Andrew H. Wilson WILSON, RYAN & CAMPILONGO 115 Sansome Street Fourth Floor San Francisco, CA 94104 (415) 391-3900 Thomas M. Small Janet A. Kobrin SMALL, LARKIN, & KIDDE 10940 Wilshire Blvd., Suite 1800 Los Angeles, California 90024-3945 (310) 209-4400 Helena K. Kobrin 7629 Fulton Avenue North Hollywood, CA 91605 (213) 960-1933 Attorneys for Plaintiffs, RELIGIOUS TECHNOLOGY CENTER and BRIDGE PUBLICATIONS, INC. UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA RELIGIOUS TECHNOLOGY CENTER, a ) CASE NO. California non-profit corporation; and ) BRIDGE PUBLICATIONS, INC., a California ) MEMORANDUM OF POINTS non-profit corporation, ) AND AUTHORITIES IN ) SUPPORT OF RENEWED Plaintiffs, ) MOTION FOR PRELIMINARY ) INJUNCTION AGAINST vs. ) DEFENDANTS NETCOM ON- ) LINE COMMUNICATIONS NETCOM ON-LINE COMMUNICATION SERVICES, ) SERVICES, INC. AND TOM INC., a Delaware corporation; DENNIS ) KLEMESRUD ERLICH, an individual; and TOM ) KLEMESRUD, an individual, dba CLEARWOOD ) DATE: April 7, 1995 DATA SERVICES, ) TIME: Defendants. ) CTRM: Hon. Ronald M. ) Whyte TABLE OF CONTENTS TITLE PAGE I. PRELIMINARY STATEMENT. . . . . . . . . . . . . . . . . 1 II. FACTUAL STATEMENT. . . . . . . . . . . . . . . . . . . 5 A. Plaintiffs Have Demonstrated Their Exclusive Rights To Reproduce And Publish The Materials That Are The Subject Of This Application. . . . . . . . . . . . 5 B. Defendants Are Engaging In Unlawful Copying And Publishing Of Plaintiffs' Literary Works . . . 6 C. Defendants Could and Should Easily Take Action To Prevent Erlich's Violations Without Overburdening Their Systems. . . . . . . . . . . . 9 D. Absent An Injunction, There Is A Strong Likelihood That Defendants Will Continue To Make And Publish Unauthorized Copies Of The Copyrighted Materials. . . . . . . . . . . . . . .12 III. DEFENDANTS NETCOM AND KLEMESRUD CAN BE FOUND LIABLE FOR COPYRIGHT INFRINGEMENT . . . . . . . . . . . . . .12 A. Defendants Are Guilty Of Direct Infringement . . . . .12 B. Defendants Are Guilty Of Contributory Infringement . . . . . . . . . . . . . . . . . . .13 IV. PLAINTIFFS ARE ENTITLED TO A PRELIMINARY INJUNCTION ON ALL CAUSES OF ACTION . . . . . . . . . . . . . . .17 A. Plaintiffs Have Established A Likelihood Of Success On The Merits Of Each Cause Of Action. . .19 B. Plaintiffs Will Be Irreparably Injured If Defendant Is Not Preliminarily Enjoined. . . . . .19 C. The Equities Weigh Heavily In Favor Of Granting The Preliminary Injunction. . . . . . . .21 V. CONCLUSION . . . . . . . . . . . . . . . . . . . . . .22 TABLE OF AUTHORITIES CASE PAGE Aleknagik Natives, Ltd. v. Andrus, 648 F.2d 496 (9th Cir. 1980) . . . . . . . . . . . . . . . .17 Apple Computer, Inc. v. Formula Int'l. Inc., 562 F.Supp. 775 (C.D. Cal. 1983) . . . . . . . . . . . . . .17 Apple Computer, Inc. v. Formula lnt'l. Inc., 725 F.2d 521 (9th Cir. 1984) . . . . . . . . . . . . . . 17,19 Baxter v. MCA, Inc., 812 F.2d 421 (9th Cir. 1987) cert. denied, 108 S.Ct. 346 (1987) . . . . . . . . . . . . .12 Beltran v. Myers, 677 F.2d 1317 (9th Cir. 1982). . . . . . . . . . . . . . . .17 Bridge Publications Inc. v. Vien, 827 F.Supp. 629 (S.D.Cal. 1993). . . . . . . . . . . . . . . 6 Casella v. Morris, 820 F.2d 362 (11th Cir. 1987). . . . . . . . . . . . . . . .14 Data East USA, Inc. v. Epyx, Inc., 862 F.2d 204 (9th Cir. 1988) . . . . . . . . . . . . . . . .12 Donaldson, Douglas & Gumble, Inc. v. Terris, 37 U.S.P.Q. 39 (W.D. Pa. 1938) . . . . . . . . . . . . . . .14 Epstein Family Partnership v. KMART Corp., 13 F.3d 762 (3rd Cir. 1994). . . . . . . . . . . . . . .18, 21 Famous Music Corp. v. Bay State Harness Horse Racing & Breeding Assoc., Inc., 554 F.2d 1213 (1st Cir. 1977). . . . . . . . . . . . . . . .14 Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159 (2d Cir. 1971) . . . . . . . . . . . . . . . .14 Los Angeles Memorial Coliseum v. NFL, 634 F.2d 1197 (9th Cir. 1980). . . . . . . . . . . . . . . .18 Morgan v. Veach, 59 Cal.App.2d 682 (1943) . . . . . . . . . . . . . . . . . .18 People ex rel. Younger v. F.E. Crites, Inc., 51 Cal.App.3d 961 (1975) . . . . . . . . . . . . . . . . . .18 Playboy Enterprises, Inc. v. Frena, 839 F.Supp. 1552 (M.D.Fla. 1993) . . . . . . . . . . . . . .15 Religious Technology Center v. Scott, 869 F.2d 1306 (9th Cir. 1989). . . . . . . . . . . . . . . . 5 Religious Technology Center v. Wollersheim, 796 F.2d 1076 (9th Cir. 1986), cert. denied, 479 U.S. 1103 (1987) . . . . . . . . . . . . . 5 Sega Enterprises Ltd. v. MAPHIA, 857 F.Supp. 679 (N.D. Cal. 1994) . . . . . . . . . . . . . .14 Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304 (2d Cir. 1963). . . . . . . . . . . . . . . . .13 Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984). . . . . . . . . . . . . . . . . . . . .16 Treasure Valley Potato Bargaining Ass'n v. Ore-Ida Foods, Inc., 497 F.2d 203 (9th Cir. 1974), cert. denied, 419 U.S. 999, 95 S.Ct. 314 (1974). . . . . . .20 U-Haul International, Inc. v. Jartran, Inc., 522 F.Supp. 1238 (D.Ariz. 1981), aff'd, 681 F.2d 1159 (9th Cir. 1982). . . . . . . . . . . . . . . . . . . . . . .20 Wainwright Sec. v. Wall Street Transcript Corp., 558 F.2d 91 (2d Cir. 1977) . . . . . . . . . . . . . . . . .19 OTHER 3 Nimmer, Nimmer on Copyright,  12.04[A][1], p. 12-67 (1994) . . . . . . . . . . . . . . .13 17 U.S.C.  504(c)(2). . . . . . . . . . . . . . . . . . . .13 17 U.S.C.  101. . . . . . . . . . . . . . . . . . . . . . .13 17 U.S.C.  201(d) . . . . . . . . . . . . . . . . . . .12, 19 Cal.Civil Code  3426.1. . . . . . . . . . . . . . . . . . . 5 Federal Rules of Civil Procedure Rule 64 . . . . . . . . . . 5 M. Nimmer, 3 Nimmer on Copyright  13.01 . . . . . . . . . .12 Sarah B. Deutsch, "Superliability on the Superhighway?," The Multimedia Law Report, at 5 (November 1994). . . . . . .16 I. PRELIMINARY STATEMENT Plaintiffs once again seek issuance of a preliminary injunction against defendants Netcom On-Line Communication Services, Inc. ('Netcom'), and Tom Klemesrud, dba Clearwood Data Services ("Klemesrud') (collectively, 'defendants"). Additional facts and evidence now available demonstrate that arguments raised earlier by those defendants should not insulate them from the injunctive remedy to which plaintiffs are entitled as to all defendants. Indeed, their principal defense -- purported inability to deal with the subject infringements -- is simply not true. In their original application, plaintiffs briefed extensively their rights in the works in question, the intentional violations of those rights by defendant Dennis Erlich, and the law which demonstrates that they are entitled to preliminary injunctive relief to restrain the commission of such acts pendente lite. Plaintiffs incorporate by reference the facts and law contained in their initial application, and will avoid repeating those matters where possible. They will demonstrate here that defendants' arguments to avoid being enjoined are spurious -- particularly in light of the post-restraining