By a unanimous five judge court in the Hight Court of Australia, iiNet did not authorise the infringement of copyright held by the movie owners (the appellants).
There was no question that copyright infringement by iiNet's customers had occurred - the fundamental question was whether iiNet had authorised the infringement, which would fall foul of s 101 of the Copyright Act 1968. This secondary infringement could result in damages being paid by iiNet to the copyright owners.
The appellants relied on passages from University of NSW v Moorhouse  HCA 26; (1975) 133 CLR 1 (1 August 1975) as noted in para 58. They argued that control was within the meaning set out by Gibbs J:
It seems to me to follow from these statements of principle that a person who has under his control the means by which an infringement of copyright may be committed - such as a photocopying machine - and who makes it available to other persons, knowing, or having reason to suspect, that it is likely to be used for the purpose of committing an infringement, and omitting to take reasonable steps to limit its use to legitimate purposes, would authorize any infringement that resulted from its use.The appellants argued that after receiving a notice of infringement, iiNet had to take action against the account holder who had been assigned the relevant IP address. That person, of course, may not have been the person committing the primary infringement - it could be a family member, employee, house guest or housemate.
iiNet argued that it would be "a complex and costly task" to investigate allegations in notices, and it is obvious that if it did not thoroughly investigate before taking action then it might end up breaching its own terms of service with its customers.
Thoughts about policy
Moorehouse was about the use of photocopiers in the university library, and it led to legislative change to protect the university and other educational institutions. The case was distinguished in iiNet in para 144 on the topic of indifference to infringement. The theme running through copyright legislative change in Australia has been to protect the providers of goods or services which can be used for legal or impermissible purposes - it is up to the user to obey the law.
In my opinion there is a practical issue here - the Australian legal system is generally predicated on punishing or controlling people for what they have done, not what they might do. If someone has stolen copyrighted property then that is wrong, but does it indicate that they should receive a contractual punishment dictated by someone who is not party to the contract? iiNet's terms of service clearly give it the ability to terminate a contract with a customer who breaches the law, but that is a matter between iiNet and the customer.
Past behaviour may indicate a tendency toward future behaviour, but in Australian law the court confine the ability to lead that sort of evidence to very limited cases. Third-party-enforced termination of service of an internet connection is a type of retributive punishment, which has no place in civil law. The punishment does not attempt to put the victim back into a position as if the offence had not occurred, nor does it provide compensation for the damage. These are valid consequences of copyright breach, but termination of service after the fact is unrelated.
Questions and answers
Did iiNet have the power to prevent use of BitTorrent?
para 65 ... iiNet had no direct technical power at its disposal to prevent a customer from using the BitTorrent system to download the appellants' films on that customer's computer with the result that the appellants' films were made available online in breach of s 86(c).
What contractual power did iiNet have?
69 Even it if were possible to be satisfied that iiNet's inactivity after receipt of the AFACT notices, and its subsequent media releases, "supported" or "encouraged" its customers to continue to make certain films available online, s 101(1A) ... makes it plain that that would not be enough to make iiNet a secondary infringer. An alleged authoriser must have a power to prevent the primary infringements ... there must be such a power to prevent...
70 As explained, the extent of iiNet's power was limited. It had no direct power to prevent the primary infringements and could only ensure that result indirectly by terminating the contractual relationship it had with its customers.
Per Gummow and Hayne JJ: 146 Further, iiNet only in an attenuated sense had power to "control" the primary infringements utilising BitTorrent. It was not unreasonable for iiNet to take the view that it need not act upon the incomplete allegations of primary infringements in the AFACT Notices without further investigation which it should not be required itself to undertake, at its peril of committing secondary infringement.
Did iiNet take reasonable steps?
76 iiNet's inactivity after receipt of the AFACT notices was described by the appellants as demonstrating a sufficient degree of indifference to their rights to give rise to authorisation. However, the evidence showed that the inactivity was not the indifference of a company unconcerned with infringements of the appellants' rights. Rather, the true inference to be drawn is that iiNet was unwilling to act because of its assessment of the risks of taking steps based only on the information in the AFACT notices. Moreover, iiNet's customers could not possibly infer from iiNet's inactivity (if they knew about it), and the subsequent media releases (if they saw them), that iiNet was in a position to grant those customers rights to make the appellants' films available online.
The key point
77 The appellants' submission, that iiNet should be taken to have authorised the infringements unless it took measures with respect to its customers, assumes obligations on the part of an ISP which the Copyright Act does not impose. A consideration of the factors listed in s 101(1A) does not permit a conclusion that iiNet is to be held liable as having authorised the infringements. (my emphasis)