Roadshow Films Pty Ltd v iiNet Ltd  [2012] HCA 16

On 20 April, the High Court of Australia delivered a long awaited judgment to finally determine the four year copyright dispute between internet service provider (ISP) iiNet, and 34 Australian and United States movie studios. The High Court unanimously held that iiNet did not authorise the infringement by its customers of the copyright in films and television programmes owned or exclusively licensed by the Australian and United States movie studios. All avenues of appeal are now exhausted.  

This decision follows last year’s judgment by the Full Federal Court, which also found in favour of iiNet. The High Court held, as did the Full Federal Court, that iiNet had no direct power to prevent its customers from infringing the copyright in the studios’ films by making the films available online using the BitTorrent file sharing system. Furthermore, the High Court held that it was not reasonable to expect iiNet to take action (such as issuing warnings, suspending or terminating internet accounts) against individual infringers, despite the Australian Federation Against Copyright Theft (AFACT), on behalf of the studios, sending infringement notices to iiNet on a weekly basis for 12 months.

This decision illustrates the difficulty facing copyright holders trying to enforce their rights in the current online environment.

Background: iiNet and AFACT

iiNet provides internet access to its customers under the terms of its Customer Relationship Agreement (CRA) which contains a provision that states that the customer must not use the service to commit an offence or infringe another person’s rights. Furthermore, the CRA provides that where the customer breaches a term of the CRA, or where iiNet suspects illegal conduct by the customer, iiNet can restrict, suspend or cancel the provision of internet access.

In July 2008, the AFACT (an organisation which represents copyright owners and licensees, including the appellants in this case) started to send iiNet letters, notifying iiNet of alleged infringements of the studios’ copyright by its customers and requesting that iiNet take action to prevent further infringements from occurring (“the infringement notices”). From July 2008 to August 2009, AFACT sent infringement notices to iiNet on a weekly basis. The infringement notices included the time and date of the alleged infringements, the films in question, the names of the owners or exclusive licensees of the copyright and the IP addresses of the alleged infringers.

iiNet challenged the infringement notices on the basis that they did not enable iiNet to identify the infringing customers. iiNet claimed that it did not recognise some of the IP addresses, and in any event an IP address was not synonymous with an individual customer, as it might correspond to a shared computer at a school, internet cafè or “wi-fi hotspot”. Furthermore, the infringement notices failed to reveal the methodology which AFACT had employed to obtain the information about the infringements.

iiNet did not take any action in response to the infringement notices against any of its customers, and the movie studios subsequently brought action against iiNet, alleging that its failure to take action constituted authorisation of copyright infringement by its customers.

Authorisation of copyright infringement

Under section 101(1) of the Copyright Act 1968, a party who is found to have authorised copyright infringement is taken to have committed the infringement itself. In determining whether or not a party has authorised copyright infringement the Court takes into account the following matters1:

  • the extent (if any) of the party’s power to prevent the infringing acts;
  • the nature of the relationship between the party and the party who carried out the infringing acts; and
  • whether the party took reasonable steps to prevent the infringing acts, including whether the party complied with any relevant industry codes of practice.  

iiNet found not to have authorised copyright infringement

The High Court’s finding on whether or not iiNet had authorised copyright infringement by its customers turned on two pivotal questions:

  1. did iiNet have a power to prevent its customers from infringing the studios’ copyright, and if so, what was the extent of that power? and
  2. was it reasonable to require iiNet to take steps to prevent those infringements by issuing warnings, suspending or terminating customers' accounts?  

The movie studios relied on the judgment of Justice Gibbs in University of New South Wales v Moorhouse (“Moorhouse”)2 and equated “control”3 with the “power to prevent” as referred to in section 101(1A) of the Copyright Act. The studios submitted that iiNet’s technical and contractual relationship with its customers gave it the indirect power to control the use of its service, and therefore prevent the infringements. Upon receiving notice of the infringements by AFACT, the studios contended that the failure of iiNet to take action to prevent the infringements from continuing, and to enforce the terms of the CRA amounted to “authorisation”.4

  1. Did iiNet have the power to prevent the copyright infringements?

The High Court (consisting of Chief Justice French and Justices Crennan, Kiefel, Gummow and Hayne) found that iiNet had no direct power to prevent the infringing activity as it had no connection with, or control over, the BitTorrent System. Rather, iiNet through the provision of internet access to its customers had an indirect power to prevent the infringements which was limited to suspending or terminating a customer’s account. In emphasising the extent of iiNet’s limited power to prevent further infringements from occurring, Chief Justice French and Justices Crennan and Kiefel noted that upon termination of a customer’s account, the customer could simply engage another ISP and re-commence the infringing conduct.5

