Perfect 10, Megaupload Settle Copyright Infringement Lawsuit

LOS ANGELES—This July, U.S. District Court Judge Irma E. Gonzalez issued an order that not only refused to dismiss Perfect 10’s copyright infringement lawsuit against “file storage” company Megaupload, but also set the stage for a rare court victory for Perfect 10’s Norm Zada. The parties have since settled their differences outside of court, and in late September filed a joint motion to vacate the earlier ruling and dismiss the case. On Oct. 16, Gonzalez did just that.

As reported by AVN in August and by CNET this week, the case, though now settled, reverberates with (now) unanswered questions related to the ultimate liability required of Megaupload regarding pirated content that exists on their sites—which include,,, and, among others—and the extent to which the Digital Millennium Copyright Act (DMCA) provides a safe harbor exception for qualifying internet services that allow the uploading of user-generated content.

Indeed, in her July 27 ruling, Gonzalez was more than convinced that Megaupload’s complicity in direct infringement had been proven.

“Drawing all reasonable inferences in Perfect 10's favor,” wrote Gonzalez in her ruling, “Megaupload serves as more than a passive conduit, and more than a mere 'file storage' company: it has created distinct websites, presumably in an effort to streamline users' access to different types of media (e.g.,,; 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. Taken together, Perfect 10 has adequately alleged Megaupload has engaged in volitional conduct sufficient to hold it liable for direct infringement.”

The judge had an equally unambiguous position regarding Megaupload’s contributory infringement. According to Greg Sandoval over at CNET, however, while it seemed as if Megaupload’s legal position was hopeless with respect to both direct and contributory infringement, “Megaupload's lawyers had sitting in their pocket a string of recent court victories on this issue. The gist of those decisions is that service providers that qualify for the Digital Millennium Copyright Act's safe harbor provisions don't have to hunt down and remove pirated materials from their sites.”

As far as Zada was concerned, of course, the company no longer qualified for safe harbor and was thus also responsible for policing its sites for all infringing activity. Interestingly, the settlement terms specifically address the DMCA issue. In a Sept. 23 declaration to the court, Megaupload attorney Venkat Balasubramani stated, “As part of the settlement, Perfect 10 has agreed to not challenge Mega’s DMCA protection and safe harbor status.”

What is not contained in either Balasubramani’s declaration or the joint motion to dismiss is how much it cost Megaupload to get that agreement from Perfect 10, and neither party is thus far inclined to say.