Perfect 10, Inc. v. Visa International Service, Ass'n Case Brief

Opinion by Judge MILAN D. SMITH, JR.; Dissent by Judge KOZINSKI.

Perfect 10, Inc. (Perfect 10) sued Visa International Service Association, MasterCard International Inc., and several affiliated banks and data processing services (collectively, the Defendants), alleging secondary liability under federal copyright and trademark law and liability under California statutory and common law. It sued because Defendants continue to process credit card payments to websites that infringe Perfect 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 \*793which relief can be granted. We affirm the decision of the district court.

FACTS AND PRIOR PROCEEDINGS

Perfect 10 publishes the magazine “PERFECT10” and operates the subscription website www.perfectlO.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 process 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 infringing images. Defendants admit receiving some of these notices, but they took no action in response to the notices after receiving them.

Perfect 10 separately alleges that it formerly had a merchant 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 attributed to them (the charge-back rate) exceeded contractual limits. 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 trademark 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, dismissing the libel and intentional interference claims with prejudice 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 Defendants’ 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 copyright and trademark claims pursuant to 28 U.S.C. §§ 1331 and \*7941338 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, 314 F.3d 979, 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 complaint 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.” Id. (internal citations omitted).

Although a plaintiffs 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, 411 F.3d 1103, 1106 n. 3 (9th Cir.2005); see also Pena v. Gardner, 976 F.2d 469, 471-72 (9th Cir.1992). The court may also affirm on any ground supported by the record even if the district court did not consider the issue. Fields v. Legacy Health Sys., 413 F.3d 943, 958 n. 13 (9th Cir.2005); ARC Ecology v. United States Dep’t of the Air Force, 411 F.3d 1092, 1096 (9th Cir.2005).

We review de novo the district court’s interpretation of state law. Rodriguez, 314 F.3d at 983.

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 process 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 commerce and that Congress has determined it to be the “policy of the United States—(1) to promote the continued development 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 Internet and other interactive computer services, unfettered by Federal or State regulation.” 47 U.S.C. §§ 230(b)(1), (2).2

1. Contributory Copyright Infringement

Contributory copyright infringement is a form of secondary liability with

\*795roots in the tort-law concepts of enterprise liability and imputed intent. See Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 264 (9th Cir.1996); Perfect 10, Inc. v. Amazon.com, Inc. et al., 487 F.3d 701 (9th Cir.2007). This court and the United States Supreme Court (Supreme Court) have announced various formulations 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) “induces, causes, or materially contributes to the infringing conduct.” Ellison v. Robertson, 357 F.3d 1072, 1076 (9th Cir.2004) (citing Gershwin Publ’g Corp. v. Columbia Artists Mgmt., Inc., 443 F.2d 1159, 1162 (2d Cir.1971)). In an Internet 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., 239 F.3d 1004, 1019 (9th Cir.2001) (internal citations omitted). In Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., the Supreme Court adopted from patent law the concept of “inducement” and found that “[o]ne infringes contribu-torily by intentionally inducing or encouraging direct infringement.” 545 U.S. 913, 930, 125 S.Ct. 2764, 162 L.Ed.2d 781 (2005).3 Most recently, in a case also brought by Perfect 10, we found that “an actor may be contributorily 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, 487 F.3d at 727.

We understand these several criteria to be non-contradictory variations on the same basic test, i.e., that one contribu-torily infringes when he (1) has knowledge of another’s infringement and (2) either (a) materially contributes to or (b) induces that infringement. Viewed in isolation, the language of the tests described is quite broad, but when one reviews the details of the actual “eases 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 existing principles of secondary liability and would violate the public policy of the United States.

a. Knowledge of the Infringing Activity

Because we find that Perfect 10 has not pled facts sufficient to establish that Defendants induce or materially contribute 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

\*796b. Material Contribution, Inducement, or Causation

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., Ellison, 357 F.3d at 1076. Three key cases found defendants contributorily liable under this standard: Fonovisa, 76 F.3d 259; Napster, 239 F.3d 1004; and Grokster, 545 U.S. 913, 125 S.Ct. 2764, 162 L.Ed.2d 781. 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 distributing software that enabled exchange of copyrighted music on a peer-to-peer, rather than a centralized basis.5 Perfect 10 argues that by continuing to process credit card payments to the infringing websites despite having knowledge of ongoing infringement, Defendants induce, enable and contribute to the infringing activity in the same way the defendants did in Fonovisa, Napster and Grokster. We disagree.

