Last week the Australian Full Court released its decision in the landmark case Roadshow Films Pty Limited v iiNet Limited,  FCAFC 23. The Australian appeals court by majority dismissed the appeal from the decision of the primary judge who had held that iiNet, an ISP in Australia that had not acted on any information provided to it by copyright owners, was not liable for authorizing the copyright infringement of its subscribers who had used its facilities to engage in unlicensed peer to peer file sharing.
A main issue in the appeal was whether iiNet had an obligation to have and implement a policy to transmit notices of claimed infringement to its subscribers and to terminate the accounts of repeat infringers who used its systems and services to engage in file sharing. The trial judge had held that iiNet was not liable for infringement for refusing to do so. The appeal was rejected by a 2 to 1 majority, with Emmett and Nicholas JJ concurring in separate opinions that the appeal should be dismissed, and with Jagot J, who would have allowed the appeal.
All three judges were of the opinion that iiNet could have established and implemented a policy to forward notices of claimed copyright infringement to subscribers that could have included suspending and terminating the accounts of repeat infringers to avoid being liable for authorizing copyright infringement under Australia’s copyright laws. All three judges also held that iiNet’s obligation to act was premised on copyright holders providing cogent evidence of the alleged primary acts of infringement which took place using its services.
The main disagreement between the judges was whether iiNet had been provided with sufficient information to trigger the obligation to act. Jagot J. was of the opinion that iiNet was given everything required and in any event would not have acted irrespective of the information provided to it. Emmett and Nicholas JJ expressed the opinion that sufficient information had not been supplied. Nicholas J found that the fact that iiNet may not have acted irrespective of the information was “not to the point”.
Accordingly, while iiNet was exonerated on the facts, the opinions rendered in the case leaves it open for copyright holders in Australia to hold ISPs liable for authorizing infringement unless they take available steps to deal with infringements by their subscribers.
The decision is an important one for ISPs and rights holders in Australia. However, the decision also has global implications for policy makers that are concerned with finding practical and efficacious means of reducing the scourge of illegal online distribution of copyright content. I say this because in the course of giving reasons for decision, the judges of Australia’s appeal court canvassed the effectiveness of sending out notices of claimed infringement with warnings of potential account terminations and found they would be effective in reducing online file sharing. They also reviewed the reasonableness and practicality of requiring ISPs to implement a graduated response system including sending out these types of notices and adopting and implementing a process to terminate accounts of repeat infringers. They found such a process reasonable and workable.
As noted above, the main issue in the iiNet case was whether iiNet was liable for the authorizing infringement of its subscribers who used its systems and services to engage in illicit peer-to-peer file sharing. To make this determination the court canvassed a series of issues including whether its subscribers were liable for copyright infringement when they used the BitTorrent protocol to share movies and television programming and whether failing to implement a graduated response system rendered iiNet liable for authorizing infringement.
Liability of subscribers for copyright infringement
The first issue in the case was the extent of infringement by iiNet subscribers using BitTorrent to engage in file sharing of movies and TV programming. While iiNet had admitted that users had infringed copyright, it claimed that they only ever did so once and that there were no further infringements for iiNet to prevent. The trial judge had agreed. The trial judge had found that users of BitTorrent had infringed copyright, however the parties disagreed on the extent of infringements taking place and this was potentially relevant to the obligations that iiNet would be under to act on the infringements. The trial judge had also found that users of BitTorrent only ever infringed copyright once, the first time the file was shared with other users, irrespective of the duration the file was available to other BitTorrent users.
All of the appeal judges reversed the finding and found that the uploaders were liable for multiple infringements of copyright.
Australia has implemented the WIPO Internet Treaties. Accordingly, unlike Canada, its copyright laws include a right of making available a work to the public. All judges of the court accepted that when an individual uploads a file to make it available for sharing over a BitTorrent network, the person is liable for infringement under the making available right. The court also held that each time an individual connected to the internet, a separate act of making the work available to the public occurred. All of the judges also agreed that the electronic transmissions made by subscribers as part of a BitTorrent swarm involved transmissions that were “to the public”. However, the judges disagreed as to whether the evidence before the court established that files or substantial parts of files were communicated to the public when transmitted by the BitTorrent protocol.
