[x-pubpol] Megaupload update

[Keith Davidson]

An interesting view on the Australian IINet and NZ Megaupload cases from 
the NZFACT (NZ Federation Against Copyright Theft) lawyer follows.

Cheers

Keith
______
www.nzlawyermagazine.co.nz/Archives/Issue184/184F1/tabid/4301/Default.aspx

iiNet: A victory for the ISP industry?
The much anticipated High Court of Australia judgment in Roadshow Films 
v iiNet Limited has finally issued. Claire Deeks of James & Wells 
Intellectual Property discusses the case and considers the likely 
consequences of the decision in New Zealand

In the end, the Court dismissed Roadshow’s appeal holding the Internet 
service provider, iiNet, not liable for authorising the copyright 
infringements of its customers. The decision in Roadshow Films v iiNet 
Limited [2012] HCA 16 has inevitably been heralded in most quarters as a 
huge victory for the ISP industry and for Internet freedom generally. 
But is this the case?

In the short-term, the decision clearly strengthens the position of the 
ISP industry in Australia (and, to a large degree, the industry here) in 
its negotiations with the content industry in respect of any voluntary 
industry-based agreement to counter online copyright infringement.

However, arguably, the real impact of the decision is that it exposes 
the failure of copyright law to keep pace with the online environment 
and highlights the need for governments to enact new legislation to deal 
with rampant copyright infringement. In this respect, the long-term 
impact of the iiNet decision may well prove a temporal victory for ISPs.

What was the iiNet case all about?
Proceedings were filed against iiNet in November 2008 by a group of 
Hollywood film studios (including Village Roadshow, Universal Pictures, 
Warner Bros, Paramount Pictures, Sony Pictures Entertainment, 20th 
Century Fox, and Disney), as well as the Seven Network. They argued that 
by not acting to prevent illegal file sharing on its network, iiNet was 
essentially ‘authorising’ the activity and was therefore liable for 
copyright infringement.

The studios’ representative, the Australian Federation Against Copyright 
Theft (AFACT), had conducted investigations into copyright infringement. 
Not surprisingly, AFACT had found evidence of a large number of 
Australian Internet users downloading copyright content belonging to the 
studios using a peer-to-peer protocol known as BitTorrent.

There was no question that the downloading by iiNet customers of the 
various films owned by the plaintiffs constituted an infringement of 
copyright. However, practical considerations meant that it was not 
feasible to pursue copyright infringement actions against these 
individuals – hence the desire to place responsibility for the 
infringements on iiNet.

Over a period of several months in 2008, AFACT sent notices to iiNet, 
attaching information demonstrating that iiNet users were using 
BitTorrent to infringe the studios’ copyright and demanding that iiNet 
prevent its customers from infringing the studios’ copyright by warning, 
suspending, or terminating their Internet services. iiNet did not take 
any such action, stating that, while it did not endorse or approve of 
the copyright infringements, it would not act on the basis of 
allegations alone.

After an eight-week Federal Court trial in 2009, the Judge found in 
February 2010 that iiNet was not liable for the downloading carried out 
by its customers. The studios appealed the decision, but lost in a 
judgment of the Full Federal Court handed down in February 2011 after 
two of the three appeal judges sided with iiNet. The studios then 
appealed to the High Court, which heard the case late last year, and 
which delivered its unanimous decision in two separate judgments on 20 
April 2012.

Authorisation – what did the Australian High Court decide and why?
Both High Court judgments focused on the factors set out in section 
101(1A) of Australia’s Copyright Act 1968 (Cth). These are a set of 
non-exhaustive factors to be considered when determining whether 
authorisation liability has arisen. To paraphrase, the factors are:

(a) the extent (if any) of the person’s power to prevent the infringing act;
(b) the nature of the relationship between the person and the primary 
infringer; and
(c) whether the person took any other reasonable steps to prevent or 
avoid the infringing act.

Chief Justice French and Justices Crennan and Kiefel held that the crux 
of the matter was to determine whether an inference of authorisation 
arose from the answers to these factual questions.