1. Material Contribution

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 infringement rests on the reproduction, alteration, display 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’ systems are used to alter or display the infringing images. In Fonovisa, the infringing material was physically located in and traded at the defendant’s market. Here, it is not. Nor are Defendants’ systems used to locate the infringing images. The search engines in Amazon.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 provided 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 reproduction, alteration, display and distribution, which can occur without payment. Even if infringing images were not paid for, there would still be infringement. See Napster, 239 F.3d at 1014 (Napster users infringed the distribution right by uploading file names to the search index for others to copy, despite the fact that \*797no 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 knowledge 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.” 487 F.3d at 729. The dissent claims this statement applies squarely to Defendants if we just substitute “payment systems” for “search engine.” Dissent at 811. 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 distribute their infringing copies to a worldwide market and assists a worldwide audience of users to access infringing materials.” Id. Defendants do 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 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 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.6

The dissent disagrees with our reading of Amazon.com and charges us with wishful thinking, dissent at 811, and with “drawing] a series of ephemeral distinctions,” dissent at 825. We respectfully disagree and assert that our construction of the relevant statutes and case law is completely consistent 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 mechanisms 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 Defendants’ \*798payment systems make it easier for such an infringement to be profitable, and that they therefore have the effect of increasing such infringement, but because infringement of Perfect 10’s copyrights can occur without using Defendants’ payment system, we hold that payment processing by the Defendants as alleged in Perfect 10’s First Amended Complaint does not constitute a “material contribution” under the test for contributory infringement of copyrights.9

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 scenarios in Fonovisa and Napster and the facts in this case, the differences in those scenarios are substantial, and, in our view, dispositive. In Fonovisa, we held a flea market proprietor liable as a contributory infringer when it provided the facilities for and benefitted from the sale of pirated works. 76 F.3d 259. 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 customers.” 76 F.3d at 264. 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. Id. at 261. The Sheriff sent a letter to the swap meet operator the following year notifying it that counterfeit sales continued and reminding it that it had agreed to provide the Sheriff with identifying information from each vendor, but had failed to do so. Id. The Fonovisa court found liability because the swap meet operator knowingly provided the “site and facilities” for the infringing activity. Id. at 264.

In Napster, this court found the designer and distributor of a software program liable for contributory infringement. 239 F.3d 1004. Napster was a file-sharing \*799program which, while capable of non-infringing use, was expressly engineered to enable the easy exchange of pirated music and was widely so used. See Napster, 239 F.3d at 1020 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 knowingly providing the “site and facilities” for that infringement. 239 F.3d at 1022.

Seeking to draw an analogy to Fonovisa and, by extension, Napster, Perfect 10 pleads that Defendants materially contribute 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 Fo-novisa 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 physical 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 providing 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 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 efficient 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 controversies” decided in Fo-novisa and Napster. Taken literally, Perfect 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 infringement, not Defendants’ payment networks. Defendants do not create, op\*800erate, advertise, or otherwise promote these websites. 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 network 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 encompasses Defendants would also include a number of peripherally-involved third parties, such as computer display companies, storage device companies, and software companies 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 materially contribute to that infringement. As previously noted, the direct infringement here is the reproduction, alteration, display 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 processing of payments.

2. Inducement

In Grokster, the Supreme Court applied the patent law concept of “inducement” to a claim of contributory infringement against a file-sharing program. 545 U.S. 913, 125 S.Ct. 2764, 162 L.Ed.2d 781. 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 infringement, is liable for the resulting acts of infringement by third parties.” Id. at 936-37, 125 S.Ct. 2764. Perfect 10 claims that Grokster is analogous 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 purchase images from sites that have content stolen from Perfect 10. This is mistaken. Because Perfect 10 alleges no “affirmative steps taken to foster infringement” and no facts suggesting that Defendants promoted their payment system as a means to infringe, its claim is premised on a fundamental misreading of \*801Grokster' that would render the concept of “inducement” virtually meaningless.

The Grokster court announced that the standard for inducement liability is providing a service “with the object of promoting its use to infringe copyright.” Id. “[M]ere knowledge of infringing potential or actual infringing uses would not be enough here to subject [a defendant] to liability.” Id. at 937, 125 S.Ct. 2764. 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.” Id. Moreover, to establish inducement 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.” Id. The Grok-ster 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. Conversely, 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 breathing room for innovation and a vigorous commerce.

