20 May 2011

When is an ISP liable for its users' copyright infringements?

by John Fairbairn, Timothy Webb

If the customers of an internet service provider (ISP) infringe copyright and the ISP does not take steps to stop it occurring, is it liable for copyright infringement? The Full Federal Court has found that iiNet Limited (iiNet) was not liable, but gave some guidance on how copyright owners can establish liability, in the eagerly-awaited appeal decision of Roadshow Films Pty Limited v iiNet Limited [2011] FCAFC 23.

The proceedings have attracted a large amount of attention, not just from copyright lawyers, rights holders and the internet industry, but among the general public. Further, applications for leave to intervene have been made by the Internet Industry Association, Australasian Performing Right Association Ltd, the Media, Entertainment & Arts Alliance and the Screen Actors Guild.

This interest is unsurprising given the subject matter, involving claims of copyright infringement by an ISP due to alleged authorisation of the copyright infringement of its users or subscribers, and it is the first trial of its kind in the world to proceed to hearing and judgment.

The copyright owners, the ISP and the infringing users

The 34 applicants who instituted the claim represent the major motion picture studios both in Australia and the United States. They are the owners and exclusive licensees of copyright in thousands of cinematograph films in the form of films and television programs, such as The Dark Knight, Happy Feet and The Simpsons. They brought proceedings against iiNet which is the third largest ISP (and now the second largest DSL broadband service provider) in Australia.

The applicants claimed that iiNet's subscribers and other persons accessing the internet by means of its internet service (iiNet users) have, in Australia, whilst accessing the internet by means of iiNet's internet services, communicated to the public and made copies of the whole or a substantial part of the applicant's films without their licence. However, the applicants did not commence proceedings against those iiNet users. Rather, the applicants sought declarations that iiNet itself infringed the copyright of films contained in each of the applicants' respective film catalogues by authorising the making in Australia of copies of, and by authorising the communication in Australia to the public of, the whole or a substantial part of the films without the licence of the applicants.

The Australian Federation Against Copyright Theft (AFACT), although not a party to the proceedings, played a central role in the collection of evidence on behalf of the applicants. AFACT is an organisation established in 2004 to protect the copyright interests of its members, who include the applicants (or their affiliates) and other companies engaged in the film production industry.

AFACT employed a company known as DtecNet Software APS (DtecNet) to investigate copyright infringement occurring by means of the BitTorrent peer to peer system by subscribers of iiNet’s services. The information generated from these investigations was then sent to iiNet by AFACT, with a demand that iiNet take action to stop the infringements occurring. While the measures that AFACT required iiNet to perform were never precisely elucidated, the evidence at trial indicated that AFACT wanted iiNet to implement the so called "graduated response" model, whereby:

  • iiNet would send a warning to the subscriber who was allegedly infringing;
  • if a warning was not sufficient to stop the infringement, iiNet would suspend the internet service of that subscriber; and
  • if the subscriber remained uncooperative, iiNet would terminate the internet service as the ultimate sanction.

The critical issue in the proceeding was whether iiNet, by failing to take any steps to stop infringing conduct by its subscribers, authorised the copyright infringement of those users.

The first instance decision

Last year Justice Cowdroy in the Federal Court found that iiNet had not authorised any copyright infringement by its customers: see Roadshow Films Pty Ltd v iiNet Ltd (No 3) (2010) 263 ALR 215.

He considered each of the previous decisions on authorisation, particularly the seminal High Court authority of University of New South Wales v Moorhouse & Angus & Robertson (Publishers) Pty Ltd (1975) 133 CLR 1, and held that it is important to distinguish between the provision of a necessary precondition to infringements occurring, and the provision of the actual "means" of infringement.

In this case, iiNet's provision of the internet was a necessary precondition for the infringements which occurred, but the provision of the internet was not the "means" of infringement. Rather, his Honour determined that the use of the BitTorrent system was the "means" by which the applicants' copyright has been infringed. Consequently, iiNet did not infringe the applicants' copyright.

While his Honour went on consider the mandatory factors in subsection 101(1A) of the Copyright Act 1968 (Cth), the Court found that iiNet did not authorise for the above reasons regardless of its consideration of those factors.