On the first two questions, the High Court appears to have found that 
iiNet did not possess the requisite control/ability to prevent 
infringement, primarily because iiNet had no direct power to prevent its 
customers from using the BitTorrent system. (The Court held that its 
only power was indirect: that is, under its customer agreement, iiNet 
could terminate accounts if the Internet service had been used to 
infringe another person’s rights or for illegal purposes).

In addition, the Court considered relevant to the question of control, 
the fact that, even if the ISP had exercised its power to terminate user 
accounts, a customer could move to another service provider with 
relative ease and continue infringing copyright. Related to this point, 
the Court also appeared to question the efficacy of the notices even 
assuming iiNet had sent them out (and mentioned the lack of any evidence 
on the likely behaviours of users in response to such notices).

Turning to the reasonableness requirement, the Court was critical of the 
fact that AFACT’s notices to iiNet did not fully disclose its 
methodology in detecting infringements. The Court noted that reliance on 
these incomplete notices must be balanced against the legal risk iiNet 
would bear if it wrongfully terminated a customer’s Internet service. 
Taking into consideration all of these circumstances, the Court held 
that it was not unreasonable for iiNet not to have acted on AFACT’s 
allegations.

On the basis of these findings, the High Court found that iiNet did not 
authorise the copyright infringements of its users and, accordingly, the 
appeal was dismissed.

While the decision is a win for iiNet, the High Court emphasised that 
the test for authorisation is largely a question of fact, and left open 
the possibility that an ISP could be held liable for the 
copyright-infringing activities of its customers in other circumstances. 
The Judges clearly indicated that they considered the way forward was 
for legislative change, noting that the existing doctrine of 
authorisation liability is “not readily suited to enforcing the rights 
of copyright owners in respect of widespread infringements occasioned by 
peer-to-peer file sharing” (per Chief Justice French and Justices 
Crennan and Kiefel at [79]).

How might the authorisation question be dealt with in New Zealand?
We have our own landmark case focused on intermediary liability pending 
– Megaupload. Of course, that is a criminal prosecution, whereas iiNet 
concerned allegations of civil infringement. Notwithstanding this, at 
the heart of the Megaupload allegations is the same copyright question – 
does an online provider have responsibility for the actions of its 
customers and, if so, to what extent, and what steps are reasonable for 
it to take in respect of copyright infringement by those customers?

Outside of Megaupload, there have only been a few cases that have dealt 
with authorisation in relation to copyright infringement in New Zealand, 
and our Courts have not yet had to consider the liability of an ISP for 
the peer-to-peer activity of its customers. (The cases that have dealt 
with the question of authorisation include: Fibreglass Technologies 
Limited v Fibreglass Solutions Limited & Ors (High Court, Auckland 
M1727-SW99, 30 May 2002, Justice Morris); Heinz Wattie’s Ltd v Spantech 
Pty Limited (2006) 8 NZBLC 101,679 (CA); and Australian Performing Right 
Association Limited v Koolman [1969] NZLR 273.)

That said, a New Zealand Court should have little difficulty in finding 
that customers who are sharing unauthorised files of films over the 
Internet using peer-to-peer programs are doing one or more of the 
restricted acts as set out in our Copyright Act 1994 (Act). Activities 
of peer-to-peer users that may constitute primary infringement include 
copying, storing (including temporarily copying or ‘caching’), adapting, 
communicating (making available/transmitting), and/or issuing to the 
public infringing copies of a film (or a substantial part of it) without 
the authorisation of the copyright owner. Users may also be liable for 
secondary infringement by virtue of importation, distribution, and/or 
communication of an infringing copy of a film (or substantial part of 
it). There is no specific provision which refers to authorising as a 
separate category of infringement. It arises from section 29 of the Act 
(which makes it an infringement to do any restricted act in respect of a 
work without the licence of the copyright owner) and section 16(1)(i) 
(which gives the copyright owner the exclusive right to authorise 
another party to do any of the other restricted acts set out in that 
section).

This is particularly so with the recent amendments to the Act to broaden 
the concept of communication of a work, and the inclusion of a new 
section making it an infringement of copyright to make a work available 
to the public (section 33 of the Act).

