28 Apr 2016

Implications of the Dallas Buyers Club v iiNet decisions

by Timothy Webb, Peter Key-Matuszak

The Dallas Buyers Club v iiNet decisions may have broadened the law on who can sue for copyright infringement, and could set more hurdles for future preliminary discovery applicants.

The sixteen-month Dallas Buyers Club saga came to an end in early 2016 after Dallas Buyers Club LLC and its parent company Voltage Pictures LLC (collectively "DBC") failed to obtain the details of customers whose IP addresses had allegedly been used to illegally share their film online. What went wrong for DBC, and what implications will these decisions have?

What are the Dallas Buyers Club decisions about?

The Dallas Buyers Club v iiNet judgments are five decisions about a process known as “preliminary discovery”, which is available to help prospective applicants identify unknown potential respondents. In the Federal Court, this kind of preliminary discovery is available to applicants who:

  1. may have a right to obtain relief against a person;
  2. are unable to identify that person; and
  3. can prove that a third party can help identify that person.

Even if those requirements are met, the Court’s power to order preliminary discovery is discretionary. The Court can choose whether or not and on what terms to order the third party to reveal the person’s contact details to the applicant.

DBC believed that internet users had illegally shared the “Dallas Buyers Club” film online and wanted to sue them for copyright infringement. To identify who had illegally shared its film, DBC arranged for a German company to record IP addresses used between April and May 2014 to share the film on BitTorrent. Armed with 4,726 IP addresses, DBC applied to the Federal Court to order iiNet and five other internet service providers (ISPs) who issued the IP addresses to reveal the names and contact details of their customers who were using those IP addresses.

Where did DBC go wrong?

The Court agreed with DBC that it was entitled to preliminary discovery. The ISPs did not persuade the Court to use its discretion to withhold relief, but did convince the Court to impose restrictions on what DBC could do with the customers' details. The Court made an order for preliminary discovery against the ISPs, but prohibited DBC from disclosing the details to any third parties or using the details for any purpose other than for recovering compensation for infringement. Justice Perram said that these restrictions would protect the customers' private information but still give DBC the right to sue for copyright infringement.

However, Justice Perram put a stay on the order, which he would only lift if DBC took certain steps first. Initially, DBC had to submit to the Court for approval any communication that it intended to send to customers. This was necessary because DBC left questions "wholly unanswered" about what it planned to do with the customers' details, but all evidence suggested that DBC would act as aggressively as legally possible.

In a later judgment, Justice Perram also required DBC to lodge a $600,000 bond with the Court. He added this condition after DBC revealed that, together with other compensation, it planned to demand a one-off worldwide licence fee and additional damages. Justice Perram found those two demands impermissible. He indicated that he would lift the stay if DBC submitted a written undertaking to demand from infringers only the cost of an actual purchase of a copy of the film and damages relating to the costs of obtaining the infringer's information. However, even if DBC offered this undertaking, DBC had no presence in Australia, so the Court would have no way to punish DBC if it broke its undertaking. The $600,000 bond would render any revenue from demanding those impermissible sums unprofitable for DBC.

In December 2015, DBC applied to reduce the bond and to allow it to demand the two impermissible sums from infringers. Justice Perram rejected the application, and made an order for the proceedings to terminate in February 2016 if DBC failed to take "some step" beforehand. DBC decided not to pursue the action and allowed its application to lapse.

Implications of the Dallas Buyers Club decisions

The Dallas Buyers Club decisions are a reminder of how important the Federal Court's discretionary powers can be. In preliminary discovery applications, even applicants who fulfil all non-discretionary requirements will need to convince the Court to exercise its discretion to order preliminary discovery. If the number of potential respondents is large, Justice Perram warned that "it will be an essential step" for applicants to prove that what they plan to do with the potential respondents' contact details, and what they plan to demand from the potential respondents, are for a purpose countenanced by the Federal Court rule on preliminary discovery.

In the copyright space, one of the five judgments (Dallas Buyers Club v iiNet [2015] FCA 317) is new authority that agents for copyright owners can sue an infringer for copyright infringement on behalf of the owners. Justice Perram held that the Copyright Act did not expressly or by necessary implication override the "ordinary common law rule" that "what a person may do he may authorise another to do". His interpretation is unusual, since the Copyright Act only expressly gives copyright owners and exclusive licensees the right to sue for copyright infringement. It will be interesting to see if other courts follow his reasoning in the future.

Dallas Buyers Club v iiNet

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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.