New Zealand: Online Copyright Issues – a case study - Roadshow Films v iiNet Limited

Last Updated: 5 December 2012

How safe is it for users to download online copyright content?

Source: This article was first published in NZ Lawyer, May 2012 edition.

The much anticipated High Court of Australia judgment in Roadshow Films v iiNet Limited has finally issued. Claire Deeks of James & Wells Intellectual Property discusses the case and considers the likely consequences of the decision in New Zealand

In the end, the Court dismissed Roadshow's appeal holding the Internet service provider, iiNet, not liable for authorising the copyright infringements of its customers. The decision in Roadshow Films v iiNet Limited [2012] HCA 16 has inevitably been heralded in most quarters as a huge victory for the ISP industry and for Internet freedom generally. But is this the case?

In the short-term, the decision clearly strengthens the position of the ISP industry in Australia (and, to a large degree, the industry here) in its negotiations with the content industry in respect of any voluntary industry-based agreement to counter online copyright infringement.

However, arguably, the real impact of the decision is that it exposes the failure of copyright law to keep pace with the online environment and highlights the need for governments to enact new legislation to deal with rampant copyright infringement. In this respect, the long-term impact of the iiNet decision may well prove a temporal victory for ISPs.

What was the iiNet case all about?
Proceedings were filed against iiNet in November 2008 by a group of Hollywood film studios (including Village Roadshow, Universal Pictures, Warner Bros, Paramount Pictures, Sony Pictures Entertainment, 20th Century Fox, and Disney), as well as the Seven Network. They argued that by not acting to prevent illegal file sharing on its network, iiNet was essentially 'authorising' the activity and was therefore liable for copyright infringement.

The studios' representative, the Australian Federation Against Copyright Theft (AFACT), had conducted investigations into copyright infringement. Not surprisingly, AFACT had found evidence of a large number of Australian Internet users downloading copyright content belonging to the studios using a peer-to-peer protocol known as BitTorrent.

There was no question that the downloading by iiNet customers of the various films owned by the plaintiffs constituted an infringement of copyright. However, practical considerations meant that it was not feasible to pursue copyright infringement actions against these individuals – hence the desire to place responsibility for the infringements on iiNet.

Over a period of several months in 2008, AFACT sent notices to iiNet, attaching information demonstrating that iiNet users were using BitTorrent to infringe the studios' copyright and demanding that iiNet prevent its customers from infringing the studios' copyright by warning, suspending, or terminating their Internet services. iiNet did not take any such action, stating that, while it did not endorse or approve of the copyright infringements, it would not act on the basis of allegations alone.

After an eight-week Federal Court trial in 2009, the Judge found in February 2010 that iiNet was not liable for the downloading carried out by its customers. The studios appealed the decision, but lost in a judgment of the Full Federal Court handed down in February 2011 after two of the three appeal judges sided with iiNet. The studios then appealed to the High Court, which heard the case late last year, and which delivered its unanimous decision in two separate judgments on 20 April 2012.

Authorisation – what did the Australian High Court decide and why?
Both High Court judgments focused on the factors set out in section 101(1A) of Australia's Copyright Act 1968 (Cth). These are a set of non-exhaustive factors to be considered when determining whether authorisation liability has arisen. To paraphrase, the factors are:

  1. the extent (if any) of the person's power to prevent the infringing act;
  2. the nature of the relationship between the person and the primary infringer; and
  3. whether the person took any other reasonable steps to prevent or avoid the infringing act.

Chief Justice French and Justices Crennan and Kiefel held that the crux of the matter was to determine whether an inference of authorisation arose from the answers to these factual questions.

On the first two questions, the High Court appears to have found that iiNet did not possess the requisite control/ability to prevent infringement, primarily because iiNet had no direct power to prevent its customers from using the BitTorrent system. (The Court held that its only power was indirect: that is, under its customer agreement, iiNet could terminate accounts if the Internet service had been used to infringe another person's rights or for illegal purposes).

In addition, the Court considered relevant to the question of control, the fact that, even if the ISP had exercised its power to terminate user accounts, a customer could move to another service provider with relative ease and continue infringing copyright. Related to this point, the Court also appeared to question the efficacy of the notices even assuming iiNet had sent them out (and mentioned the lack of any evidence on the likely behaviours of users in response to such notices).

Turning to the reasonableness requirement, the Court was critical of the fact that AFACT's notices to iiNet did not fully disclose its methodology in detecting infringements. The Court noted that reliance on these incomplete notices must be balanced against the legal risk iiNet would bear if it wrongfully terminated a customer's Internet service. Taking into consideration all of these circumstances, the Court held that it was not unreasonable for iiNet not to have acted on AFACT's allegations.

On the basis of these findings, the High Court found that iiNet did not authorise the copyright infringements of its users and, accordingly, the appeal was dismissed.

