hourly rates requested in Defendants' fee petitions are
19 unreasonably high. Perfect 10 cites Yahoo! Inc. v. Net Games, Inc., 329 F.Supp.2d 1179,
20 1191 (N.D. Cal. 2004), as support for imposition of an hourly rate of $190 for attorneys and
21 $70 for paralegals. Perfect 10 neglects to mention, however, that the Yahoo! case involved
22 none of the complex issues implicated in this action and likely did not require the high level
23 of attorney competence necessary for this case. In fact, default judgment was entered
24 against the defendant in Yahoo! Moreover, although Perfect 10 mentions that the fee award
25 in Yahoo was made in July 2004, Opposition Brief at 17, it fails to mention that the U.S.
26 Department of Labor statistics used by the court were for the year 2002. Yahoo!, 329 F.
27 Supp. 2d at 1190. Because involved an uncontested case that required only a minimum
28 level of attorney competence, because the hourly rate statistics used by the Yahoo! court are
13
1 outdated, and because the rates of the attorneys relevant to Defendants' fee petition mirror
2 market norms, the rates applied by the court in Yahoo! are inapposite to this case.6 The rates
3 reflected in Defendants' fee petitions accurately reflect the rates prevailing in the community
4 for counsel competent to handle the complex issues in this case. Moreover, as shown in the
5 declarations accompanying the motion, the rates charged were at, or less than, defense
6 counsel's standard rates, for work actually performed and being charged to the Defendants.
7 III. CONCLUSION
8 Because the defense of this case served an important copyright purpose, because
9 Perfect 10's flawed and mispleaded trademark claims were "exceptional," and because the
10 ///
11 ///
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15 ///
16 ///
17 ///
18 ///
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20 ///
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24 ///
25 ///
26
27 6
Perfect 10 did not likely pay its own attorneys $190 per hour -- but of course it is silent on what it paid. It is
notable that Perfect 10, just one party, relied upon three sets of counsel of record, namely two outside firms in
28 addition to the formal appearance of its in-house counsel.
14
1 case as a whole turned on Perfect 10's fundamentally misguided theories, the Court should
2 award Defendants their full attorneys' fees for the defense of the case.
3 Respectfully submitted,
4
Dated: March 4, 2005 WINSTON & STRAWN LLP
5
By: /s/ Andrew P. Bridges
6 ANDREW P. BRIDGES
7 JENNIFER A. GOLINVEAUX
8 MASTERCARD INTERNATIONAL
INCORPORATED
9
10 KEKER & VAN NEST, LLP

11 By: /s/ Michael H. Page
ROBERT A. VAN NEST
12 MICHAEL H. PAGE
R. JAMES SLAUGHTER
13 Attorneys for Defendant

FIRST DATA CORP., CARDSERVICE
14 INTERNATIONAL, INC., and HUMBOLDT BANK
15
TOWNSEND AND TOWNSEND AND CREW LL
16
17 By: /s/ Mark T. Jansen

DANIEL J. FURNISS
18 MARK T. JANSEN
JOHN C. BAUM
19 ANTHONY J. MALUTTA
20 VISA INTERNATIONAL SERVICE
ASSOCIATION
21
22 Andrew P. Bridges attests that he has obtained the

concurrence of the signatories indicated above.
23
24
25
26
27
28
15

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Perfect 10, Inc. v. Visa International Service Association et al Doc.