However, as in Australia, the key will be whether an ISP can be found 
liable for ‘authorising’ any of its customer’s acts and whether, if so, 
liability for any such authorisation is avoided by operation of the 
Act’s new ‘safe harbours’ and section 92B in particular.

In New Zealand legislation, there is no clear direction as to what will 
or will not amount to authorisation in the peer-to-peer file-sharing 
context. However, having reviewed the Act and relevant case law both in 
New Zealand and overseas, the following principles can be extracted, 
whereupon an ISP arguably ought to be found liable for authorisation for 
the activities of its customers (notwithstanding section 92B):

(a) When the ISP has control over the primary infringer to the extent 
that it would have been able to prevent infringement (such as by 
suspending, restricting, disconnecting, or terminating a user’s service);
(b) When the ISP has actual or constructive knowledge of the alleged 
infringement (and in this case, an appropriate notice provided to an ISP 
should be taken as putting that ISP on notice);
(c) When a reasonable person would conclude that the ISP sanctions, 
approves, or countenances the infringement;
(d) Where the nature of any relationship existing between the ISP and 
the file sharers leads to a finding of authorisation – financial reward 
for the ISP based on the users’ activities is a significant factor;
(e) When the ISP takes no reasonable steps to prevent or avoid the doing 
of the act (including non-compliance with any relevant industry codes of 
practice).

Obviously, the findings of the Court in the iiNet case will also need to 
be addressed – particularly insofar as they relate to an ISP’s ability 
to ‘control’ the infringing activity and whether the refined notion of 
control (‘direct’ vs ‘indirect’) is appropriate.

While the iiNet decision is not binding on a New Zealand Court, given 
the similarity between the relevant sections of the Australian and New 
Zealand Acts, the legislative intent behind our Act, and a desire to 
more closely align our laws with those of our trading partners, the case 
will be highly persuasive.

Should ISPs play a role in policing the Internet?
This is a question often posed and answered emphatically in the negative 
by dozens of Internet bloggers and the hundreds of comments posted on 
any newspaper article discussing the same. However, the reality is that, 
to a significant degree, ISPs already play a role in policing the 
Internet and, furthermore, whether by government mandate or voluntary 
agreement, ISPs are being made responsible to greater or lesser degrees 
for infringement occuring over their networks.

For example, in New Zealand, the Department of Internal Affairs, in 
partnership with ISPs, has negotiated the operation of the Digital Child 
Exploitation Filtering System (DCEFS) to prohibit customers from 
accessing illegal websites inadvertently or otherwise. (Now operating 
successfully for several years, the DCEFS arguably works because of the 
nature of the material which is being blocked, and a perception by ISPs 
that they have a moral obligation to block access to objectionable 
content. Unfortunately, it is proving to be much harder for a rights 
holder to convince ISPs they should consider piracy to be equally 
damaging on a moral basis. And, of course, the general public, while 
evidently having no qualms with ISP intervention in relation to child 
porn, is not so generous when it comes to interference with their access 
to free music and movies.)

Worldwide, there is a move to place responsibility for infringement 
occurring over networks with ISPs. Governments are looking for solutions 
to copyright infringement in an increasing number of countries and the 
need for better ISP cooperation is becoming more widely accepted. The 
solutions adopted or under consideration include legislation, 
government-sponsored negotiations, codes of practice, cross-industry 
agreements, and court-ordered remedies arising out of litigation (IFPI 
Update February 2012: For example, ISPs in Chile, United States, France, 
New Zealand, Hong Kong, Taiwan, Spain, South Korea, and Ireland have 
implemented a gradual response program under either statutory or 
voluntary schemes. ISPs in Austria, Belgium, Finland, Italy, Malaysia, 
Netherlands, and the United Kingdom have been ordered by their national 
courts to block access to certain websites – such as The Pirate Bay).

New Zealand is no exception to this general movement, as it is one of 
the founding countries in the new ACTA (Anti-Counterfeiting Trade 
Agreement), and has recently enacted new legislation entailing a 
graduated response system (or what has been termed the ‘three strikes 
legislation’). We are also part of the Trans-Pacific Partnership 
Agreement negotiations and are under pressure to accede to so-called 
‘stronger’ intellectual property laws, including repeat infringer 
Internet termination and a strengthened graduated response system.

