On 4 February 2010, the Australian Federal Court dismissed a claim by a multi-national alliance of motion picture and recording industry companies, represented by the Australian Federation Against Copyright Theft (AFACT), that iiNet, Australia’s third largest internet service provider, had authorised copyright infringement by failing to stop its customers from using the otherwise legitimate BitTorrent file sharing software system to download copyrighted movies.

AFACT had collected evidence showing that iiNet’s customers were using the BitTorrent system to download copyrighted movies. BitTorrent is free software that allows a user to easily share video and audio files with other internet users using peer-to-peer networking. AFACT wrote to iiNet to inform it of this copyright infringement and asked it to take steps to prevent its customers from downloading the movies. The measures sought by AFACT included requiring iiNet to cancel its infringing customers’ subscriptions and to block certain websites. iiNet refused. The Court was satisfied that the conduct of iiNet’s individual customers in downloading the movies amounted to copyright infringement. However, the critical issue was whether iiNet authorised the copyright infringement of these iiNet customers by failing to take any steps to stop that infringing conduct.

Under the Australian Copyright Act a person who authorises the infringement of copyright is treated as if they themselves infringed copyright directly. In deciding whether there has been authorisation under the Act, the Court must consider the extent of the person’s power to prevent the doing of the infringing act, the nature of the relationship existing between the person and the person who did the act, and whether the person took reasonable steps to prevent or avoid the doing of the act.

The Court noted that, whilst iiNet knew of the infringements, it did not authorise them. The Court distinguished providing the 'means of infringement', such as a webpage dedicated to peer-to-peer file sharing or a series of photocopying machines which could amount to authorisation, from merely providing the pre-condition to infringement. Merely providing access to the internet did not amount to providing the 'means of infringement'. The 'means of infringement' in this instance was the use of the BitTorrent system. iiNet had no control over it and was not responsible for operating it. The various measures AFACT asked iiNet to undertake were not relevant ‘powers’ to prevent the doing of the infringing act, nor were they 'reasonable steps' that needed to be taken to prevent it.

This is a significant development in the judicial review of instances of internet copyright piracy. Previous Australian decisions, like Universal Music Australia Pty Ltd v Cooper and Kazaa, were cases in which the authorisers provided the means for copyright infringement. However, the Court distinguished the situation with iiNet, where the mere provision of access to the internet was not the means of infringement, and where iiNet had no control over the BitTorrent system or its operation.

The outcome of the iiNet case has been the subject of much nervous speculation by ISPs. Had iiNet been held to have authorised infringement, it would have allowed the entertainment industry to focus on the major ISPs to achieve broad enforcement measures, rather than making many single claims against individual copyright infringers. The potential cost to ISPs to establish effective measures to prevent such infringement is high. This could have led to many smaller ISPs going under. Whilst the Court recognised the legitimate interests of the industry to prevent what it acknowledged was large scale infringement through use of the BitTorrent system, this interest does not make ISPs responsible for protecting and enforcing their rights in this context.

On 25 February 2010, AFACT lodged an appeal against that ruling, sparking another potentially lengthy round of court action. It is understood that AFACT’s Notice of Appeal contains 15 grounds for appeal and is expected to be heard later this year. The grounds have not yet been made public, but AFACT has indicated in a statement that it views the Federal Court’s decision as rendering the "safe harbour regime ineffective" for ISPs. Given the scale of ongoing infringement and the amount of lost revenue at stake, it was widely expected that an appeal would be launched. We will provide a further update once the appeal is heard and judgment is handed down in this important case for the internet industry.