1 WINSTON & STRAWN LLP

5 Attorneys For Defendant

8 UNITED STATES DISTRICT COURT

9 NORTHERN DISTRICT OF CALIFORNIA

10 SAN JOSE DIVISION

12 PERFECT 10, INC., a California corporation, Case No. C 04 0371 JW (PVT)

13 Plaintiff, JOINT REPLY MEMORANDUM OF POINTS

REPLY MEMO OF P&A ISO MOTION FOR AWARD OF

1 KEKER & VAN NEST, LLP

12 San Francisco, California 94111

Telephone: (415) 576-0200

13 Facsimile: (415) 576-0300

REPLY MEMO OF P&A ISO MOTION FOR AWARD OF

12 B. Defendants Are Entitled to Recover Reasonable Attorneys’ Fees Under the

Lanham Act. .......................................................................................................... 8

22 III. CONCLUSION ............................................................................................................. 14

REPLY MEMO OF P&A ISO MOTION FOR AWARD OF

4 Blum v. Stenson, 465 U.S. 886 (1984)...............................................................................13

8 Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994) ........................................................2, 3, 4, 5

9 Hensley v. Eckerhart, 461 U.S. 424 (1983).......................................................................10

12 Mattel v. Walking Mountain Productions, 2004 WL 1454100

(C.D. Cal. 2004).............................................................................................................4

15 Venegas v. Mitchell, 495 U.S. 82 (1990)...........................................................................13

REPLY MEMO OF P&A ISO MOTION FOR AWARD OF

10 Instead, Perfect 10 now invokes the grant of certiorari in Metro-Goldwyn-Mayer Studios,

24 award of nearly $2.8 million in attorneys' fees to prevailing defendant).

1 Most importantly, however, Perfect 10 is fundamentally misguided when it argues

5 517 (1994), is an important reflection of balance as a principle of copyright law. Equal

7 copyright defenses are as important as successful claims.

11 alter dramatically the landscape of copyright law.

12 As the Court recognized, Perfect 10 brought this action on profoundly misguided

10 II. DEFENDANTS ARE ENTITLED TO FULL REIMBURSEMENT OF THEIR

11 FEES IN THIS IMPORTANT AND BENEFICIAL DEFENSE AGAINST

13 A. Defendants Are Entitled to an Award of Their Fees Under the Copyright

21 attorneys' fees to prevailing defendant for reconsideration in light of Assessment

22 Technologies, 361 F.3d 434).

7 Fogerty standard where only prevailing plaintiffs could recover fees.

18 prevailing defendant for reconsideration)(emphasis in original); Mattel v. Walking Mountain

23 Moreover, it makes sense that a defendant non-copyright-holder can further the

26 works, it is peculiarly important that the boundaries of copyright law be demarcated as

6 Copyright Act by preventing Perfect 10 from obliterating the boundaries of copyright

22 consequences of doing business with an accused infringer, and by making an accusation a

24 a severe overenforcement of copyright law, contrary to any rational purpose of copyright.

1 2. Perfect 10's Claims Were Objectively Unreasonable.

9 “the ongoing infringement by the Stolen Content Websites is undisputed, as is Defendants’

10 knowledge of that infringement.” Opposition, 4:19-20. This, however, is not an action

15 Perfect 10's theory of liability against Defendants was premised on Defendants'

21 3. Perfect 10’s First Amended Complaint Was Frivolous.

22 At the hearing on Defendants’ motion to dismiss Perfect 10’s original complaint,

2 complaint.” December 3, 2004, Order at 4. In opposition to this motion, Perfect 10 claims

10 4. An Award of Attorneys' Fees Would Deter Perfect 10, and Others

13 deterrence is a factor to be considered in deciding whether to award fees under the

1 B. Defendants Are Entitled to Recover Reasonable Attorneys’ Fees Under

12 1. Perfect 10’s Trademark Claims Were Groundless and

15 concededly a "test" case, Perfect 10 multiplied proceedings by suing five Defendants to

16 make one point.

17 C. The Court Should Award All The Fees Requested By Defendants.

24 "intertwined" or "related." Perfect 10 conceded the relatedness of the claims when it

3 inability to allege sufficient facts to justify imposition of contributory, vicarious, or aider-

4 and-abettor liability on Defendants. Perfect 10's pervasive reliance on these theories of

5 indirect liability contradicts its disingenuous argument that apportionment is required

16 D. Defendants Have Submitted Sufficient Supporting Documentation For