While the decision is a win for iiNet, the High Court emphasised that the test for authorisation is largely a question of fact, and left open the possibility that an ISP could be held liable for the copyright-infringing activities of its customers in other circumstances. The Judges clearly indicated that they considered the way forward was for legislative change, noting that the existing doctrine of authorisation liability is "not readily suited to enforcing the rights of copyright owners in respect of widespread infringements occasioned by peer-to-peer file sharing" (per Chief Justice French and Justices Crennan and Kiefel at [79]).

How might the authorisation question be dealt with in New Zealand?
We have our own landmark case focused on intermediary liability pending – Megaupload. Of course, that is a criminal prosecution, whereas iiNet concerned allegations of civil infringement. Notwithstanding this, at the heart of the Megaupload allegations is the same copyright question – does an online provider have responsibility for the actions of its customers and, if so, to what extent, and what steps are reasonable for it to take in respect of copyright infringement by those customers?

Outside of Megaupload, there have only been a few cases that have dealt with authorisation in relation to copyright infringement in New Zealand, and our Courts have not yet had to consider the liability of an ISP for the peer-to-peer activity of its customers. (The cases that have dealt with the question of authorisation include: Fibreglass Technologies Limited v Fibreglass Solutions Limited & Ors (High Court, Auckland M1727-SW99, 30 May 2002, Justice Morris); Heinz Wattie's Ltd v Spantech Pty Limited (2006) 8 NZBLC 101,679 (CA); and Australian Performing Right Association Limited v Koolman [1969] NZLR 273.)

That said, a New Zealand Court should have little difficulty in finding that customers who are sharing unauthorised files of films over the Internet using peer-to-peer programs are doing one or more of the restricted acts as set out in our Copyright Act 1994 (Act). Activities of peer-to-peer users that may constitute primary infringement include copying, storing (including temporarily copying or 'caching'), adapting, communicating (making available/transmitting), and/or issuing to the public infringing copies of a film (or a substantial part of it) without the authorisation of the copyright owner. Users may also be liable for secondary infringement by virtue of importation, distribution, and/or communication of an infringing copy of a film (or substantial part of it). There is no specific provision which refers to authorising as a separate category of infringement. It arises from section 29 of the Act (which makes it an infringement to do any restricted act in respect of a work without the licence of the copyright owner) and section 16(1)(i) (which gives the copyright owner the exclusive right to authorise another party to do any of the other restricted acts set out in that section).

This is particularly so with the recent amendments to the Act to broaden the concept of communication of a work, and the inclusion of a new section making it an infringement of copyright to make a work available to the public (section 33 of the Act).

However, as in Australia, the key will be whether an ISP can be found liable for 'authorising' any of its customer's acts and whether, if so, liability for any such authorisation is avoided by operation of the Act's new 'safe harbours' and section 92B in particular.

In New Zealand legislation, there is no clear direction as to what will or will not amount to authorisation in the peer-to-peer file-sharing context. However, having reviewed the Act and relevant case law both in New Zealand and overseas, the following principles can be extracted, whereupon an ISP arguably ought to be found liable for authorisation for the activities of its customers (notwithstanding section 92B):

  1. When the ISP has control over the primary infringer to the extent that it would have been able to prevent infringement (such as by suspending, restricting, disconnecting, or terminating a user's service);
  2. When the ISP has actual or constructive knowledge of the alleged infringement (and in this case, an appropriate notice provided to an ISP should be taken as putting that ISP on notice);
  3. When a reasonable person would conclude that the ISP sanctions, approves, or countenances the infringement;
  4. Where the nature of any relationship existing between the ISP and the file sharers leads to a finding of authorisation – financial reward for the ISP based on the users' activities is a significant factor;
  5. When the ISP takes no reasonable steps to prevent or avoid the doing of the act (including non-compliance with any relevant industry codes of practice).

Obviously, the findings of the Court in the iiNet case will also need to be addressed – particularly insofar as they relate to an ISP's ability to 'control' the infringing activity and whether the refined notion of control ('direct' vs 'indirect') is appropriate.

While the iiNet decision is not binding on a New Zealand Court, given the similarity between the relevant sections of the Australian and New Zealand Acts, the legislative intent behind our Act, and a desire to more closely align our laws with those of our trading partners, the case will be highly persuasive.

Should ISPs play a role in policing the Internet?
This is a question often posed and answered emphatically in the negative by dozens of Internet bloggers and the hundreds of comments posted on any newspaper article discussing the same. However, the reality is that, to a significant degree, ISPs already play a role in policing the Internet and, furthermore, whether by government mandate or voluntary agreement, ISPs are being made responsible to greater or lesser degrees for infringement occuring over their networks.

For example, in New Zealand, the Department of Internal Affairs, in partnership with ISPs, has negotiated the operation of the Digital Child Exploitation Filtering System (DCEFS) to prohibit customers from accessing illegal websites inadvertently or otherwise. (Now operating successfully for several years, the DCEFS arguably works because of the nature of the material which is being blocked, and a perception by ISPs that they have a moral obligation to block access to objectionable content. Unfortunately, it is proving to be much harder for a rights holder to convince ISPs they should consider piracy to be equally damaging on a moral basis. And, of course, the general public, while evidently having no qualms with ISP intervention in relation to child porn, is not so generous when it comes to interference with their access to free music and movies.)