order infringement of defendant Dennis Erlich; their non-passive infringements resulting from their own voluntary and volitional use of their own equipment in spite of being on notice; and the simple methods of dealing with the specific situation raised here without triggering the parade of horribles for their systems and the computer industry which defendants predict obedience to a lawful court order portends. On February 21, 1995, the Court extended its TRO as to Erlich, but vacated it as to Netcom and Klemesrud and denied plaintiffs' application for a preliminary injunction as to those two defendants without prejudice. The Court relied on defendants' arguments that there was no action they could take to prevent the infringing postings by defendant Dennis Erlich and that it would be enormously burdensome and contrary to public policy to require them to do so. Defendants' attempts to make themselves appear mere 'passive' conduits of others' messages were less than forthright./1/ In fact, ---------- /1/ Defendants' papers in opposition to the preliminary injunction had only been. served on plaintiffs that same morning just prior to the hearing, and plaintiffs were therefore unable to research defendants' statements further and provide adequate reply at that time. confidential materials, and in many instances the entire work. ---------- defendants' own systems are not mere conduits of Erlich's postings. Rather, Erlich's postings are: (1) generated on or loaded onto Klemesrud's computer for copying to Usenet via Netcom's computer; (2) copied by Klemesrud's computer to Netcom's server, which makes a copy of it pending transmission; (3) transmitted to Usenet by Netcom's computer; (4) recopied back to Netcom's disk where it remains stored for ready access by Netcom's paying subscribers for several weeks; and (5) recopied back to Klemesrud's disk where he keeps it available for his paying subscribers to access for up to 72 hours. Netcom even emphasizes in its promotional materials that the availability of newsgroup (also called "netnews") access is one of its most popular services. Netcom's promotion is confirmed by the fact that the newsgroup (or public discussion group), known as 'alt.religion.scientology' ("a.r.s."), in which Erlich makes his postings, is readily available for access on Netcom's system. When one logs into Netcom's computer, it is possible to look at Erlich's or others' postings on a.r.s, and also to download them or print them off. An example of such a print-off is attached as Exhibit B to the Declaration of Lynn R. Farny. Furthermore, the same is true of Klemesrud's system. Logging into that system, even as a guest, one can obtain access to a.r.s. and can download or print any postings from the BBS, which would include infringements when they are there. (Farny Dec., 1 4.) The print-off of Erlich's February 26, 1995 infringing posting, filed with the contempt motion is an example of infringing materials maintained on disk by Netcom and accessed by a subscriber. Thus, defendants' equipment is itself generating and storing the unauthorized, infringing copies to service their paying customers, and they, too, are primary infringers of hundreds of pages of plaintiffs' copyrighted published and unpublished, Defendants' ability and obligation to deal with the problem were also downplayed to the Court, when actually they could have dealt with it quite simply by warnings to the specific user--Erlich--who has been committing the violations, followed by cancellation of his service if he refused to comply. Klemesrud's direct ability to deal with his subscriber, Erlich, is obvious, and can be seen through the admissions in the declaration which he filed./2/ Netcom's ability to ---------- /2/ Klemesrud made a number of significant admissions in his declaration: (1) P 18: "I can of course delete a subscriber from my subscription list, which has the effect of preventing access by the person . . ."; (2) P 19: "I restrict access to the Alt. news groups, and files submitted by BBS users, to those over 18 years of age . . ."; (3) P 21: "I have made it a point to not maintain news groups on certain subjects such as explicit sex groups, hate groups, and other groups whose presence I believe to be detrimental to the operation of a first class bulletin board."; (4) P 28: he knows Dennis Erlich "to be a subscriber to my system and a frequent user of the bulletin board"; (5) P 33: "I expect my subscribers to act as responsible men and women . . ."; (6) P 33: "I have, on occasion, suggested that certain subscribers whose remarks I found offensive, distasteful, and inappropriate, to take their accounts elsewhere." ---------- deal with the problem with its subscriber--Klemesrud--or even to work out methods of dealing directly with Erlich also exists. Furthermore, Netcom's and Klemesrud's own usage conditions, to which their subscribers are required to adhere, prohibit subscribers from engaging in copyright infringement, and prescribe discipline such as suspension and disconnection of accounts for violations of their rules. These rules are a written embodiment of the formerly unwritten usage rules of the Internet, known as 'Netiquette.' Klemesrud had these rights with respect to the infringements initiated by Erlich, and Netcom had these rights with respect to Klemesrud's forwarding of Erlich's infringements to Netcom's system. They refused to take any action, being unwilling even to issue warnings not to engage in the infringing postings./3/ By their refusal ---------- /3/ While Klemesrud's initial response to plaintiffs' attorney (in Exhibit D to Declaration of Helena K. Kobrin 2/7/95) appeared on the surface to offer to deal with the problem, analysis of what was offered shows that the offer of action was cosmetic only and had no possibility of eliminating the problem. Klemesrud said he would consider deleting materials (from his BBS only, but not from the newsgroup generally) if he was sent a copy of the materials to compare to the posting. At the same time, he said the material was only on his BBS for three days, and insisted that copies be mailed to him. Ms. Kobrin pointed out in her response that the materials in question were trade secrets and could not be furnished to him; that he was not addressing the larger issue of the infringing postings being passed into the newsgroups; and that by insisting that materials be mailed to him, even his offer to delete them from his BBS was insincere, since by the time they were gotten to him by mail, the three days he kept them on his disk would have passed anyway. (See e-mail messages between Helena Kobrin and Tom Klemesrud, dated December 31, 1994 and January 1, 1995 in Exhibit E to Kobrin Dec.) ---------- coupled with their actual copying of Erlich's infringements onto their own disks to make them available for paying subscriber access over extended periods, they have