545 U.S. at 932-33, 125 S.Ct. 2764 (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, disseminated, 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. Id. at 925-26, 125 S.Ct. 2764. 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 infringement.

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 analysis of contributory liability into “material contribution” liability and “inducement” liability, it did recognize that contributory liability “may be predicated on actively encouraging (or inducing) infringement through specific acts.” Amazon.com, 487 F.3d at 726 (quoting Grokster, 545 U.S. at 942, 125 S.Ct. 2764 (Ginsburg, J., concurring)). It also found that Google could be held eontributorily liable if it has “actual knowledge that specific infringing material is available using its system, and can take simple measures to prevent-further damage,” but does not. Id. at 728 (internal citations and quotation marks omitted). While this test is read more naturally as a test for “material contribution” than as a test for “inducement,” \*802under 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. Id. That system does not “facilitate access to websites,” 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.

Finally, we must take as true the allegations that Defendants 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 determination, 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

Vicarious infringement is a concept related to, but distinct from, contributory infringement. Whereas contributory infringement is based on tort-law prinei-pies of enterprise liability and imputed intent, vicarious infringement’s roots lie in the agency principles of respondeat superior. See Fonovisa, 76 F.3d at 261-62. 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. Ellison, 357 F.3d at 1078; Napster, 239 F.3d at 1022 (citations omitted). The Supreme Court has recently offered (in dictum) an alternate formulation of the test: “One ... infringes vicariously by profiting from direct infringement while declining to exercise a right to stop or limit it.” Grokster, 545 U.S. at 930, 125 S.Ct. 2764 (internal citations omitted). Perfect 10 alleges that Defendants have the right and ability to control the content of the infringing 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 vicarious copyright infringement.

a. Right and Ability to Supervise the Infringing Activity

In order to join a Defendant’s payment network, merchants and member banks must agree to follow that Defendant’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 participation in the payment network if certain illegal activity is \*803found. Perfect 10 has alleged that certain websites are infringing 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 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 allegations 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, 487 F.3d at 730-32. 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 partnerships with entities that violate others’ copyright[s].” Id. at 730 (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, display, and distribute its infringing copies of Perfect 10 images after its participation in the AdSense program has ended.

Id. This reasoning is equally applicable to the Defendants in this case. Just like Google, Defendants could likely take certain 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 vicarious infringement requires. A finding of vicarious liability 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 compels 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 material.” 239 F.3d at 1023. 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 payment 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 \*804out 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 distribution of the infringing images.14 They cannot take away the tools the offending websites use to reproduce, alter, and distribute 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 control 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 offending websites since it is reasonable to believe that fear of losing access to credit card payment processing services would be a sufficient incentive for at least some website operators to comply with a content-based suggestion from Defendants. But the ability to exert financial pressure does not give Defendants the right or ability to control the actual infringing activity at issue in this case. Defendants have no absolute right16 to stop that activity — they cannot stop websites \*805from reproducing, 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 reproducing, displaying, and distributing unauthorized copies of Perfect 10’s images because that infringing conduct takes place on the third-party websites.” Amazon.com, 487 F.3d at 731. 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 activity, as we discuss at greater length in our analysis of the Grokster “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 misplaced. The swap meet operator in Fonovi-sa and the software operator in Napster both had the right to remove individual infringers from the very place the infringement was happening. 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 compete and operate at a profit.18 While we must take this allegation as \*806true, 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 alteration of the copyrighted images, remove infringing material from these websites or prevent its distribution over the Internet. 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.

The Supreme Court’s recent decision in Grokster does not undermine the validity of this distinction. As we held in Amazon.com, 487 F.3d at 728-31, 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 website, 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 hardware 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 businesses described viable, they all profit to some degree from those businesses, and by withholding their services, they could impair — perhaps even destroy — the commercial viability 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 liability to attach.

b. Obvious and Direct Financial Interest in the Infringing Activity

Because Perfect 10 has failed to show that Defendants have the right and ability to control the alleged infringing conduct, 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 Studios, 464 U.S. 417, 439 n. 19, 104 S.Ct. 774, 78 L.Ed.2d 574 (1984); Fonovisa, 76 F.3d at 265 (noting that “trademark infringement liability is more narrowly 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.