Indeed, two of the main policy considerations behind recent amendments 
to our copyright legislation were stated to be provision of greater 
certainty of legal liabilities and the establishment of practical means 
for enforcement of copyright rights, with ISPs explicitly identified as 
crucial players in any such policy change. (The Ministry of Economic 
Development Working Paper, Internet Service Provider Liability, 20 
October 2005 states (emphasis added): “Firstly, any provisions dealing 
with ISP liability should ideally provide users, owners and ISPs with 
some degree of certainty about their position; Secondly, as New Zealand 
is a geographically isolated country, the Internet offers significant 
opportunities for accessing information in a timely and cost efficient 
manner. Imposing unduly heavy liability on ISPs may affect investment 
and Internet service provision and lead to limited services and choice 
for consumers. Thirdly, while it is important for New Zealanders to have 
access to these services, it is also important that both domestic and 
international copyright owners have confidence in the protection 
afforded to them by a copyright regime. They must have some avenues to 
enforce their rights. To this end, ISPs are often easier to identify 
than the individual who will post or send infringing material and they 
provide a convenient point at which to block that material.”)

Even in iiNet, the Judges recognised that there was an important 
rationale for having secondary liability for the authorisation of 
copyright – namely time and cost efficiencies.

Consequences of iiNet
In the short-term, the case will influence discussions taking place in 
Australia and elsewhere on whether and how to implement copyright 
graduated response systems (of which New Zealand’s infringing 
file-sharing regime is an example: see section 122A of the Act), and 
Australian discussions on extension of its safe harbour regime.

The ISP industry’s bargaining position in its negotiations with the 
copyright content industry will have been strengthened, and this will no 
doubt affect the extent of the obligations placed on ISPs and the 
sharing of costs in respect of any voluntary industry-based response in 
both countries.

However, further, and arguably more importantly, the decision highlights 
that Australian and New Zealand law, despite recent amendment, has 
already been surpassed by overseas developments in online copyright 
protection. In the three years since the iiNet case commenced, 
legislators, regulators, and Courts around the world have mandated that 
ISPs must play a central role in preventing online copyright 
infringement. (A number of ISPs in the US (including the three largest) 
have signed up to a voluntary graduated response system. In France, a 
mandatory graduated response policy exists and is administered through a 
government agency, and Internet disconnection is one possible sanction 
for repeated copyright infringement.) With ISPs becoming increasingly 
dependent on the monetising of legal content, they are gradually coming 
to appreciate that their commercial interests may be best served by 
protecting copyright.

AFACT has already issued a press release calling for legislative reform 
to address peer-to-peer copyright infringement. It is likely that the 
issue will be considered in the upcoming Australian Law Reform 
Commission copyright inquiry which is currently open for public comment 
(the draft terms of reference for the inquiry are available at: 
www.ag.gov.au/Consultationsreformsandreviews/). A full review of the 
digital provisions of our Act is due to commence in 2013, and this will 
no doubt ask questions on intermediary liability, the new file-sharing 
regime, ISP safe harbours, and other issues which were central to the 
iiNet case.

In the meantime, copyright owners and ISPs will continue discussions 
about an industry framework to address peer-to-peer copyright 
infringement. To date, discussions in New Zealand have stalled around 
the costs payable (if any) by the rights holder to the ISP to implement 
and run the notice program. (There is currently a review underway in New 
Zealand on the level of the fee that copyright owners must pay to ISPs 
under our infringing file-sharing regime; the fee is currently set at 
$25 per notice. Submissions closed this month.)

In the end, then, the real importance of this case in the medium to 
long-term is to serve as a catalyst towards an appropriate legislative 
change to address the problem of widespread online copyright 
infringement in the age of peer-to-peer technology. The ISP industries 
‘win’ here might be its loss in the long-term, unless it can work 
together with the content industry to achieve a commercially viable 
framework to combat Internet piracy.

Claire Deeks (formerly Claire Tompkins) is a senior associate at James & 
Wells Intellectual Property specialising in all areas of IP enforcement 
with particular expertise in anti-piracy and anti-counterfeiting work.

NZLawyer \\ issue 184 \\ 18 May 2012