The main issue in the case was whether iiNet was liable for the illegal file sharing of its customers under the theory of authorization. Section 101(1) of Australia’s copyright law establishes liability for authorization in Australia:
101 (1) Subject to this Act, a copyright subsisting by virtue of this Part is infringed by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorizes the doing in Australia of, any act comprised in the copyright.
The Australian Act was amended in 2000 by inserting into s. 101 a new subsection 1(A) to provide a practical enforcement regime for copyright owners and to promote access to copyright material online. Universal Music Australia Pty Ltd. v. Sharman License Holdings Ltd.,  FCA 1242 (5 September 2005); Universal Music Pty Ltd. v. Cooper,  FCA 972 (Aust. F.C.). The provision states that in deciding whether a person has authorized the doing in Australia of any act comprised in the copyright, the matters that must be taken into account by the Court include:
(a) the extent (if any) of the person’s power to prevent the doing of the act concerned;
(b) the nature of any relationship existing between the person and the person who did the act concerned;
(c) whether the person took any other reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice.
In the course of analyzing the above factors, and in particular factors (a) and (b), the judges canvassed whether iiNet had the power to prevent illegal file sharing by its subscribers and could take reasonable steps to prevent or avoid these infringements by implementing a graduated response system. The judges of the court expressed the unanimous opinion that iiNet had such a power and that taking steps to adopt and implement a graduated response system would be reasonable and likely effective to prevent repeat infringements by its subscribers – even though two judges found that on more limited grounds it was not unreasonable for iiNet not to act in this case (based on the knowledge iiNet had before the case had been filed).
Effectiveness of a notice and notice regime coupled with a threat of account termination
iiNet had argued in the appeal that it should not be required to send its subscribers notices of claimed infringement with warnings of potential account terminations because such notices would not be effective in stemming online file sharing. Some Canadian ISPs have had a de facto notice and notice system in Canada for years. Despite this, there is no evidence that it changes people’s behavior to stop illicit file sharing and purchase creative products from legitimate services. However, as I and others have pointed out elsewhere, research by our trading partners shows that a notice with a threat of some sanction will operate as an effective deterrent. Opinions rendered by the iiNet court provides added support for the that fact that notices are likely to be effective in reducing infringements when coupled with potential action such as suspension or termination of accounts of customers that fail to heed such notices.
Emmett J. expressed this opinion as follows:
There was no finding by the primary judge that infringing acts engaged in by iiNet users were engaged in, in circumstances where the customer whose account was being used knew, or had reason to suspect, that infringement was involved. It may well be that an iiNet user would not know that, by downloading the Films by means of the BitTorrent System, there was infringement. It may be that an iiNet customer was unaware that the service provided to that customer was being used for infringement. A warning, coupled with reference to the entitlement of iiNet to terminate the service, may well be sufficient to persuade a customer to desist from engaging in such conduct or to take steps to ensure all users of that customer’s service desist. It is one thing to be aware of a prohibition on infringement of copyright. It is another thing to be aware that specific acts engaged in actually constitute infringement.
It may be possible that some, or indeed many, customers would disregard a warning given by iiNet. However, it does not follow, from that possibility, that all customers would disregard a warning or even that most customers would do so. Even if many customers may disregard a warning, compliance by others would prevent further infringement involving the accounts of those customers from taking place. Every time a user of the internet leaves a BitTorrent swarm, the supply of copyright material made available online within the swarm would be reduced and the opportunity for other internet users to infringe copyright would therefore also be reduced.
Giving clearly worded and accurate warning to a customer whose account was thought to be involved in acts of infringement is a reasonable step that could have been taken by iiNet, regardless of whether the warning would have been heeded by every customer. There is no basis for concluding that all, or even a substantial proportion, of iiNet’s customers would permit their accounts to continue to be used for acts of infringement if they were properly warned that the acts constituted infringement and their attention was drawn to their contractual obligations and iiNet’s contractual right to enforce those obligations by suspension or termination.
