The Full Federal Court of Australia yesterday dismissed an appeal by Hollywood film studios that Australia's third largest internet service provider (ISP), iiNet, had authorised copyright infringement by not suspending or terminating user's accounts in cases of copyright infringement.1 However, the Full Court left the door open for ISPs to be liable for this conduct in the future by explaining how ISPs could be liable.
The Full Court, which consisted of Justices Emmett, Jagot and Nicholas, all delivered separate and lengthy reasons for judgment. They were not all in agreement. However, they all softened and, in parts, significantly disagreed with the trial judge's reasoning.2 Both Emmett and Nicholas JJ agreed that the appeal should be dismissed but Jagot J dissented. The consequences of this decision will resonate with copyright owners, ISPs, technology innovators and internet users throughout the world. In particular:
- ISP policies: ISPs need to take stock of their policies and procedures in dealing with complaints of copyright infringement. In particular, ISPs will need to adopt a system for the issuing of warnings and, if appropriate, the termination or suspension of accounts of users who are likely to have infringed copyright (provided that the copyright owner is able to properly explain its complaint). ISPs will also need to make sure that they have proper policies so that they can come within the 'safe harbour' provisions of the Copyright Act 1968 (Cth) (Act).
- Onus on copyright owners to explain infringement: If copyright owners are able to properly explain why they believe copyright has been infringed (and the methods used to reach that conclusion), then ISPs may be liable for authorising the infringement. It may also be necessary for owners to offer to pay for the costs of verifying the infringement and indemnifying the ISP from any liability incurred for suspending or terminating a subscriber (this was suggested by Emmett J).
- Owners focus on ISPs: Copyright owners' attention may focus further on enforcing their rights against ISPs rather than users. This is welcomed news for owners as suing users is an inefficient exercise. Indeed, in late 2008 the Recording Industry of America said that it would abandon mass lawsuits.3
- BitTorrent: The Court has confirmed that copyright can be infringed by users who use BitTorrent to upload (and possibly download) copyright works, as the works had been communicated to the public by being made available online or electronically transmitted. A new infringement occurs every time the user logs onto the internet. This may result in copyright owners also focusing attention onto technology innovators, who design software which enable infringement.
- Law reform: There is likely to be strong lobbying from copyright owners to amend the Act, to ensure that ISPs are more easily caught in relation to authorising copyright infringement. This is also likely to be met with strong resistance. There is also likely to be pressure on ISPs to agree to a policy as to how to deal with copyright infringement.
Many internet subscribers use a system known as BitTorrent to upload and download films from the internet.
This is software which allows the creation of a torrent file as well as access to groups of computers that share that particular file. These groups of computers are known as 'swarms' and each computer in a swarm is a 'peer'. Torrents are small files that contain metadata about the computer file including the number of pieces into which it was divided, the order in which it should be re-created and the location of the tracker (which locates a particular swarm). Therefore, in order to download or upload a file the user will access the swarm and obtain small pieces (torrents) from each peer in order to obtain a full copy of the file.
iiNet has no control over and is not responsible for the BitTorrent system. However, it was certainly aware of the large scale infringement that was occurring online by its users. iiNet receives allegations of infringement involving in excess of 5,000 IP addresses per week.
Representatives of the Australian Federation Against Copyright Theft (AFACT), acting on behalf of the Appellants, opened an account with iiNet and subsequently, using BitTorrent, downloaded and uploaded a number of films and television programs. The AFACT representatives determined, through the use of specialised software, that a number of iiNet users were downloading pieces from one or more of the files that they were sharing in the swarm.
AFACT sent a number of notices of copyright infringement to iiNet which outlined the works said to be infringed, the date and time of infringements and the IP addresses of iiNet customers it had identified who had engaged in the impugned conduct. The notices also included a demand for iiNet to cancel or suspend the customers' accounts if they failed to cease their infringing conduct. Importantly, the notices did not explain the method of how copyright infringement was determined and also did not offer to pay for the costs of verifying the infringement and indemnifying the ISP from any liability incurred for suspending or terminating a subscriber. iiNet did nothing in relation to these allegations.
Key reasons for the Full Court's decision
The main issue both at trial and on appeal was whether by failing to take any steps to stop the infringing conduct identified by AFACT, iiNet had authorised copyright infringement of its users.
Prior to determining whether copyright infringement has been authorised, the Court needs to ascertain whether infringement has actually occurred. Pursuant to section 86 of the Act, copyright in a film is infringed if it is communicated to the public. Communicate can mean 'making the film available online' or 'electronically transmitting' it. The Full Court found that:
- By uploading a film to the swarm the user had made the film available online. Importantly, each of the Judges disagreed with the trial Judge's decision that this infringement occurred only once. Their Honours all agreed that the film is made available online every time the user logs on to the internet. This means that there are (many) repeat infringements.