Worldwide, there is a move to place responsibility for infringement occurring over networks with ISPs. Governments are looking for solutions to copyright infringement in an increasing number of countries and the need for better ISP cooperation is becoming more widely accepted. The solutions adopted or under consideration include legislation, government-sponsored negotiations, codes of practice, cross-industry agreements, and court-ordered remedies arising out of litigation (IFPI Update February 2012: For example, ISPs in Chile, United States, France, New Zealand, Hong Kong, Taiwan, Spain, South Korea, and Ireland have implemented a gradual response program under either statutory or voluntary schemes. ISPs in Austria, Belgium, Finland, Italy, Malaysia, Netherlands, and the United Kingdom have been ordered by their national courts to block access to certain websites – such as The Pirate Bay).

New Zealand is no exception to this general movement, as it is one of the founding countries in the new ACTA (Anti-Counterfeiting Trade Agreement), and has recently enacted new legislation entailing a graduated response system (or what has been termed the 'three strikes legislation'). We are also part of the Trans-Pacific Partnership Agreement negotiations and are under pressure to accede to so-called 'stronger' intellectual property laws, including repeat infringer Internet termination and a strengthened graduated response system.

Indeed, two of the main policy considerations behind recent amendments to our copyright legislation were stated to be provision of greater certainty of legal liabilities and the establishment of practical means for enforcement of copyright rights, with ISPs explicitly identified as crucial players in any such policy change. (The Ministry of Economic Development Working Paper, Internet Service Provider Liability, 20 October 2005 states (emphasis added): "Firstly, any provisions dealing with ISP liability should ideally provide users, owners and ISPs with some degree of certainty about their position; Secondly, as New Zealand is a geographically isolated country, the Internet offers significant opportunities for accessing information in a timely and cost efficient manner. Imposing unduly heavy liability on ISPs may affect investment and Internet service provision and lead to limited services and choice for consumers. Thirdly, while it is important for New Zealanders to have access to these services, it is also important that both domestic and international copyright owners have confidence in the protection afforded to them by a copyright regime. They must have some avenues to enforce their rights. To this end, ISPs are often easier to identify than the individual who will post or send infringing material and they provide a convenient point at which to block that material.")

Even in iiNet, the Judges recognised that there was an important rationale for having secondary liability for the authorisation of copyright – namely time and cost efficiencies.

Consequences of iiNet
In the short-term, the case will influence discussions taking place in Australia and elsewhere on whether and how to implement copyright graduated response systems (of which New Zealand's infringing file-sharing regime is an example: see section 122A of the Act), and Australian discussions on extension of its safe harbour regime.

The ISP industry's bargaining position in its negotiations with the copyright content industry will have been strengthened, and this will no doubt affect the extent of the obligations placed on ISPs and the sharing of costs in respect of any voluntary industry-based response in both countries.

However, further, and arguably more importantly, the decision highlights that Australian and New Zealand law, despite recent amendment, has already been surpassed by overseas developments in online copyright protection. In the three years since the iiNet case commenced, legislators, regulators, and Courts around the world have mandated that ISPs must play a central role in preventing online copyright infringement. (A number of ISPs in the US (including the three largest) have signed up to a voluntary graduated response system. In France, a mandatory graduated response policy exists and is administered through a government agency, and Internet disconnection is one possible sanction for repeated copyright infringement.) With ISPs becoming increasingly dependent on the monetising of legal content, they are gradually coming to appreciate that their commercial interests may be best served by protecting copyright.

AFACT has already issued a press release calling for legislative reform to address peer-to-peer copyright infringement. It is likely that the issue will be considered in the upcoming Australian Law Reform Commission copyright inquiry which is currently open for public comment (the draft terms of reference for the inquiry are available at: www.ag.gov.au/Consultationsreformsandreviews/). A full review of the digital provisions of our Act is due to commence in 2013, and this will no doubt ask questions on intermediary liability, the new file-sharing regime, ISP safe harbours, and other issues which were central to the iiNet case.

In the meantime, copyright owners and ISPs will continue discussions about an industry framework to address peer-to-peer copyright infringement. To date, discussions in New Zealand have stalled around the costs payable (if any) by the rights holder to the ISP to implement and run the notice program. (There is currently a review underway in New Zealand on the level of the fee that copyright owners must pay to ISPs under our infringing file-sharing regime; the fee is currently set at $25 per notice. Submissions closed this month.)

In the end, then, the real importance of this case in the medium to long-term is to serve as a catalyst towards an appropriate legislative change to address the problem of widespread online copyright infringement in the age of peer-to-peer technology. The ISP industries 'win' here might be its loss in the long-term, unless it can work together with the content industry to achieve a commercially viable framework to combat Internet piracy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

James & Wells Intellectual Property, three time winner of the New Zealand Intellectual Property Laws Award and first IP firm in the world to achieve CEMARS® certification.

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