The first instance decision was thus a resounding success not just for iiNet, but Australian ISPs generally. In effect it provided all ISPs with a complete defence to claims of authorisation based on the conduct of users, as long as they did no more than provide an internet connection and did not actively encourage copyright infringement (which would apply in the vast majority of cases). Unsurprisingly, the applicants appealed that decision.

The Full Court dismisses the appeal

The Full Federal Court dismissed the appeal on the basis that iiNet did not authorise its users' infringements. Three key points emerge from the separate majority judgments of Justices Emmett and Nicholas (with Justice Jagot in dissent):

  • there is no absolute defence for ISPs to claims of authorisation – an ISP can be liable if it does not take action against a customer, including suspending or terminating his or her account;
  • the content of the infringement notices sent to the ISP is critical – in particular, there must be information adequate to enable the ISP to verify the accuracy of the allegations, and the copyright owners should undertake to reimburse the ISP for its reasonable costs; and
  • ISPs need to have good policies to deal with repeat infringers – better than iiNet's at any rate.

ISPs don't have an absolute defence

The Full Court did not accept the distinction made by Justice Cowdroy at first instance between a precondition and the "means" of infringement. Each of the judges rejected the finding of such a threshold test.

Instead, all of the appellate judges re-emphasised the importance of the mandatory factors in section 101(1A) of the Copyright Act: (a) the extent of iiNet's power to prevent the infringing acts, (b) the nature of any relationship existing between iiNet and its customers, and (c) whether iiNet took reasonable steps to prevent the infringing acts.

In the leading judgment, Justice Emmett accepted that iiNet had the technical capability to suspend and terminate accounts, and that termination of a customer's account would constitute a step that would prevent that customer from infringing by use of the service. His Honour thus held that iiNet had the capacity to control the use of its services by its customers and to take steps to prevent acts of infringement by the use of services provided to them. This amounted to a degree of power to prevent further acts of infringement (significant for the purposes of subsection 101(1A)(a)) and that power arose from the relationship between iiNet and its customers under the customer relationship agreements (significant for the purposes of subsection 101(1A)(b)).

However, Justice Emmett also held that it was not reasonable to require iiNet to undertake the immense amount of work, cost and effort required in order to set out, review and analyse the allegations in the information provided by AFACT (significant for the purposes of subsection 101(1A)(c)).

Justice Nicholas reached a similar view, concluding that iiNet's failure to take steps to issue warning notices or to terminate or suspend subscribers' accounts in response to the allegations made in the AFACT notices was not unreasonable given the lack of information in the AFACT notices.

On the other hand, Justice Jagot in dissent held that iiNet had a range of powers available to it to prevent the doing of the acts of primary infringement, iiNet was in a direct contractual relationship with its customers, and there were reasonable steps available to iiNet to prevent or avoid the doing of the infringing acts about which AFACT complained. For example, her Honour noted iiNet could have adopted and implemented a general policy or a specific response to the AFACT notices, such as setting out the type of information required before action would be taken, warnings on receipt of such information to customers, the recording of warnings, shaping the customer's service as well as suspending or terminating the customer's account.

Also, under section 112E of the Copyright Act, "[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".

The Full Court held that that an ISP will not be merely providing facilities in circumstances where it has knowledge of primary infringement. Consequently, section 112E provides no protection in the face of an infringement notice.

What should go into an infringement notice?

Justice Emmett suggested at [210] four factors that would make it reasonable for an ISP to suspend or terminate a customer's account in response to an infringement notice:

1. the ISP has been informed in writing of particulars of specific primary acts of infringement of copyright of the copyright owners, by use of particular IP addresses of its customers;

2. the ISP has been asked in writing to communicate with its customer certain information and warnings;

3. the ISP has been given unequivocal and cogent evidence of the alleged primary acts of infringement by use of the service in question, including information adequate to enable the ISP to verify the accuracy of the allegations; and

4. the copyright owners have undertaken to:

(a) reimburse the ISP for the reasonable cost of verifying the particulars of the primary acts of infringement alleged and of establishing and maintaining a regime to monitor the use of the service to determine whether further acts of infringements occur; and

(b) indemnify the ISP in respect of any liability it reasonably incurred as a consequence of mistakenly suspending or terminating a service on the basis of allegations made by the copyright owner.