- The BitTorrent system means that only small parts of the film will be taken from a large number of users. In order for copyright to be infringed, a substantial part of the work needs to be copied. The Full Court unanimously agreed that, on the evidence, they could not find that a substantial part of any of the films were electronically transmitted to the public. Therefore, in any future litigation in order to prove that a user 'electronically transmits' the film, the plaintiff will need to provide expert evidence that proves that a substantial part of a film has been transmitted by a particular user (or group of users).
The test for authorisation is whether the defendant sanctioned, approved or countenanced copyright infringement.
At first instance, the trial judge determined that iiNet had not provided the 'means' of copyright infringement because the mere provision of access to the internet does not constitute 'means' of infringement.
By a majority, the Full Court found that authorisation had not occurred. However, the Full Court unanimously disagreed with the trial judge's reliance on this 'threshold requirement'. Rather, their Honours found that the conduct must be assessed with reference to the test and to the factors under section 101(1A) of the Act. This section required the Court to take into account the following factors:
- The extent (if any) of the person's power to prevent the doing of the act. The trial judge found that iiNet had no power over any aspect of the BitTorrent system. The Full Court disagreed and found that iiNet had power to prevent the infringement. iiNet could, for example, warn, suspend or terminate the user's access to the internet.
- The nature of any relationship existing between the person and the person who did the act. There was a commercial, contractual relationship between iiNet and the users and pursuant to that contract users are required not to engage in acts of copyright infringement.
- Whether the person took any other reasonable steps to prevent or avoid the doing of the act, including whether a person complied with any relevant industry code of practice. The Full Court differed in relation to the final factor. The Appellants argued that iiNet had not taken the appropriate reasonable steps and that iiNet should have implemented a scheme for notification, suspension and termination of customer accounts. Emmett J found that the cost of setting up such a scheme would be immense (particularly given the number of allegations iiNet received) and as the Appellants had not offered to pay for the costs of investigating then it was reasonable for iiNet not to take steps. Nicholas J concluded that iiNet had not been provided with enough information by AFACT to determine whether copyright had been infringed (and it was not its responsibility to seek that information out). Jagot J disagreed and held that iiNet had the technical capabilities and contractual right to control the use of its services but elected not to do so.
Defences and safe harbours
The Full Court agreed that no defence or safe harbour was available:
- In relation to section 112E of the Act4 the Full Court re-confirmed this provision's very limited relevance as in order to take advantage of this defence it must be shown that the defendant had no knowledge of the infringements occurring on its facilities.
- The safe harbour provisions in the Act are for carriage service providers who adopt and reasonably implement a policy that provides for termination, in reasonable circumstances, of the accounts of repeat infringers. At first instance the trial judge found that iiNet's (not wholly written) policy was enough to activate these provisions. The Full Court unanimously disagreed and found that iiNet did not have any such policy. This has raised the bar for ISPs to put in place appropriate policies to deal with these matters.
Where to now?
It is unlikely that this is the end of this dispute. Given the importance of this decision for internet users, ISPs and copyright owners, we expect that special leave will be sought to appeal this matter to the High Court. If leave is granted and the matter reaches the High Court, then that Court's decision will just be the tip of the iceberg as the fight will continue between users, software developers (like BitTorrent), ISPs and copyright owners. This may be through copyright owners delivering more extensive infringement notices (and litigating if those notices are not complied with), agreement through industry policies (as to how to deal with infringement notices), through litigation between software developers and copyright owners or it could occur through legislative reform.
1 Roadshow Films Pty Limited v iiNet Limited  FCAFC 23.
2 See our review of the decision at first instance, Roadshow Films Pty Ltd v iiNet Limited  FCA 24 here: http://www.dlaphillipsfox.com/article/725/ISPs-put-to-the-test---the-iiNet-case
3 See 'Music Industry to Abandon Mass Suits' The Wall Street Journal http://online.wsj.com/article/SB122966038836021137.html (December 2008), viewed 24 February 2011.
4 Section 112E of the Act provides: 'A person (including a carrier or carriage service provider) who provides facilities for making, or facilitating the making of a communication is not taken to have authorised any infringement of copyright in an audio-visual item merely because another person uses the facilities so provided to do something the right to do which is included in the copyright.'
© DLA Phillips Fox
DLA Phillips Fox is one of the largest legal firms in Australasia and a member of DLA Piper Group, an alliance of independent legal practices. It is a separate and distinct legal entity. For more information visit www.dlaphillipsfox.com
This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances.