Earlier this month we reported that the Federal Court had 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. 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 publically available but AFACT has indicated in a statement that it views the Federal Court’s decision as rendering the “safe harbour regime ineffective” for ISPs.

AFACT had collected evidence showing that iiNet’s customers were using the BitTorrent system (free software that allows a user to easily share video and audio files with other internet users) to download copyrighted movies. AFACT informed iiNet of this copyright infringement and asked it to take steps to prevent its customers from downloading the movies, including requiring iiNet to cancel its infringing customers’ subscriptions and to block certain websites. iiNet refused. The dispute eventually came before the Federal Court.

The Court was satisfied that the conduct of iiNet’s individual customers in downloading the movies amounted to copyright infringement but held that iiNet, whilst it knew of the infringements, had not authorised them. The Court distinguished providing the ‘means of infringement’, such as a webpage dedicated to peer-to-peer file sharing 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’, which 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, as required by the Copyright Act.

The outcome of the iiNet case had 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 at first instance 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.

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.