embroiled themselves in this matter, and should be preliminarily enjoined from continuing their activities. In addition, as Erlich has, on February 26, 1995, violated he TRO issued against him, and demonstrated that he did not give up in the seizure all copies of the infringing works, the question of exerting control over Erlich's postings is very much alive and was not mooted by the seizure and TRO, as Netcom contended in its opposition to the original injunction application. An injunction would not require Klemesrud and Netcom to make decisions of what is infringement or what is fair use. They have been informed that Erlich is a repeat violator of plaintiffs' copyrights. He is under a TRO which he has already violated. They have the means to isolate his usage and terminate his access. It is their obligation to figure out what means they wish to use and to do so pending the outcome of this litigation. Defendants' copying of plaintiffs' copyrighted literary works violates federal copyright law, and the unauthorized disclosure of the contents of the unpublished works violates RTC's rights under California trade secrets laws as well. Absent the issuance of the injunction and impoundment orders requested, Erlich will continue his unlawful actions and Klemesrud's and Netcom's unlawful copying will also continue. Plaintiffs accordingly request issuance of the ex parte order to show cause re: preliminary injunction mandated under these circumstances by Rules 64 and 65 of the Federal Rules of Civil Procedure./4/ ---------- /4/ In support of their application, plaintiffs rely on the declarations of Thomas M. Small, Warren McShane, Marilyn Pisani and Helena K. Kobrin previously submitted with the Ex Parte Application for TRO, and on the declarations of Dr. Kenneth R. Castleman, Dr. Alfonso F. Cardenas, David Elrod, Andrew H. Wilson, Helena K. Kobrin, and Lynn R. Farny submitted herewith. ---------- II. FACTUAL STATEMENT A. Plaintiffs Have Demonstrated Their Exclusive Rights To Reproduce And Publish The Materials That Are The Subject Of This Application In the TRO applications and the accompanying declarations of Warren McShane and Marilyn Pisani, plaintiffs have provided the information showing their exclusive rights to reproduce and publish the materials which are the subject of the complaint. That discussion is incorporated herein, and will not be repeated. One matter related to the trade secrets status of the Advanced Technology requires clarification, however, in response to Netcom's citation, in footnote 4 of its preliminary injunction opposition, to Religious Technology Center v. Wollersheim, 796 F.2d 1076 (9th Cir. 1986), cert. denied, 479 U.S. 1103 (1987). Relying on that case, Netcom claimed that the materials in Exhibit B to the complaint had been ruled not to constitute trade secrets. However, the Ninth Circuit's ruling in Wollersheim did not so hold, as clarified later in Religious Technology Center v. Scott, 869 F.2d 1306, 1309-10 (9th Cir. 1989) ("RTC v. Scott"). There, the Ninth Circuit ruled that the Advanced Technology could be protectable as trade secrets, as long as RTC proved that there was economic advantage in keeping the materials secret. Id. Applying that decision and analyzing all of the required trade secrets factors, including economic advantage to RTC, the Southern District of California held in 1 993 that the Advanced Technology materials are trade secrets under Cal.Civ.Code SS 3426. 1, et seq. and granted summary judgment accordingly, including damages and a permanent injunction. See Bridge Publications Inc. v. Vien, 827 F.Supp. 629, 633 (S.D.Cal. 1993), and cases cited therein. Thus, the right of plaintiff RTC to protect these materials against unauthorized disclosure under California law is clear. B. Defendants Are Engaging In Unlawful Copying And Publishing Of Plaintiffs' Literary Work As detailed in the declarations of plaintiffs' witnesses and the application for TRO, defendant Erlich has engaged in the repeated unlawful copying of the protected works onto the Internet through postings on a newsgroup, or public discussion group, known as 'alt.religion.scientology" ("a.r.s.")/5/ Even though Erlich has ---------- /5/ The list of Erlich's known infringements prior to filing of the complaint and plaintiffs' steps to obtain his voluntary cessation of infringing postings are detailed in the TRO application and accompanying declarations and are incorporated here. ---------- been subject to a TRO, and now an Amended TRO, with regard to his postings, he has continued to violate plaintiffs' rights and the Court's order. On Sunday, February 26, 1995, Erlich posted to a.r.s. the first item in Exhibit B to the complaint--the Class VIII 'Assists' tape--as to which he is specifically restrained by the terms of both the original and amended TROs. Erlich's postings are made through a bulletin board service ('BBS") maintained by Klemesrud, who accesses the Internet via Netcom's system, to which Klemesrud is a subscriber. They include both published literary works and unpublished confidential works of L. Ron Hubbard, as listed in Exhibits A and B of the complaint. Klemesrud and Netcom provide the gateway through which Erlich's Internet access is achieved, but their participation in Erlich's infringements is not limited to the passive carrier functions they would have the Court believe. When Erlich accesses Klemesrud's BBS, the functions Erlich is performing ar either saved directly to Klemesrud's computer, or saved on Erlich's computer and the information then sent by him to Klemesrud's computer, which in turn makes a copy of it. In the former situation, each time that Erlich presses a key on his keyboard or downloads a file, that character or file is written onto Klemesrud's computer, not Erlich's. (Castleman Dec., 11 8-10.) Thus, Erlich's infringing postings may be generated directly on Klemesrud's computer. When Erlich posts a message to a Usenet newsgroup such as alt.religion.scientology, he prepares it on his personal computer or the BBS computer, and labels it for transfer to the Netcom computer. At the next preestablished time for transfer, Klemesrud sends it on to the Netcom computer. His action is analogous to that of the bulletin board operator enjoined in Sega Enterprises Ltd. v. MAPHIA, 857 F.Supp. 679, 683-684 (N.D.Cal. 1994), who stored unauthorized copies of Sega games on his BBS, which were uploaded and downloaded by his users. The Erlich messages which travel to Netcom via Klemesrud's BBS are stored on disk by Netcom's computer after they are received. The message headers are examined by Netcom's computer and routed on individually to their destinations. (Castleman Dec., 11 22-27.) Once they are so routed, Netcom's host computer also directs a copy of that message to itself, or to a "news server" machine which is maintained at that site, where it receives and stores a copy on disk. That message remains on Netcom's disk for several weeks before it is deleted to make more room for new messages. Netcom actually advertises that "several weeks' worth of messages from "nearly 8000' newsgroups are stored for customer access on the disk in the Netcom host. This feature of their services, namely access to these newsgroups, is promoted in Netcom's advertising as 'among our more popular services.' (Castleman Dec., 11 25, 28, and Ex. A, at 4.) After it goes through Netcom to Usenet, the message also comes back to Klemesrud's BBS, when the BBS picks up the new postings from Usenet, and stays on the BBS for up to 72 hours. (Castleman Dec., 1 15; Klemesrud Dec., 1 23.)