PASADENA, CA — In a decision that presents both good news and bad for both sides of the lawsuit, the U.S. Court of Appeals for the Ninth Circuit affirmed in part and reversed in part a district court’s ruling in the case Perfect 10, Inc. v. CCBill, LLC, and remanded several issues in the case to the district court for trial.In its lawsuit, Perfect 10 alleges that “CCBill and CWIE violated copyright, trademark, and state unfair competition, false advertising and right of publicity laws by providing services to websites that posted images stolen from Perfect 10’s magazine and website,” as the Ninth Circuit put it in the decision issued Thursday.

Perfect 10 appealed the district court’s finding that CCBill and CWIE qualified for safe harbor protections under the DMCA, and that the companies were immune from liability for state law unfair competition and false advertising claims under the Communications Decency Act (CDA).

CCBill and CWIE filed a cross-appeal, arguing that the district court erred in finding that the CDA does not provide immunity against the right of publicity claims in Perfect 10’s lawsuit and in denying the companies their request for costs and attorney’s fees under the Copyright Act.

In an opinion issued by Judge Milan D. Smith, Jr., the court found that while some issues of material fact remain, the district court ruled correctly that CCBill and the other defendants (Cave Creek Wholesale Internet Exchange (CWIE) and Netpass Systems, Inc.) were eligible for the safe harbor protections from copyright infringement liability under the Digital Millennium Copyright Act (DMCA).

At the same time, the Ninth Circuit found that a substantial question of fact remains with respect to a particular website that Perfect 10 named as being among the websites infringing on their copyrighted images – HorneyBees.com. (More on this portion of the decision later…)

Among its claims, Perfect 10 alleges that CCBill and CWIE unreasonably implemented their “repeat infringer” policies, arguing that the companies were “tolerating flagrant and blatant copyright infringement by its users despite notice of infringement from Perfect 10, notice of infringement from copyright holders not a party to this litigation and ‘red flags’ of copyright infringement,” as stated in the Ninth Circuit’s ruling this week.

“The district court found that Perfect 10 did not provide notice that substantially complied with the requirements of [the DMCA] and thus did not raise a genuine issue of material fact as to whether CCBill and CWIE reasonably implemented their repeat infringer policy,” writes Judge Smith in the ruling. “We agree.”

In the decision, Judge Smith notes that “Taken individually, Perfect 10’s communications do not substantially comply with the requirements [for notifications under the DMCA]… Each communication contains more than mere technical errors; often one or more of the required elements are entirely absent.”

Judge Smith adds that “Permitting a copyright holder to cobble together adequate notice from separately defective notices also unduly burdens service providers,” and that the court declines to “shift a substantial burden from the copyright owner to the provider,” concluding that “Perfect 10’s separate communications are inadequate.”

“Since Perfect 10 did not provide effective notice, knowledge of infringement may not be imputed to CCBill or CWIE based on Perfect 10’s communications,” Judge Smith states in the decision. “Perfect 10’s attempted notice does not raise a genuine issue of material fact that CCBill and CWIE failed to reasonably implement a repeat infringer policy.”

The Ninth Circuit departs from the lower court’s ruling, however, with respect to notices of infringement by other copyright holders not party to the case.

“The district court expressly declined to consider evidence of notices provided by any party other than Perfect 10 on the basis that these notices were irrelevant to Perfect 10’s claims,” Judge Smith writes. “We disagree… CCBill and CWIE’s actions towards copyright holders who are not a party to the litigation are relevant in determining whether CCBill and CWIE reasonably implemented their repeat infringer policy.”

As the lower court did not consider notices of infringement by copyright holders other than Perfect 10, the Ninth Circuit in its decision Thursday remands for “determination of whether CCBill and/or CWIE implemented its repeat infringer policy in an unreasonable manner with respect to any copyright holder other than Perfect 10.”

To bolster its claim that CCBill and CWIE were aware multiple “red flags” that signal apparent copyright infringement, Perfect 10 cited the fact that CCBill and CWIE provided services to the websites “illegal.net” and “stolencelebritypics.com,” arguing that the very names of these sites should have been sufficient to make CCBill and CWIE aware of infringing activity.