Nicholas J expressed a similar opinion:
The primary judge seems to have come to the conclusion that the giving of a warning could not be a reasonable step for the purposes of s 101(1A)(c) because the mere giving of a warning is not a power to prevent. I would accept that the ability to give a warning is not in itself a power to prevent for the purpose of s 101(1A)(a). However, s 101(1A)(c) is concerned with a different matter namely, what “reasonable steps” the alleged authoriser might have taken to prevent or avoid any of the relevant acts of copyright infringement.
I am satisfied that the primary judge erred in holding that the giving of a warning could not be a reasonable step that might be taken to prevent or avoid the relevant acts of copyright infringement. If the ability to give a warning is supported by a power to terminate or suspend a subscriber’s account then there can be no doubt that the giving of a warning is capable of amounting to a reasonable step for the purpose of s 101(1A)(c).
So did Jagot J:
It is also difficult to accept that most people when notified of copyright infringement by them or a person using their service would simply ignore the notice unless threatened with termination. Not all people would be aware of the risk of acting unlawfully in downloading films and television shows from the internet. Not all people would be aware that their downloading activities can be monitored both by third parties (such as copyright owners using software like the DtecNet agent) and internet service providers. When confronted by a mere notice or warning with evidence both of copyright infringement (either by them or another person they permitted to use their internet service) and the ease with which it can be detected by third parties, it is difficult to accept that there would be no deterrent effect whatsoever. To the contrary, it could readily be assumed that many people on receipt of a mere notice or warning would be deterred from future infringements irrespective of termination. The fact is that by receipt of a mere notice or warning people would realise that activities they might have thought innocent or at least undetectable were in fact unlawful and open to scrutiny.
The judges also commented on the reasonableness of an ISP with a contractual right to terminate an account doing no more than merely posting a policy on a website warning customers about this policy. They did not view taking these steps as being sufficient to constitute a reasonable response to the infringements. Emmett J, for example, stated the following:
The language of s 101(1A)(c) requires an enquiry as to any steps that were taken by iiNet and whether there were reasonable steps that were not taken. The Infringement Notices specifically invited iiNet to cancel, suspend or restrict the accounts of the customers identified in the spreadsheets enclosed with them. Merely having a contractual provision relating to copyright infringement and drawing attention to the contractual provision on its website is hardly an effective step to prevent infringement, in circumstances where iiNet does not enforce the contractual provision.
Reasonableness of account termination
The judges of the Full Court also canvassed in detail the reasonableness and practicality of iiNet adopting and implementing a policy to terminate the accounts of repeat infringers. The primary judge had held that implementing such a system would not be reasonable, apparently under any circumstances. Critics of effective enforcement of copyright like Prof. Geist have relied on this holding to argue against requiring ISPs to ever take steps to suspend or terminate accounts of repeat infringers. However, the Full Court expressly disagreed with the primary judge on this issue and delivered a strong endorsement of such steps in order to prevent continuation of copyright infringement.
Emmett J. pointed out that iiNet terminated user accounts for other reasons. He also pointed out that terminating a user’s account where the user uses the account in violation of contractual terms of service to infringe copyright is reasonable and was exactly the step contemplated by the safe harbour provisions of the copyright law.
Even where a service provider such as iiNet has the benefit of the Safe Harbour Provisions, the Court is specifically empowered, under s 116AG(3)(b), to order termination of a specified account. It can hardly be concluded, therefore, that termination was, per se, unreasonable. Rather, the Copyright Act itself contemplates such a step. Accordingly, it must be regarded as a reasonable step, at least in some circumstances, including circumstances involving repeat infringements, to terminate or suspend an account of a customer.
Thus, 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. In some circumstances, iiNet did in fact exercise control over the provision of its services. The presence of such provisions amounted to a degree of power to prevent further acts of infringement that was significant, for the purposes of s 101(1A)(a). That power arose from the relationship between iiNet and its customers under the customer relationship agreements, the nature of which is significant for the purposes of s 101(1A)(b).