/6/ ---------- /6/ References to Klemesrud Dec. are to his declaration filed at the January 21,' 1995 hearing. References to the Francis Dec. are to the Declaration of Rick Francis filed with Netcom's opposition to the preliminary injunction. ---------- By maintaining these functions of their computers, Netcom and Klemesrud are actively copying data, and in the case of Klemesrud's BBS, may be creating the data on its disk. Thus, when Erlich posts his infringing messages, Klemesrud and Netcom are active participants as copiers. Until the filing of the complaint, those postings known to plaintiffs consisted of 1 54 pages of copyrighted materials. The seizure revealed a total of over 200 instances of infringements by Erlich, of which 90 went through Klemesrud's and Netcom's systems, and were also stored in those systems for up to three days and several weeks respectively. And the February 26, 1995 eight-page posting by Erlich of the Class VIII 'Assists" tape is another infringement of an unpublished, confidential work of the same ilk in violation of the TRO, and also was stored in Netcom's and Klemesrud's computers, as shown by the print-off of that document filed with the contempt motion. In fact, when Erlich's TRO violation was brought to the attention of Klemesrud's attorney, he responded by informing plaintiff's counsel that Klemesrud had removed the violation from his BBS, thereby again admitting that he has been holding Erlich's copyright infringements on his computer for his subscribers to access. (Wilson Dec., 1 3.) Plaintiffs' notifications to defendants and their fruitless efforts to obtain voluntary cooperation in eliminating Erlich's infringements are detailed in the TRO application and supporting declarations and exhibits, as are the details of how all copies of the Advanced Technology possessed by Erlich are unauthorized and the fruit of theft or misappropriation. Those discussions are incorporated herein. Defendants Klemesrud and Netcom were unwilling to take any responsibility for dealing with the Erlich problem when their help could have been provided to solve the one situation. Now that they have been included in this lawsuit as a result of their unwillingness to apply Netiquette to this situation,/7/ they insist that plaintiffs request ---------- /7/ Netcom has taken action to remove individuals from accessing the Internet on other occasions, such as the much-publicized Canter and Siegel case where two attorneys advertised on the Internet and generated a flood of return mail, overloading the systems through which it came. In another case, the media reported that Netcom disconnected the Christy Knife Co. of Fremont, Ohio for engaging in prohibited commercial use of the Internet by advertising its merchandise. This action cut off access of the company and its employees. (Elrod Declaration, 1 13.) ---------- relief which would cripple their ability to function. The amended language of the proposed OSC shows that the relief requested by way of injunction is narrowly tailored and deals with the situation at hand and any other known situations of which defendants are warned. Thus, it is narrowly focused and easy to implement, as discussed below. It does not require Klemesrud and Netcom to make determinations of what is fair use or what is an infringement. Systems operators often act on complaint& of various sorts of violations to enforce the usage rules and not make their systems a party to unethical use. (See Castleman Dec. I 1 32-33; Cardenas Dec., I 6-10, 16, 18-20; Elrod Dec., 11 9-12.) C. Defendants Could and Should Easily Take Action To Prevent Erlich's Violations Without Overburdening Their Systems In opposing issuance of a preliminary injunction, Klemesrud interposed arguments about being unable to prevent Erlich from logging on under an assumed name, and claimed that he did not verify the identity of his users, but he never claimed that he was unable to stop Erlich's postings. In fact, his declaration admits that he: (1) knows that Erlich is a subscriber to his BBS; (2) is able to delete individuals from using his system; (3) has excluded hate groups and other objectionable groups from his system; (4) has asked posters of 'offensive, distasteful, and inappropriate' remarks 'to take their accounts elsewhere'; and (5) would delete materials posted by Erlich if they are "wholesale copying of religious texts in order to deprive the Church of Scientology of income. " Klemesrud's system easily permits him to take such actions as more fully detailed in the declaration of Kenneth R. Castleman, at paragraphs 29-32. The available options include removing the person from the system, limiting his access so he cannot access Usenet newsgroups, denying posting privileges, eliminating a newsgroup which has too many unlawful postings, and acting upon complaints of property owners whose rights are being infringed by his subscriber. Yet Klemesrud has done none of the things which he claims he is able and willing to do. As a matter of Internet "Netiquette," it is entirely appropriate for Klemesrud, as the systems operator ('sysop') of a BBS, to take action against a copyright infringer on his system. In practice, sysops of BBSes do so when necessary to prevent copyright infringement, defamation, pornography, or other actions on their systems which are illegal or tortious. (Castleman Dec., 11 32-33, Elrod Dec., 11 9-1 1; Cardenas Dec. I 10.) The 'Rules and Regulations of Los Angeles Valley College BBS'--the BBS run by Klemesrud--require no less. His rules prohibit 'Personal attacks, harassment, threats, racial slurs/comments, lewd messages etc.," as well as uploading of "bombs, viruses, etc." or 'copyrighted/pirated software," which are described as federal offenses. One remedy listed for violations is "dismissal of the perpetrator from the board.' (Ex. B to Castleman Dec., Rules and Regulations of Los Angeles Valley College BBS No. 1 and 2.) Another rule is that "Message writing privileges to public forums will only be allowed after a donation is received, and the Sysop is satisfied that the User will not break these rules, and/or all applicable laws.' (Id., P 12 (emphasis supplied.)) By his own rules, Mr. Klemesrud should be removing Mr. Erlich from