Australia: Dallas Buyers Club case: Federal Court pulls on the reins to stop speculative invoicing

On 14 August 2015 the Federal Court of Australia handed down its latest decision in the case brought against six Australian ISPs by US entity Dallas Buyers Club LLC (DBC) and its parent company Voltage Pictures LLC. DBC commenced the proceedings for the purpose of obtaining the details of customers associated with 4,726 IP addresses that were used to download and share copies of the film "Dallas Buyers Club" (the Film) using the peer-to-peer file-sharing service BitTorrent. This latest decision carries significant implications for the increasingly borderless efforts of copyright holders to hold Australian internet users to account for pirating their products.

Background

A key factor that distinguishes DBC's efforts from previous attempts by copyright owners to obtain the details of users from ISPs is the type of proceedings it has brought, namely an application for preliminary discovery. This type of proceeding allows a successful applicant to garner information about unidentified wrongdoers and establish whether it has enough evidence to commence a substantive claim against them or, in this case, to seek relief against those wrongdoers. DBC hopes that once it acquires the details of the users behind the infringing IP addresses, it will be able to send out letters of demand compelling them to compensate DBC for the infringement of its copyright.

In the primary decision, the Federal Court ruled that DBC had established the requisite elements to make out its application for preliminary discovery and ordered that the ISPs must hand over the details of the customers associated with the infringing IP addresses. This was grounded in the finding that users who had downloaded the Film over BitTorrent, by virtue of the way the technology works, were simultaneously uploading the content and thereby making the Film available to the public on the internet – a clear infringement of DBC's copyright under section 115 of the Copyright Act 1968 (Cth).

However the Court placed an important limitation on its orders: to prevent "speculative invoicing" of users, DBC was required to clear with the Court any correspondence which it proposes to send to ISP customers. By imposing this limitation, the Court put in place a barrier to prevent DBC making financial demands against consumers that have no proper legal basis.

DBC's Demands

DBC submitted to the Court the demands it proposed to send to the alleged infringers. While the actual sums demanded by DBC are confidential, the Court indicated that they comprise four factors, being:

  1. the cost of purchasing the Film;
  2. a "substantial" licensing fee relating to each infringer's uploading activities, which DBC argued were equivalent to widespread distribution of the Film (and given that BitTorrent constitutes a transnational network of millions of users, simultaneously uploading and downloading slivers of files, this figure could potentially be astronomical);
  3. punitive damages based on how many copies each infringer had downloaded of other copyrighted works; and
  4. a claim for damages arising from the cost DBC had expended in obtaining each infringer's details.

The Decision

In reaching its decision the Court considered whether DBC's demands could plausibly be sued for in a hypothetical proceeding for copyright infringement.

Justice Perram found that the first and fourth demands advanced by DBC were reasonable. The Court's first instance decision had already established that any person sharing the Film online via BitTorrent had undoubtedly infringed DBC's copyright. It follows from this that reasonable compensation for such infringement would include an amount equal to what it would have cost for the person to have seen the Film legitimately. As for the fourth demand, the Court found that DBC had expended significant resources in identifying the infringing IP addresses, as well as on legal costs. While the ISPs have been ordered to pay the majority of those costs, the Court held that because DBC would not have been out of pocket had the infringement not occurred in the first place, it is appropriate for the shortfall in loss to be distributed amongst the infringers.

The Court however rejected demands two and three. In relation to the second demand that it is entitled to a licence fee from each user equivalent to what it would have cost to distribute the Film via BitTorrent, the Court held that DBC's damages in any prospective court proceedings would aim to put DBC in the position it would have been had the infringements never occurred, and that there were too many counterfactual scenarios (including infringers renting the Film, seeing the Film at the cinema or foregoing watching the Film altogether). Justice Perram argued that the notion that the conceivable alternatives to the infringers downloading the Film via BitTorrent included the user negotiating a distribution agreement in consideration for a licence fee was "so surreal as not to be taken seriously."

As for DBC's third demand, the Court held that this argument was based on an incorrect reading of section 115 of the Act. In particular, the provision does not provide for damages to be calculated with reference to the infringement of a third party's copyright.

Conclusion

The Court concluded that it will only order the ISPs to hand over the customer details sought if DBC provides the Court with a written undertaking that it will restrict its demands to those which the Court has ruled as permissible, namely compensation for the purchase price of the Film and the costs DBC has expended in obtaining the IP addresses.

In addition, because DBC has no presence in Australia (meaning the Court is unable to punish it for contempt if it fails to honour that undertaking), the Court ordered that DBC's undertaking must be secured by the lodging of a $600,000 bond. The bond was set at that amount having regard to the amounts that DBC had proposed to demand and the potential revenue it might make from customers based on its second and third demands which were rejected by the Court. The intent of the bond is to ensure that it will not be profitable for DBC to make those demands in breach of its undertaking.

Justice Perram also stated that the reasons for his decision are not limited to the current case, but rather will apply in all future applications where a copyright holder seeks access to user details from ISPs via preliminary discovery. In particular, applicants will be required to put on evidence regarding the precise nature of the demands they propose to make to ISP customers. Thus by this decision the Court has rebalanced the status quo: from a primary decision that was seen by some as opening the way for a flood of claims brought by copyright holders against individuals, to a carefully limited regime in which applicants will be subject to strict requirements as to what they can demand from alleged infringers.

Dallas Buyers Club LLC v iiNet Limited (No 4) [2015] FCA 838

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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Authors
Max Dalton
 
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