The Ninth Circuit disagrees, noting that for a website that “traffics in pictures that are titillating by nature, describing photographs as ‘illegal’ or ‘stolen’ may be an attempt to increase their salacious appeal, rather than an admission that the photographs are actually illegal or stolen.”

“We do not place the burden of determining whether photographs are actually illegal on a service provider,” the court states in its decision.

The Ninth Circuit also found, however, that there’s still some question as to how CCBill and CWIE handled “red flags” raised by other copyright holders, a question that simply was not considered by the district court. Accordingly, Judge Smith writes, “we remand to the district court to determine whether third-party notices made CCBill and CWIE aware that it provided services to repeat infringers, and if so, whether they responded appropriately.”

Perfect 10 also claimed in its lawsuit that CCBill should not qualify for any safe harbor because it interfered with “standard technical measures by blocking Perfect 10’s access to CCBill affiliated websites in order to prevent Perfect 10 from discovering whether those websites infringed Perfect 10 copyrights,” as the issue was framed by the court in Thursday’s ruling.

“We are unable to determine on this record whether accessing websites is a standard technical measure, which was ‘developed pursuant to a broad consensus of copyright owners and service providers in an open, fair, voluntary, multiindustry (sic) standards process.,’” writes Judge Smith, referring to the definition of “standard technical measure” provided in the DMCA. “We thus remand to the district court to determine whether access to a website is a ‘standard technical measure,’ and if so, whether CCBill interfered with that access.”

One of the potentially significant portions of the Ninth Circuit’s ruling, as noted by Electronic Frontier Foundation’s (EFF) Kurt Opsahi, deals with the question of claims Perfect 10 raised under the CDA.

In its decision, the Ninth Circuit notes that the “CDA does not contain an express definition of ‘intellectual property,’ and there are many types of claims in both state and federal law which may – or may not – be characterized as ‘intellectual property’ claims.”

In interpreting the statute, Judge Smith observes that “because material on a website may be viewed across the Internet, and thus in more than one state at a time, permitting the reach of any particular state’s definition of intellectual property to dictate the contours of this federal immunity would be contrary to Congress’s expressed goal of insulating the development of the Internet from the various state-law regimes.”

“In the absence of a definition from Congress, we construe the term ‘intellectual property’ to mean ‘federal intellectual property,’” Judge Smith writes in the decision. “Accordingly, CCBill and CWIE are eligible for CDA immunity for all of the state claims raised by Perfect 10.”

The EFF’s Opsahi called this portion of the decision “great news for service providers, and great news for free speech,” arguing that the court’s interpretation of the CDA “allows service providers to provide the platform upon which others may speak, while leaving the responsibility where it properly lies – upon the author.”

Although the lower court’s findings with respect to CCBill and CWIE’s eligibility for immunity under the safe harbor provisions of the DMCA survived the Ninth Circuit’s review, there remains the one question of fact that could remove that immunity, at least in part.

“There is a genuine issue of material fact as to the relationship between CCBill/CWIE and hornybees.com,” Judge Smith writes in the decision, noting that while CCBill and CWIE have both stated that hornybees.com is operated by a separate entity called “CCBucks,” and that neither CCBill nor CWIE has any interest in the site, there is other evidence to suggest that the companies might have more stake in the site than they have conceded, thus far.

Judge Smith observes that “the hornybees.com website reads: ‘Brought to you by CCBill LLC and Cavecreek Web Hosting,’” and “the record indicates that Cavecreek Web Hosting may be CWIE, and that CWIE may be the registrant of hornybees.com… Furthermore, the vice president of operations of both CCBill and CWIE lists CCBucks as being related to CWIE and CCBill.”

“Because Perfect 10 has raised a triable issue whether CCBill and CWIE directly infringed Perfect 10 copyrights by operating hornybees.com, and because the district court did not address this issue in its order granting summary judgment in favor of Perfect 10, we remand this issue for a determination by the district court,” Judge Smith writes.

A footnote to the paragraph in which the court states that the issue is remanded to the lower court for determination, Judge Smith writes that “if CCBill and CWIE operate hornybees.com, no immunity for infringement on that site is available under either the DMCA or the CDA.”