his BBS, as Mr. Erlich is both violating the BBS's rules and causing it to violate the rules of its access providers, thereby jeopardizing Los Angeles Valley College BBS, Netcom and the entire BBS community. If he did not want to remove him entirely, he could remove his message writing privileges, leaving him with the ability to use other BBS services. (Castleman Dec., P 32-33.) Where a user engages in unlawful postings, his immediate service provider is obligated by Netiquette to deal with his violations, first by warnings and ultimately denial of access, if nothing else works. Furthermore, where the immediate provider will not deal with the problem, then the next provider up the line takes on the obligation of doing so. (Castleman Dec., 91 34-36.) Thus, if Klemesrud refuses, Netcom should take action itself. As discussed in footnote 6, Netcom has removed users in the past for abuse of the Internet through its system. There is no less reason to do so here. And doing so would be consistent with Netcom's own Terms and Conditions for usage of its system. In paragraph 2.2 of the Terms and Conditions, Netcom prohibits posting of copyrighted materials or distribution of such materials to others. Paragraph 7.3 of the Terms & Conditions provides that it is unethical and possibly criminal to violate 'any of the NETCOM conditions of use." It further states that users are expected to report violations, which will be investigated and the "account in question" may be suspended in the interim "to prevent further possible unauthorized activity," with either cancellation of the account or criminal prosecution of violators where applicable. The means of taking action is simple. Netcom's equipment runs the UNIX operating systems software. The programs available on that software for handling USENET messages can easily be programmed to identify individual users. (Castleman Dec., 11 35-36.) Any site running the UNIX operating system software on its computer, whether Netcom or another of the millions of UNIX systems in existence, can obtain and modify for its own needs, and use it to handle the mail passing through its system in any way desired. For example, one simple modification would be to have the software compare the To: and/or From: addresses of each message against a stored list of blocked sources and destinations and delete any message that produced a match. This would likely take only a few microseconds per message. Other possibilities exist by virtue of the protocols which Netcom's equipment is set up to use, per its own literature. (Castleman Dec., 11 39-43.) The critical point is that various different uncomplicated means exist for monitoring an infringer of whom defendants have been informed. Such a system could easily be used to identify Erlich and block his postings altogether, as properly warranted by his threats to ignore any court orders, and his subsequent February 26 posting in clear violation of the original and amended TROS. D. Absent An Injunction, There Is A Strong Likelihood That Defendants Will Continue To Make And Publish Unauthorized Copies Of The Copyrighted Materials Erlich has shown his total disregard for plaintiffs' rights, and also has shown contempt for the power of the court in his statement that: "No local government or court in the U.S. has the power to tell me otherwise' and his violation of the TRO. This shows that defendant Erlich is likely to continue his infringing conduct unless effectively restrained by this Court. The failure of Klemesrud and Netcom to prevent Erlich's access to the Internet and their resultant infringing copying are components of the continuing infringement, and they also should be restrained by this Court. III. DEFENDANTS NETCOM AND KLEMESRUD CAN BE FOUND LIABLE FOR COPYRIGHT INFRINGEMENT Only two elements must be proven in a copyright infringement action: ownership of a valid copyright and copying of the copyrighted work. Data East USA, Inc. v. Epyx. Inc., 862 F.2d 204, 206 (9th Cir. 1988); Baxter v. MCA, Inc., 812 F.2d 421, 423 (9th Cir. 1987), cert. denied, 484 U.S. 954, 108 S.Ct. 346 (1987); M. Nimmer, 3 Nimmer on Copyright S 13.01. The TRO application explains the rights of the copyright owner to full protection under 17 U.S.C. S 201 (d) and plaintiffs' rights as exclusive licensees to assert those rights. It also details the proper registration of the works on which suit was brought. No one, including defendant Erlich himself, has disputed that Erlich made infringing copies. Defendants' position is that they did nothing but passively provide the line on which the infringements passed. As discussed above, this is not accurate. As discussed below, Klemesrud's and Netcom's direct and contributory infringement is remediable. A. Defendants Are Guilty Of Direct Infringement Defendants Klemesrud and Erlich engaged in actual copying of the copyrighted works. They duplicated all or substantial portions of numerous works onto disks in their computers where the data was stored for periods of time ranging from a few minutes to several weeks, thereby making them accessible to millions of Internet subscribers who could become additional copiers. The briefer time periods are those in which the infringing postings were on Klemesrud's or Netcom's disks to facilitate transmission to the Internet (or in Klemesrud's case, to Netcom for retransmission to the Internet). (See, Castleman Dec., 1 22, 27.) The longer time period is the time in which the alt.religion.scientology newsgroup containing the unauthorized copies remains resident on disks in Netcom's or Klemesrud's systems for several weeks (Netcom), or up to three days (Klemesrud). (See, Castleman Dec., 24, 28; Klemesrud Dec., 1 26.) The conduct of defendants is wholesale and willful copying of copyrighted materials subject to the special remedies of 17 U.S.C. S 504(c)(2). Netcom admitted in its opposition to the preliminary injunction at page 1 1, that: two federal courts have found that a BBS may be liable for direct copyright infringement, if it stores copyrighted material on its database and allows subscribers to download and copy the material without the permission of the copyright owner. Sega Enterprises Ltd. v. MAPHIA, 857 F.Supp. 679 (N.D.Cal. 1994); Playboy Enterprises, Inc. v. Frena, 839 F.Supp. 1552 (M.D.Fla. 1993).This is precisely what Klemesrud is doing and what Netcom is doing as well. By continuing to make infringing copies of literary works for which United States copyright protection exists, defendants have engaged in undeniable infringement of plaintiffs' rights as exclusive licensees of the copyrights, in violation of the Copyright Act, 17 U.S.C. S 101, et seq. B. Defendants Are Guilty Of Contributory Infringement Under the Copyright Act, a party may be vicariously liable for the infringing act of another '[w]hen the right and ability to supervise coalesce with an obvious and direct financial interest in the exploitation of copyrighted materials.' 