Perfect 10, Inc. ("Perfect 10") alleged that Google, Inc. ("Google") directly and secondarily infringed Perfect 10's copyrights in certain images of nude models. The allegations were based on the operation of Google Image Search, a search engine for images. The claim of direct infringement was based on Google Image Search's use of thumbnails of the copyrighted images. Specifically, using an automated process, Google identifies an image on a web site, captures a reduced-size and reduced-resolution copy of the image, caches the copy on its servers, presents the copy in response to user's searches and responds to a user clicking on a search result by creating a window with two frames: one which displays the search result including the reduced-size image and one which displays the web site where the full-sized version of the image is located. The allegations of secondary infringement were -two fold: (i) vicarious infringement based on the existence of and Google's failure to exercise a practical, legal right to stop or limit others from infringing Perfect 10's copyrights; and (ii) contributory infringement based on Google's distribution of a product which was not capable of a significant non-infringing use and Google's active encouragement of infringement.
The Court of Appeals concluded that Google was not responsible for displaying the full-sized images when a user clicked on a search result: the publisher of the web site which incorporated such images was. Consequently, Google did not directly infringe Perfect 10's copyrights with respect to the full-sized images.
The Court of Appeals found that Google's use of the cached copies of the images was a direct infringement, but it was also found to be a fair use partly because Google use of the copyrighted images was transformative (i.e. for a purpose other than the purpose for which Perfect 10 used the images) and of benefit to society.
The decision of the Court of Appeals is available at: http://www.cacd.uscourts.gov/CACD/RecentPubOp.nsf/