In this case, his Honour concluded that the first and second of the circumstances set out above were substantially satisfied by the AFACT notices. However, in relation to the third circumstance, the notices were no more then assertions, with no means of verification furnished. More importantly, in relation to the fourth circumstance, the copyright owners had not offered to reimburse iiNet for any costs incurred in complying with the demands made by the AFACT notices.

What was wrong with iiNet's policy for repeat infringers?

The so called "safe harbour" provisions of Division 2AA of Part V of the Copyright Act were introduced into the Act in 2005 by the US Free Trade Agreement Implementation Act 2004 (Cth) and modelled on the US regime. They offer legal incentives for carriage service providers to cooperate with copyright owners in deterring infringement by users of their services.

Division 2AA provides that if certain preconditions are satisfied, a court must not grant relief against a carriage service provider that consists of damages or an account of profits, additional damages or other monetary relief. One of the conditions is that "the carriage service provider must adopt and reasonably implement a policy that provides for termination, in appropriate circumstances, of the accounts of repeat infringers".

iiNet had no written policy, although it submitted that it nonetheless had an (unwritten) policy to terminate the accounts of repeat infringers in certain circumstances (eg. when iiNet was ordered to do so by a court). The Full Court held iiNet's purported policy was not a policy that has anything at all to say about repeat infringers, and consequently, did not fall within the requirements of the safe harbours.

Implications and what next?

The Full Federal Court decision was a mixed result for the parties and the industries that stand behind them. It is true that iiNet was successful in resisting the applicants' appeal which was dismissed. However, the applicants obtained a significant improvement from their position at first instance (including a dissenting judge that found iiNet liable for authorising copyright infringement).

For the time being, ISPs cannot assume they are safe. While the notices served on iiNet were not adequate, the Court has strongly signalled that ISPs will have to take reasonable steps – which may include suspension or termination of a customer's account – when confronted with unequivocal and cogent evidence of copyright infringement.

Since the Full Federal Court delivered judgment, there have been a number of related developments.

First, in an address to the Blue Sky: future directions in copyright law conference on 25 February 2011 the Hon. Robert McClelland MP announced that the Attorney-General's Department will soon be releasing a consultation paper outlining proposals to adopt a broader definition of "carriage service provider" for the purposes of the safe harbour provisions in the Copyright Act. The court's construction of those provisions and the requirements of a repeat infringer policy are thus potentially relevant not just ISPs, but also entities that do not provide network access but provide online services, such as Google and Yahoo.

Second, on 11 March 2011 the Internet Industry Association announced that it would immediately start work on an industry copyright code of practice for internet intermediaries, including ISPs, search, hosting and social media providers. In announcing the code, IIA chief executive, Peter Coroneos stated "the iiNet case has provided us with welcome guidance on where responsibilities should begin and end, but falls short in defining reasonable steps intermediaries should take in responding to allegations of infringement by their users. The Code will address this gap".

Third, on 15 March 2011 iiNet released a discussion paper entitled "Encouraging legitimate use of Online Content: an iiNet view". It proposes the creation of an independent body that removes any need for direct contact between content owners, ISPs and consumers on copyright infringement issues. Instead, content owners would provide the independent body with cogent and unequivocal evidence of infringement, the body would authorise ISPs to release contact details to it, and liaise with individual users in taking defined action, handing disputes and taking enquires. Further, the paper suggests that the costs of such a model be largely borne by the content owners, as they are the beneficiaries of enforcement activity.

Finally, and perhaps most significantly, on 24 March 2011 the applicants filed an application for special leave to appeal to the High Court.

In his first instance decision, Justice Cowdroy observed at [358] that "the law of authorisation has continued to grow more complicated and unwieldy, with a litany of competing and contrasting considerations, and with one statement of principle frequently matched with a contradictory one. The authority on authorisation has become a mire". On any view, it is unsatisfactory for copyright owners and ISPs to be operating under such uncertainty in circumstances where the outcome of the litigation can have significant affects on their respective businesses and Australian Internet users. Hopefully, if special leave is granted, the High Court will be able to provide greater clarity in this area of law.


The authors acted for the Internet Industry Association in connection with the proceedings.

This article first appeared in (2011) 49(4) Law Society Journal 58.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.