3 Nimmer, Nimmer on Copyright, S 12.04[A][1], p. 12-67 (1994) (quoting Shapiro, Bernstein & Co. v. H.L. Green Co., 316 F.2d 304, 307 (2d Cir. 1963)). The cases which have been decided under this doctrine have one major tenet in common: where the actor has the right and ability to supervise the infringers' activities, then vicarious liability can be found. See, e.g, Shapiro, supra, 316 F.2d at 307 (landlord liable for sales of infringing works on his premises); Donaldson, Douglas & Gumble, Inc. v. Terris, 37 U.S.P.Q. 39 (W.D. Pa. 1938) (owner of orchestra hall vicariously liable for infringement by orchestra despite not paying orchestra and notwithstanding contract granting orchestra exclusive right to choose music); Famous Music Corp. v. Bay State Harness Horse Racing & Breeding Assoc, Inc., 554 F.2d 1213 (1st Cir. 1977). In Sega Enterprises Ltd. v. MAPHIA, 857 F.Supp. 679 (N.D. Cal. 1994), the defendants ran a computer bulletin board on which were posted unauthorized copies of copyrighted video game software owned by Sega. The court's decision arose from a motion for preliminary injunction filed by Sega. The defendants encouraged users of their bulletin board to upload Sega video games so that other users could download them for their own personal use. Those that uploaded games were provided with free downloading privileges or other software; those that wished to download games or other programs could 'pay' for this privilege by purchasing other goods (such as software used to translate the downloaded games) or services (such as the provision of credit card numbers). The court found first that Sega owned valid copyrights in the games which had been copied (Sega, p. 686), and the court stated that "[o]ne who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another,' may be held liable as a contributory infringer.' (Sega, at 686 (quoting Casella v. Morris, 820 F.2d 362, 365 (11th Cir. 1987); Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1 1 59, 1162 (2d Cir. 1971). Further, '[e]ven if Defendants do not know exactly when games will be uploaded to or downloaded from the MAPHIA bulletin board, their role in the copying, including provision of facilities, direction, knowledge and encouragement, amounts to contributory copyright infringement.' ($M, p. 686-687; citing Playboy Enterprises, supra.) Based on the foregoing, the court found that Sega was likely to succeed on the merits of its case. In this case, it is apparent that both Netcom and Klemesrud have a significant financial interest in their respective services being used by their subscribers. They also provide facilities through which the uploading and downloading of the infringing materials occurs, and direction for Erlich's use of those facilities and they have the right and ability to supervise those who subscribe to their services. These result from their subscription contracts and from Netiquette. Furthermore, it is clear that both Netcom and Klemesrud have been informed of the infringing activities which have taken place on the respective facilities which they provide. (First Amended Complaint, 1 36.) Their unwillingness to take action against Erlich's infringing postings after they have been so informed acts as an encouragement to him to continue his illicit activities. They therefore have knowledge of the activities and have made the conscious decision not to exercise their rights to prevent further infringements in the future. Based on the foregoing, both defendants have met the standards necessary to be found liable for contributory infringement. Netcom has premised its defense to this action on the ground that it is a "massive transmitter of electronic information" and that "public policy" does not countenance finding such providers liable for copyright infringement. By its own definition, however, Netcom is not such a "passive transmitter." Specifically, Netcom has stated: "Passive transmitters have no knowledge or control of the content of communications that pass over their access lines.' (Netcom's Memorandum in Opposition to Request for Injunctive Relief, p. 7:19-21.) This statement is belied by the facts of this case. Netcom has been aware since December 1994 that Erlich has been using its facilities to transmit protected materials onto the Internet. Moreover, as stated by Dr. Castleman, it is possible to screen information flowing to Netcom from Klemesrud's BS for materials which may be infringing. (Castleman Dec., 11 40-43.) Furthermore, it is relatively simple for Netcom simply to scan incoming messages for anything originating from Erlich and to block all such messages. Finally, Netcom has he unfettered right to simply cut off Klemesrud's access to Netcom in order to prevent further dissemination of copyrighted materials in violation of Netcom's own Terms and Conditions. Unlike the telephone lines to which it wishes to analogize itself, Netcom is not regulated by the government nor is it required to provide services to anyone who requests such services. See Sarah B. Deutsch, "Superliability on the Superhighway?," The Multimedia Law Report, at 5 (November 1994) ("[telephone service] is subject to FCC regulation and telephone companies must provide the service as regulated common carriers on an equal access, non-discriminatory basis to all consumers"). Instead, Netcom is just one of many unregulated, private enterprises which provides its paying customers access to the Internet. Contrary to Netcom's assertion, it is not simply a 'passive" participant in the Internet. Its computers are programmed with considerable software which allow it to sort out the information it receives, store it in particular places, identify that which it does not wish to store, track the usage of its subscribers, etc., in addition to copying the infringing materials in the Usenet newsgroups to its own disks for all of its customers to access. Since Netcom is able to cut off a single user if that user fails to pay the prescribed subscriber fees, it similarly is capable of cutting off a user who violates the law."