17 Aug 2015

Dallas Buyers Club given a shot across the bow in latest piracy salvo

by Dean Gerakiteys, Carmen Culina

The Federal Court has limited the types of claims Dallas Buyers Club can make of alleged pirates ‒ and ordered it to pay a $600,000 bond.

After winning the right to get the details of account holders alleged to have pirated the Dallas Buyers Club film, the film's owners have suffered a setback, with the Federal Court refusing to lift a stay in the proceeding that would otherwise have given them those details. And in addition, Dallas Buyers Club LLC and Voltage Pictures LLC (DBC) must undertake in writing to limit their monetary demands on alleged infringers, and pay into Court a $600,000 security bond(Dallas Buyers Club LLC v iiNet Limited (No 4) [2015] FCA 838).

How can the Court have ordered a release of account holder information?

Under rule 7.22 of the Federal Court Rules 2011 (Cth), the Federal Court has the discretionary power to order preliminary discovery of a prospective defendant's details, for the narrow purpose of vindicating a right to recovery, where the applicant can show that there is a right to obtain relief against an unidentified person.

Here, although DBC could demonstrate that it might have a right to sue the relevant account holders for copyright infringement, and that the relevant internet service providers (ISPs) could assist in identifying each of these individuals, the Court was not satisfied with the way in which DBC was proposing to use the relevant account holder information.

What did DBC want?

As part of its application to have the stay lifted, DBC was required to disclose to the Court the correspondence it proposed sending to each of the alleged infringers whose details would be disclosed as part of the application for preliminary discovery.

That evidence, which included the proposed correspondence, demonstrated that DBC might seek four different heads of damage from each account holders, whose ISP address could be connected with an illegal download of the film:

a)     a claim for the cost of an actual purchase of a single copy of the film for each copy of the film downloaded;

b)    a substantial claim for an amount relating to each infringers’ uploading activities. DBC argued that any uploading activity by an account holder would entitle it to a one-off licence fee from each account holder who had uploaded the film, since each upload could constitute widespread distribution of the film by virtue of the way in which BitTorrent operates;

c)     a claim for additional damages under section 115(4) (ie. punitive damages), which could vary depending on how many copies of other copyrighted works each infringer had downloaded; and

d)    a claim for damages arising from the amount of money DBC spent to obtain each alleged infringer’s name.

The specific amount that DBC was seeking to claim by reference to each of these four heads was kept confidential by the Court, so as to maintain DBC's ability to negotiate with each of the alleged infringers.

Only half of DBC's demands were permitted

The Court found that DBC could only make demands for the heads of damages in paragraphs (a) and (d) above, as only these damages were within the purpose of rule 7.22. Although it might be shown that most infringers would only have paid the lesser rental price for the film had they not downloaded it illegally, a claim for the full purchase cost of the film was not unreasonable. Similarly, DBC could also seek to recover the costs associated with recovering the details for each relevant account holder. This is because, while the ISPs have to date already been ordered to bear a good portion of DBC's costs (75%), there is a shortfall which DBC would never have suffered but for the infringing activity.

By contrast, the demands in paragraphs (b) and (c) above were held to be untenable and outside the proper ambit of the power in rule 7.22. The claim for a licence fee representative of each infringers’ uploading activities was not allowed, because it did not relate to a realistic alternative course of events had the infringing conduct not occurred. The Court found it inconceivable that each alleged infringer would, in the ordinary course, have first approached DBC to negotiate a distribution arrangement in return for a licence fee to upload and share the film on BitTorrent.

Similarly, the Court held that the wording of section 115(4), which otherwise allows for additional damages (ie. punitive damages) was inconsistent with it being used to calculate damages on the basis of infringements other than those which the relevant account holder was potentially being sued for. Accordingly, DBC could not seek to have damages assessed by reference to how many copies of other films each infringer had downloaded using BitTorrent, as was intended by the head of damage in paragraph (c) above.

The requirement for an undertaking and security

In the circumstances, the Court therefore declined to lift the stay in the proceeding and release the account holder information to DBC until such time as it receives DBC's written undertaking to only use the account holder information for the purposes outlined in paragraphs (a) and (d) above.

Because DBC has no presence in Australia, any failure by it, to honour that undertaking is not able to be punished by contempt. For this reason, the Court also required that the undertaking be secured by lodging with the Court a bond in the amount of $600,000. This amount was chosen to ensure that it would not be profitable for DBC to breach its undertaking to the Court not to use the account holder information for the purposes of making the demands in paragraphs (b) and (c) above.

As an aside, Justice Perram indicated that, in future cases, where preliminary discovery is to be sought against persons such as ISPs, with a view to contacting a large number of potential defendants, prospective applicants will have to put on evidence of the type of demands or claims it proposes to make. That does not however mean that a court would need to examine the content of any correspondence proposed to be sent to the prospective defendants, as occurred here. This ought only occur where it would assist in discerning whether the prospective applicant's purpose was within the purposes allowed by rule 7.22.

At this stage, it is not clear if or when DBC will give the undertakings or security required by the Court.

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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.