Perfect 10 to Appeal $5.64M Judgment, CEO Says

Apr 1, 2015 12:23 PM PST

LOS ANGELES — Perfect 10, the online adult site and former men’s magazine that filed more than 30 copyright infringement lawsuits in the past decade, has been hit with a $5.64 million judgment over legal fees that could shut the company down.

But Norm Zada, Perfect 10's owner over the course of 18 years, told XBIZ this week that he plans on filing an appeal over the massive judgment with the 9th U.S. Circuit Court of Appeals.

The case centers on Perfect 10’s suit against Usenet service provider Giganews, which made claims for both indirect and direct copyright infringement.

Perfect 10 in the suit alleged that Giganews employees directly uploaded infringing images onto its network. But Giganews ultimately prevailed in the suit and asked the court to award its legal fees.

Perfect 10, which has been called by some a copyright troll, has pursued damages against large and small Internet companies, including Google, which it sued over thumbnails of images searches. In that case the 9thCircuit ruled that such searches are fair use.

Zada founded Perfect 10 as a softcore print magazine in 1997, and later integrated its content into the online world. The brand, which continues to have a presence on the Internet, stands behind a motto that says it all: "The world's most beautiful natural women."

But in the $5.64 million judgment against Perfect 10, U.S. District Judge Andre Birotte wrote that he found Zada’s behavior that was "inconsistent with that of a plaintiff interested in actually protecting its copyrights" and that in the life of the company, more than half of Perfect 10’s revenues have been generated by litigation.

“Perfect 10 has never been a self-sustaining business, and to date, has lost more
than $50 million, if not more. However, this loss appears to be largely intended by Perfect 10’s President and CEO Norman Zada, who described Perfect 10 to non-party [former employee] Rebekah Chaney as a ‘tax writeoff,’” Birotte wrote in his opinion awarding attorneys fees to Giganews.

“Because Perfect 10 is a closely held corporation, Zada testified he is able to deduct Perfect 10’s significant losses on his personal income taxes,” Birotte wrote. “In fact, Zada told Ms. Chaney that he “needed [Perfect 10] to offset money he made in the market” and “needed the loss to represent how small businesses couldn’t make money because of piracy on the Internet.

“Rather than bringing suit for the purpose of protecting its copyrights and stimulating artistic creativity, the evidence reveals that Zada’s interest in the copyrights held by his ‘tax write-off’ is solely in litigation.”

Birotte wrote in his ruling that Perfect 10 has a long, documented history of sending service providers “inadequate takedown notices under the DMCA that fail to identify specific infringing material, and then bringing suit for the service providers’ failure to respond to deficient DMCA takedown notices.”

The Los Angeles federal judge also said that in the 30 copyright infringement cases all of the revenues were generated by settlements and defaults and that Perfect 10 has never obtained a judgment in a contested proceeding.

Birotte noted that Zada admittedly purchased copyrights from other copyright holders “because [Perfect 10] thought they would be helpful in [its] litigation efforts.”

Zada, in his capacity as president and CEO, spends “eight hours a day, 365 days a year on litigation working on various court cases that Perfect 10 has going on,” Birotte said.

“Litigation expenses make up the largest share of Perfect 10’s expenses, which are on par with, if not greater than, Perfect 10’s personnel expenses,” he wrote.

When reached this week over the ruling issued a week ago, Zada said that Perfect 10 would be teetering with insolvency if the ruling is to stand — a big blow after the company has been “so ravaged by copyright infringement.”

He also denied that the Los Angeles company had actually sought to run in the deficit for a tax write-off.

Zada said that currently revenue for Perfect 10 is less than $40,000 a year and that the company has no more than $70,000 in financial assets.  He noted that he hasn’t made any money as its CEO since 2007, “so there was no income to offset losses against.”

“Perfect 10 has never sought to lose money, nor would there be any logical reason to do so,” Zada told XBIZ. “It is never helpful to lose money because the maximum write off is 50 percent of the loss.

“As a result of this award, Perfect 10 will be completely ruined,” he said.

Zada noted that the award of $5.64 million — which Giganews is currently trying to increase — is the largest award against any plaintiff that owned the allegedly infringed copyrights, and the second largest award against the Plaintiff in copyright history.   

“Furthermore, Perfect 10 is unaware of any prior award of any kind that was awarded to a defendant who had no rights to use the allegedly infringed works in question,” Zada said. “In other words, prior to this case, there has never been an award of any kind, let alone a mind numbing award of $5.64 million, to a party who uses other people’s works without permission.”

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