  1. In the circumstances was it reasonable for iiNet to issue warnings, suspend or terminate a customer’s account?

In assessing whether iiNet took reasonable steps to prevent the infringements, given its indirect power to do so, the Court took into account the nature of the internet, the BitTorrent system, and the absence of any industry code of practice adhered to by all of the ISPs.6

The High Court found that iiNet’s inactivity after receiving notice from AFACT of its customers’ infringements did not give rise to authorisation of copyright infringement. This was because the information contained in the infringement notices was insufficient to give iiNet a proper basis for sending warning notices to its customers containing threats to suspend or terminate their accounts.7

Chief Justice French and Justices Crennan and Kiefel accepted iiNet’s submission that its inactivity was not “indifference” as to the movie studios’ rights but was based on its assessment of the risks involved (i.e. the risk of liability for wrongly terminating a customer’s account) in taking action based on the information provided by AFACT.8 Had AFACT provided full disclosure of the methods that it had employed to obtain the information about the infringements contained in the infringement notices (which was only disclosed by the provision of expert evidence during the preparation of the case for trial), the result may have been different.

Similarly, Justices Gummow and Hayne did not consider it unreasonable for iiNet not to act upon the “incomplete allegations” of copyright infringement contained in the infringement notices without first taking investigative action to substantiate the claims. The judges held that iiNet was not required to undertake such investigations at a cost to itself, and nor does the Copyright Act impose such an obligation.

Infringement notices – what is adequate?

Whilst the High Court held that the information provided by AFACT in its infringement notices was insufficient to require iiNet to take action, the Court did not indicate what additional information might have been required in order to support a finding of authorisation. However, in the earlier Full Federal Court decision,10 Justice Emmett outlined the steps that he considered a copyright owner would need to take before an ISP’s failure to respond to an infringement notice would amount to authorisation. These were:11

  • the copyright owner would need to provide unequivocal and cogent evidence of the alleged acts of copyright infringement. Information about the way in which the material supporting the allegations was derived, which would be adequate to enable the ISP to verify the accuracy of the allegations, may suffice; and
  • the copyright owner would also have to undertake to:
    • reimburse the ISP for the reasonable costs to verify the allegations of infringement and of establishing and maintaining a system to monitor whether further acts of infringement occur; and
    • indemnify the ISP in respect of any liability incurred as a result of mistakenly suspending or terminating an internet account on the basis of allegations made by the copyright owner.  

As the High Court did not explicitly endorse nor reject this approach, it remains to be seen whether the provision of additional information (specifically, the methodology employed to track the infringements) and the undertakings by a copyright owner to an ISP would be sufficient to support a finding of authorisation, if the ISP failed to act. However, the comments of the High Court Judges seem to suggest that a similar process may be acceptable.

What’s next: legislative reform or an industry code of practice?

In their concluding remarks, Chief Justice French and Justices Crennan and Kiefel emphasised that “the concept and the principles of the statutory tort of authorisation of copyright infringement are not readily suited to enforcing the rights of copyright owners in respect of widespread infringements occasioned by peer-to-peer file sharing, as occurs with the BitTorrent system”.12 To address the infringements, the High Court noted their preference for a legislative approach that would most likely include an industry code of practice, which may or may not require judicial involvement to terminate an internet account, and which may provide for the sharing of enforcement costs between copyright owners and ISPs.

Given the Judges’ comments, any industry code of practice would presumably include a set of guidelines outlining the information that is to be provided in an infringement notice, and also address who bears the cost (either copyright owners or ISPs or both) of verifying the allegations of infringement and on-going monitoring.

For the past six months, the Commonwealth Attorney-General’s Department has been facilitating discussions between Australian ISPs, copyright owners and organisations such as AFACT and the Communications Alliance, to develop a voluntary industry code of practice to tackle online infringement. Thus far, ISPs and rights holders have failed to reach agreement, and following the High Court’s decision, iiNet CEO, Michael Malone, has threatened to “walk away” from negotiations altogether.

Last year, New Zealand introduced a “three strikes” policy where upon notification from a copyright owner, an ISP will send up to three warnings to an infringer before a possible fine of up to NZ$15,000. An alliance of ISPs proposed a similar “five strikes” policy in Australia late last year, which would have seen infringers being sent a series of education and warning notices, rather than being punished through disconnection from the internet or fines. Rights holders rejected such a scheme.

The High Court’s decision may now serve as a catalyst for further negotiations and compromise. However, if a stalemate continues between Australian ISPs and copyright owners, the Government may need to consider mandating a code of practice through legislation. Notwithstanding this, the Government has expressed its preference for an “industry-led” solution to the problem.