There is no reason to conclude that sending warnings would be unreasonable, given that iiNet’s business routinely involved sending warnings to users in a variety of circumstances, such as when fees were overdue. There is no reason to view a temporary suspension as unreasonable, particularly when iiNet had the right to terminate the service altogether. The period of a temporary suspension would be a matter for consideration in any given case. A very long suspension for a very minor infringement may be unreasonable. However, that is not a reason for concluding that no suspension could ever be reasonable…
iiNet says, nevertheless, that termination of an account was not a reasonable exercise of a power to prevent because it would involve disconnection of the customer from the internet. Disconnection would not, in itself, prevent infringement because of the possibility of the customer obtaining access to the internet through another carriage service provider. On the other hand, disconnection would do much more, in that the whole relationship between iiNet and its customer would be ended, thereby foreclosing all internet activity by that customer by means of iiNet’s service.
However, it is difficult to see why that consequence is unreasonable, if the customer, having been warned that the service being provided to the customer by iiNet was being used to engage in infringing acts, that to do so was a breach of contract and that continuing to do so may result in termination, nevertheless chooses to continue to permit the iiNet service to be used to engage in infringing acts. It may be unreasonable to terminate an account without warning. However, that is not the question.
Jagot J reached the same conclusion rejecting the contention that adopting and implementing a graduated response system was unreasonable.
Despite this, iiNet adopted and maintained thereafter a clearly stated position that the AFACT notices did not identify any actual infringing user and, in any event, that iiNet had no obligation to do anything in response. This first aspect of iiNet’s position was adopted despite iiNet knowing not only that it could match IP addresses to customer accounts but also that its policies for dealing with other forms of unlawful or abusive activity assumed that it would do so and thereby hold customers responsible for all use on their accounts…
Another reason I take a different view is that iiNet’s position on the use of its service in a manner infringing copyright was not only inconsistent with its approach to other management issues (such as customers not paying bills or exceeding their quota), but also inconsistent with its approach to other types of internet abuse (such as spamming). The unavoidable inference is that when its own interests were at stake, iiNet exhibited no hesitation in: – (i) using IP addresses to identify the relevant customer accounts, (ii) treating the customer as responsible for all use of the iiNet service on the customer’s account, and (iii) promulgating a regime of warnings, suspension and termination (albeit discretionary) of the customer’s account. However, when its own interests were either not at stake or, at worst, might have been adversely affected by taking action, iiNet adopted a contrary position…
…it is feasible for an internet service provider to respond to the receipt of credible evidence of copyright infringements by users of its service…there is no particular difficulty with an internet service provider holding a customer responsible for the use of that customer’s service (consistent, in this case, with iiNet’s CRA and other policies about internet use)…
An internet service provider is confronted by precisely the same problems when dealing with spamming and other forms of internet abuse. iiNet has been able to formulate (and presumably implement) its policy for dealing with network abuse…
I do not see the expense and complexity of implementing a policy or scheme of warnings and suspension or termination as insuperable difficulties rendering the taking of such steps as unreasonable. The trial judge considered that the complexity and expense of such a scheme “manifestly militates against the conclusion that such scheme is a relevant power to prevent” (at ). For the reasons given, I consider that this conclusion does not accord with either the factual reality (that iiNet was capable of implementing equivalent schemes to deal with other issues such as network abuse and spamming) or the legislative scheme (which, by the safe harbour provisions, contemplates schemes of this very kind at least for repeat offenders).
Nicholas J. reached a similar conclusion.
Nor do I think that the difficulties involved in establishing a system for giving warnings and, if necessary, termination or suspension of accounts, were likely to be as great as Mr Malone’s evidence might suggest. It is true that the respondent, if it was to take the step of issuing warnings in particular cases, would need to decide when it would be appropriate to do so. To that end, the respondent would need to decide, among other things, whether the available material was sufficient to satisfy itself that it was appropriate for a warning to be issued or for an account to be terminated. It is also true that the respondent would need to decide how many warnings should be given (unless it decided that no warnings need be given) before terminating or suspending service to a particular subscriber. These and like questions involve matters of judgment and degree. As I have already acknowledged, the decision as to whether or not to terminate a particular account may not be a simple one. But I do not accept that the adoption of some system providing for the issuing of warnings followed by termination or suspension is not a reasonable step which the respondent could have taken for the purpose of preventing or avoiding copyright infringement by users of its network.
Nicholas J, also expressed the opinion that in the absence of a industry code of conduct that iiNet had considerable flexibility as to how to design an effective and fair graduated response process.