/8/ ---------- /8/ The argument that Erlich could move to another access provider or change his sign-on name misses the point. Plaintiffs are not asking this Court to find Netcom and Klemesrud liable for Erlich's unidentified or future acts on other services, they simply are seeking to force the defendants to cease providing the means for Erlich's infringing activities. ---------- Netcom's reliance on Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417 (1984) is misplaced. In So@n , the Supreme Court refused to find the manufacturer of video cassette recorders liable for the infringing activities of the purchasers of those tapes. Because the purchasers' use of the tapes was beyond the control of the manufacturer, however, the Supreme Court held that it would be inappropriate to find the manufacturer vicariously liable for copyright infringement. Here, however, Netcom and Klemesrud maintain complete control over the use of their facilities. They make the decisions as to who uses their computers, what resources are available on those computers, and what information is passed from their computers to others. Unlike video cassette tapes, where the tapes are used in the privacy of the user's home, here the copies are made available to millions of computers around the world. As there is no rational reason for distinguishing between the BBS operator in $M and the BBS operator and access provider here, liability should be imposed on both Klemesrud and Netcom for contributory infringement due to their knowing and continuing contribution to the infringing activities of Erlich. IV. PLAINTIFFS ARE ENTITLED TO A PRELIMINARY INJUNCTION ON ALL CAUSES OF ACTION Defendants do not dispute the availability of injunctive relief under the section 502(a) of the Copyright Act, only its availability as applied to them under the circumstances herein. In the Ninth Circuit, a party seeking preliminary injunctive relief must show: '(1) a likelihood of success on the merits and the possibility of irreparable injury or (2) the existence of serious questions going to the merits and the balance of hardships tipping in its [the copyright owner's] favor." Apple Computer, Inc. v. Formula Int'l, Inc., 725 F.2d 521, 523 (9th Cir. 1984); Beltran v. Myers , 677 F.2d 1317, 1320 (9th Cir. 1982); Aleknagik Natives, Ltd. v. Andra, 648 F.2d 496, 502 (9th Cir. 1980). The two standards actually are not separate tests but are the 'outer reaches' of a single continuum such that the greater the balance of hardships tips in favor of the moving party, the less likelihood of success on the merits need be shown. Apple Computer, Inc. v. Formula lnt'l. Inc., 562 F.Supp. 775, 783 (C.D. Cal. 1983) aff'd 725 F.2d 521 (9th Cir. 1984); Los Angeles Memorial Coliseum v. NFL, 634 F.2d 1197, 1201 (9th Cir. 1980). In fact, because the defendants here were put on notice that the infringements were occurring, and they were warned of possible litigation if they took no action, there should be no balancing of harm in this situation. Where a defendant acts with full knowledge of the plaintiff's rights and with an understanding of the consequences which might ensue, no balancing of equities is to be made. Epstein Family Partnership v. KMART Corp., 13 F.3d 762, 765 (3rd Cir. 1994); Warsaw v. Chicago Metallic Ceilings, Inc., 35 Cal.3d 564, 573; Morgan v. Veach, 59 Cal.App.2d 682, 690, 139 P.2d 976, 980 (1943); People ex rel. Younger v. F.E. Crites, Inc., 51 Cal.App.3d 961, 968, 124 Cal.Rptr. 664, 668 (1975)/9/ Not only did defendants refuse to take action after being put on notice, they also refused to enforce their own regulations. ---------- /9/ In Warsaw, the court particularly noted that the defendants had taken action in violation of the plaintiffs' rights even after the litigation was filed, putting them on notice. The court found that: '[d]efendant gambled on the outcome of the action and lost.' It therefore would be required to remove buildings at its own expense, even though it argued that it had relied on the denial of a preliminary injunction in erecting the structures. Id. at 573, 576, 199 Cal.Rptr. at 777, 780. Defendants here would therefore do well to strike a more cooperative attitude at the onset of this litigation. ---------- Here, the Court found, in denying the earlier application for preliminary injunction as to defendants Klemesrud and Netcom, that plaintiffs had 'not established a sufficient continuing threat of irreparable harm or a probability of success on the merits,' and that 'the threat of harm to those defendants and the public outweighs any further threat of harm to plaintiffs, particularly in light of the seizure order and the continuing TRO against defendant Erlich.' (Amended TRO, at 1-2.) In making these findings, however, the Court was relying on incomplete and inaccurate facts, and did not know that defendant Erlich was about to violate the TRO. As plaintiffs will demonstrate below, the threat of irreparable harm is indeed continuing, as graphically illustrated by defendant Erlich's violation of the TRO by copying an unpublished, confidential work which was one of the documents as to which seizure was ordered, and defendants' own copying of that document (and Erlich's other infringing postings) to remain captive in their systems for their customers' access. Furthermore, because: (1) the solutions which can be implemented by Klemesrud and Netcom to deal with the problem are simple, inexpensive, and not time-consuming; (2) plaintiffs have demonstrated prime facie ownership of the copyrights in question; and (3) these defendants have engaged in direct and contributory infringement, there is a probability of success on the merits, and the threat of harm to defendants and the public is minimal. In contrast, the threat of harm to plaintiffs from continual postings by the renegade Erlich is great and real. A. Plaintiffs Have Established A Likelihood Of Success On The Merits Of Each Cause Of Action Ownership of the copyrighted works has been clearly established in the TRO application and supporting declarations and exhibits and will not be separately addressed here. Because plaintiffs, as exclusive licensees, are entitled 'to all of the protection and remedies accorded the copyright owner by this title,' [17 U.S.C. S 201 (d)], they are likely to prevail at trial on the direct and contributory infringements. B. Plaintiffs Will Be Irreparably Inured If Defendant Is Not Preliminarily Enjoined As a general rule, if the holder of the copyright establishes a probability of success on the merits, a court will presume irreparable harm. Apple Computer, supra, 725 F.2d at 525. ("A showing of a reasonable likelihood of success on the merits in a copyright infringement claim raises a presumption of irreparable harm."); Wainwright Sec. v. Wall Street Transcript Co., 558 F.2d 91, 94 (2nd Cir. 1977), cert den., 434 U.S. 1014, 98 S.Ct. 730 (1978) ("[I]f probable success -- a prima facie case of copyright infringement -- can be shown, the allegations of irreparable injury need not be very detailed, because such injury can normally be presumed when a copyright is infringed."). In U-Haul International, Inc. v. Jartran, Inc., 522 F.Supp. 1238, 1255 (D.Ariz. 1981), affd, 681 F.2d 1 1 59 (9th Cir. 1982), a case under the Lanham Act involving false and deceptive advertising, the court found irreparable injury without any proof of actual injury. The Court noted: [i]njury sometimes occurs whose measure is uncertain and a threat of injury may be quite real even though the measure of threatened injury defies calculation. . . . Indeed, one reason for issuing an injunction may be that damages, being immeasurable, will not provide a remedy at law. id. at 1255-56 (quoting Treasure Valley Potato