\*8071. Contributory Trademark Infringement

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 in-fringer with knowledge that the infringer is mislabeling the particular product supplied. Inwood Labs., Inc. v. Ives Labs., Inc., 456 U.S. 844, 855, 102 S.Ct. 2182, 72 L.Ed.2d 606 (1982). When the alleged direct infringer supplies a service rather than a product, under the second prong of this test, the court must “consider the extent of control exercised by the defendant over the third party’s means of infringement.” Lockheed Martin Corp. v. Network Solutions, Inc., 194 F.3d 980, 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 plaintiffs mark.” Id.

Perfect 10 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 “intentionally 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 authorized 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.

Second, Perfect 10 has failed to allege facts sufficient to show “[d]irect control and monitoring of the instrumentality used by a third party to infringe the plaintiffs mark.” Lockheed Martin, 194 F.3d at 984. Perfect 10 claims that the “product” or “instrumentality” at issue here is the credit card payment network through which Defendants process payments 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 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 Martin, 194 F.3d at 985 (“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 Licensing Corp. v. Concession Servs., Inc., 955 F.2d 1143, 1150 (7th Cir.1992) (internal quotations omitted), followed by Symantec Corp. v. CD Micro, Inc., 286 F.Supp.2d 1265, 1275 (D.Or.2003).

Perfect 10 argues that Defendants are liable as follows: “Defendants and the \*808Stolen Content Websites are in a symbiotic financial partnership pursuant to which the websites operate 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 payments to these websites and collect their usual processing fees, nothing more.

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 legally incorrect. It is the websites’ contracts with the consumers 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

In addition to its federal copyright and trademark claims, Perfect 10 pled causes of action for unfair competition, 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 hand False Advertising

Defendants do not dispute Perfect 10’s claims that the websites themselves are potentially violating California state and common law prohibiting unfair competition and false advertising. See Cal. Bus. & Prof.Code §§ 17200, et seq., and 17500, et seq. Defendants do, however, argue that Emery v. Visa International Service Association, 95 Cal.App.4th 952, 116 Cal.Rptr.2d 25 (2002), precludes liability for Defendants in this case, both under secondary liability and aiding and abetting theories. Defendants are correct on both counts.

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 foreign lottery tickets to impose secondary liability under the state’s unfair competition or false advertising laws. Id. at 959-964, 116 Cal.Rptr.2d 25. Emery found that an “unfair practices claim under section 17200 cannot be predicated on vicarious liability.... A defendant’s liability must be based on his personal participation in the unlawful practices and unbridled control over the practices that are found to violate section 17200 or 17500.” Id. at 960, 116 Cal.Rptr.2d 25 (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 \*809statutes,” it could not be liable for unfair competition. Id. at 964, 116 Cal.Rptr.2d 25. The false advertising claim also necessarily 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.” Id. (citations omitted). 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 standard of aiding and abetting. Perfect 10 fails to establish a viable claim on these theories as well. The only authority offered by Perfect 10 in support of such liability is an opinion which is now uncita-ble in California: Schulz v. Neovi Data Corporation, 28 Cal.Rptr.3d 46 (Cal.App.4th Dist.2005), superceded by 32 Cal.Rptr.3d 758, 117 P.3d 475 (Cal.2005), cause transferred by 56 Cal.Rptr.3d 471, 154 P.3d 998 (Cal.2007), transferred to, 152 Cal.App.4th 86, 60 Cal.Rptr.3d 810 (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 liable for its role in facilitating an illegal online lottery because that company “went far beyond merely processing credit cards.” 152 Cal.App.4th at 95, 60 Cal.Rptr.3d 810. In support, the court cited specific statements from a company representative in which he “personally assured” an agent of the website that the defendant company “did not have any problem with the operation of the [illegal] lottery site” and had a “stronger stomach” than other payment processors. Id. Perfect 10 alleges no similar conduct here— Defendants merely process credit card payments.

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 California law—a proposition for which Perfect 10 has provided no clear authority—Defendants lack sufficient control or personal involvement in the infringing activities to be so liable. See Schulz, 152 Cal.App.4th at 93-94, 60 Cal.Rptr.3d 810; Emery, 95 Cal.App.4th at 962-63, 116 Cal.Rptr.2d 25.

C. Libel and Intentional Interference with Prospective Economic Advantage

The district court dismissed Perfect 10’s claims of libel and intentional \*810interference 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(e), 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 liability 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.