Nevertheless, in the absence of applicable regulations or access codes which might guide an ISP’s decision making in relation to such questions, it seems to me that an ISP should be given considerable latitude when working out the detail of such a system. It is always possible to argue that a system for the issue of warnings and termination could be tougher than it is. But it would be difficult to criticise an ISP on that account if it acted in good faith to devise and implement a system that involved taking such steps against subscribers who the ISP was satisfied had used (or permitted others to use) its facilities for the purpose of committing flagrant acts of copyright infringement.
The knowledge of infringement requirement
All of the judges accepted that the reasonableness of iiNet being required to take steps to forward notices of claimed infringement and to terminate accounts depended on its having reliable evidence that an account was being used to infringe copyright. On the facts of the case, two out of the three judges expressed the opinion that the information given to iiNet was not adequate to meet the required standard. In the final analysis that was the chief (possibly sole) reason why the appeal was dismissed.
Nicholas J. stated that to trigger a graduated response by an ISP, a notice of claimed infringement sent to the ISP must contain an explanation of how the information about the subscriber infringement was collected. He also suggested that a notice addressed to an ISP should contain a statement verifying the accuracy of the data or the reliability of the methods used to collect it. Emmett J, stated that what is required is
unequivocal and cogent evidence of the alleged primary acts of infringement by use of the iiNet service in question. Mere assertion by an entity such as AFACT, with whatever particulars of the assertion that may be provided, would not, of itself, constitute unequivocal and cogent evidence of the doing of acts of infringement. Information as to the way in which the material supporting the allegations was derived, that was adequate to enable iiNet to verify the accuracy of the allegations, may suffice. Verification on oath as to the precise steps that were adopted in order to obtain or discern the relevant information may suffice but may not be necessary.
Emmett J, would also have imposed two additional requirements on copyright owners before requiring them to voluntarily adopt and implement a graduate response process. First, that the copyright owners had undertaken “to reimburse iiNet 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 iiNet service to determine whether further acts of infringements occur. Second, that the copyright owners had also undertaken to “indemnify iiNet in respect of any liability reasonably incurred by iiNet as a consequence of mistakenly suspending or terminating a service on the basis of allegations made by the Copyright Owner.” Emmett J, was the only judge to have added these two requirements.
The issue of whether iiNet had sufficient knowledge of the infringements to act was a hotly disputed issue. However while the trial judge had held that even though iiNet did not have a complete understanding it had decided from the second notice that it would never act on the notices irrespective of the information supplied to it. Despite the fact that this finding was unchallenged, the majority judges (Emmett J and Nicholas J) did not consider the decision of the ISP not to act was determinative. In a strong dissent, Jagot J reached the opposite conclusion.
Some reflections on the iiNet case
Online file sharing is a major problem in Canada. Recent research in Canada and elsewhere demonstrates the adverse impacts and economic losses that result from illicit online file sharing in the film and music industries.
The findings of the Full Court in the iiNet case show that graduated response processes can be effective, reasonable, and fair mechanisms to reduce illegal file sharing. In fact, although not referred to in the decision, last year the Irish High Court in EMI Records & Ors -v- Eircom Ltd,  IEHC 108 reach a similar conclusion. The Irish court held that a graduated response solution to illegal file sharing involving “detection, notification and termination” “is viable and proportionate”. Other academic research supports this view as well. See, Prof.Bomsel Decreasing Copyright Enforcement Costs: The Scope of a Graduated Response, Prof.Strowel, Internet Piracy as a Wake-up Call for Copyright Law Makers—Is the ‘‘Graduated Response’’ a Good Reply?, See also, Barry Sookman and Dan Glover Graduated response and copyright: an idea that is right for the times.
The iiNet decision provides useful guidance on how Bill C-32 could be amended to better achieve the stated objectives of the Government and the opposition parties. Bill C-32 already contains a notice and notice regime which requires online service providers to forward notices of claimed infringement to end users. The current proposed notice and notice process lacks efficacy, however, because the notices do not carry any threat of sanction for repeat infringers. The iiNet decision suggests that an additional requirement to mandate online service providers to adopt and implement a policy to terminate the accounts of repeat infringers would be an efficacious and reasonable way to reduce online file sharing in Canada.
* Links updated Mar. 13, 2011