Bargaining Ass'n v. Ore-Ida Foods, Inc., 497 F.2d 203, 218 (9th Cir. 1974), Mr . denied, 419 U.S. 999, 95 S.Ct. 314 (1974)) (emphasis added). Defendant Netcom argued in its opposition to a preliminary injunction that there was no irreparable harm because Erlich's materials had been seized and his infringements were thus disabled. Any possible merit of that argument was eviscerated with Erlich's posting on February 26, 1995--post-seizure--of the Class VIII 'Assists' tape transcript, which is an unpublished work listed in Exhibit B to the complaint, of which a copy on disk was seized pursuant to the Writ of Seizure. Here, the danger of irreparable injury is even greater than in the usual case, because Erlich continued his infringements in disregard of the Court's orders. He copied not only published works available for purchase, but also unpublished works, and did so over an international computer network which potentially exposes the infringements to 25-35 million users, with the attendant risk that the works could be copied and recopied virtually without limit. Defendants Klemesrud and Netcom are themselves engaging in such copying by their storage of the postings on their computers for days. Plaintiffs have no control over copying by defendants and others, and that lack of control constitutes irreparable injury sufficient to support the issuance of a preliminary injunction. C. The Equities Weigh Heavily In Favor Of Granting The Prior Injunction In this case, all equitable considerations lie on the side of plaintiffs and weigh heavily in favor of granting a preliminary injunction. If relief is denied, plaintiffs will continue to suffer inevitable and irreparable harm, both under the law and in fact, as a result of the violation of plaintiffs' exclusive rights to publication of the copyrighted works in question, including the unpublished confidential works which are never published or sold to anyone. The events occurring in the short time since the case was filed demonstrate this to be true. If either Netcom or Klemesrud had taken the responsibility of warning Erlich and then taking him off if he refused to refrain from posting copyrighted materials, his continued infringement in violation of the TRO could never have occurred, and in fact, this suit would never have been filed against them. Even if defendants could show any harm as a result of the requested injunctive relief, such harm should not enter into the Court's consideration. Defendants were put on notice that the infringements were occurring and chose to take no action to prevent them. Therefore, no balancing of equities need be made. Epstein Family Partnership, supra, 13 F.3d 765, Morgan v. Veach, supra, 59 Cal.App.2d at 690, 139 P.2d at 980. Furthermore, it is difficult to conceive how defendants could possibly demonstrate harm where they are merely being asked to enforce their own rules and maintain appropriate Netiquette. Despite their protestations to the contrary, defendants were on notice of Erlich's specific postings, and did nothing to get him to stop. They obviously acted with notice of the copyrighted nature of the literary works, both from the copyright notices on those works in many instances and plaintiffs' letters, e-mail, and verbal communications with them. Their copying is clearly intentional and without justification. Plaintiffs are not attempting to enjoin defendants Klemesrud and Netcom generally, but only with respect to Erlich and other known infringers of whose infringements they have been notified. The scope of the proposed injunction language has been revised accordingly. The problem of other known infringers is by no means hypothetical. The First Amended Complaint describes postings of some of the copyrighted, unpublished, confidential materials listed in Exhibit B to the complaint on February 25, 1995 by an individual named Grady Ward, who is Netcom's direct subscriber. Netcom's attorney was put on notice of these postings by their subscriber. In spite of the fact that it has previously stated it would take action to deal with direct subscribers engaged in such infringements, which is consistent with its own Terms and Conditions and its prior disconnection of other abusers, it has taken a week to respond to counsel's letter, and agreed then to do something, only if provided with the copyright registrations. (Kobrin Dec. 11 2-3.) Netcom has had these registrations since it was served with the Complaint, since these postings were some of the same materials included in Exhibit B to the Complaint and, in addition, copyright protection is afforded material without being registered with the Copyright Office. A court order is needed to force these defendants to comply with the law. V. CONCLUSION Klemesrud and Netcom have far more involvement and culpability in this copyright infringement case than they led the Court to believe in their initial briefing related to the preliminary injunction. Their infringements are both contributory and direct, in light of their copying of the infringing postings into their own computers for customer access over periods of multiple days and the initial creation of Erlich's infringements on Klemesrud's computer. The Court cannot take a complacent approach to these defendants on the theory that Erlich has been restrained and his infringing materials seized, since he has actually continued his infringing postings in spite of the TRO, and his attempted apology is useless to undo the damage, even if it is sincere, which is doubtful. Erlich's means of continuing to infringe and defendants' own infringements must be stopped pending the conclusion of this litigation, so that plaintiffs' rights can be maintained as they were at the outset and not further trampled by defendants. Dated: March 6, 1995 Respectfully submitted, Andrew H. Wilson WILSON, RYAN & CAMPILONGO Thomas M. Small Janet A. Kobrin SMALL, LARKIN & KIDDE -and- Helena K. Kobrin /s/ [Helena K. Kobrin] Attorneys for Plaintiff RELIGIOUS TECHNOLOGY CENTER and BRIDGE PUBLICATIONS, INC. STATEMENT OF ISSUES The principal issue presented by this application is whether the action of defendants Klemesrud and Netcom in infringing plaintiffs' copyrights in published and unpublished, confidential religious scriptures warrant the issuance of an order to show cause why a preliminary injunction should not be issued requiring the defendants to cease and desist from infringing plaintiffs' rights under the federal copyright laws by making unauthorized reproductions of copyrighted works on the Internet network or other databases, and from violating RTC's rights under California trade secrets laws by copying unauthorized copies of confidential works of L. Ron Hubbard onto that network's database. A related issue is whether those actions entitle plaintiffs to an order impounding the infringing materials and the articles by which unauthorized copies have been reproduced.