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Friday, August 21, 2015

The plot thickens: a twist in the Dallas Buyers Club v iiNet saga

By Richard Sawyer, Lawyer

The courtroom drama between Dallas Buyers Club LLC (Dallas) and internet service provider iiNet has had many of the hallmarks of a great film: scenes of fiery cross-examination, a suspenseful cliff-hanger judgment and now an eleventh-hour plot twist.

Following a new judgment by Federal Court Justice Nye Perram, iiNet will not have to hand over the names and contact details of any of its customers to Dallas. That is, unless Dallas undertakes to demand only a narrow category of damages from those customers and guarantee that undertaking with a $600,000 bond.

Justice Perram latest judgment will be welcomed by consumer rights groups, who will see the judgment as protecting consumers from receiving letters from rights owners making illegitimate demands for money (known as 'speculative invoicing'). For rights holders, though, the decision limits the relief which they might otherwise have thought they were entitled to in response to the actions of online pirates.


Background

In a judgment in April 2015, Justice Perram indicated that he would grant an order for preliminary discovery sought by Dallas to obtain the names and contact details of some iiNet account holders. His Honour was satisfied that Dallas has a 'real case' against some of account holders for copyright infringement.

However, recognising the potential risk of Dallas engaging in speculative invoicing, his Honour stayed the order until he had reviewed the letter that Dallas intended to send to account holders. Having reviewed this material, Justice Perram has now declined to lift the stay and exercised his discretion not to grant the order for discovery.

You can read our previous posts on Dallas Buyers Club for further context: March 6, 2015April 8, 2015; May 22, 2015; and June 23, 2015


Why the plot twist?

While Justice Perram noted that Dallas had 'literally' met the requirements of the Federal Court Rules relating to an order for preliminary discovery, he noted that the power to grant such an order remained a discretionary one. Any exercise of this power, he said, should be moulded by the scope and purpose of the preliminary discovery rule:

The centrepiece of the rule is the idea that what a prospective applicant for preliminary discovery is ultimately seeking to vindicate is a right to obtain relief against an unidentified person.

It follows that if an applicant wants to obtain information for a purpose other than to obtain relief against a prospective respondent, then their application for preliminary discovery should be denied.

In the present case, Dallas was ultimately seeking account holders' identities in order to make demands of money to settle the potential infringement claims. Accordingly, in order to determine whether this purpose was consistent with the purpose of the preliminary discovery rule, Justice Perram had to examine whether the sums of money that Dallas proposed to demand from account holders 'could plausibly be sued for'. If the sums of money were not realistically recoverable in court, then Dallas would have been  using the account holders' details for a purpose inconsistent with the preliminary discovery rule.


What demands was Dallas going to make?

The submissions detailing the amounts of money that Dallas proposed to demand from account holders are subject to a confidentiality order. Nonetheless, without revealing actual sums of money, his Honour set out the four 'heads' or categories of damages that Dallas argued it was entitled to demand. These were:

  1. the cost of a single purchase of the film;
  2. an amount relating to each infringer’s uploading activities (since, in using BitTorrent, users necessarily simultaneously download and upload content);
  3. punitive damages depending on how many other copyrighted films had been downloaded by the user; and
  4. Dallas’ costs to obtain the infringer’s name.

His Honour held that there were no real difficulties with the sums that Dallas proposed to demand under either the first or fourth heads of damage, but that any demand for the second or third category of damages would be 'impermissible'.

With regard to the second head of damage (amounts relating to each infringers multiple uploading activities), Dallas had argued that the relevant entitlement to damages for these uploads should corresponded to the licence fee that a person would have to pay Dallas in order to have been authorised to upload the file via BitTorrent legally. This amount, said Dallas, was the amount of money that they had foregone as a result of the user uploading the film in breach of copyright. His Honour described as 'so surreal as not to be taken seriously' the proposition that users who were going to share the film would have avoided infringing Dallas' copyright by negotiating a distribution agreement with the copyright owner. More plausible alternatives were that the user would have rented or bought the film legally, or not done so at all. His Honour concluded that such a claim would be summarily dismissed and, accordingly, no right to obtain relief would arise.

In relation to the third head of damages (punitive damages), Justice Perram similarly concluded that Dallas' claim was misconceived and would be summarily dismissed. This was because the relevant provision of the Copyright Act 1968 (Cth) (the Act) relating to punitive damages does not permit recourse to other acts of infringement of other people’s copyright in determining whether to grant punitive damages.

For these reasons, his Honour found that the second and third heads of damage were impermissible demands. To make these demands, therefore, was not consistent with a purpose of obtaining relief against a prospective respondent. Consequently, for so long as Dallas proposes to make these demands, Justice Perram held that his discretion should be exercised to deny the application for preliminary discovery.


Relief for electronic commercial infringement

The judgment also included some commentary on subsections 115(5)-(8) of the Act, relating to 'electronic commercial infringement'. These subsections provide for the court to take into account other likely, but not actually proved, instances of  copyright infringement in considering what relief to grant in an action for copyright infringement. To enliven these subsections, a plaintiff needs to establish that the proved infringements and the likely infringements, taken together, were on a 'commercial scale'. The result would presumably then be to increase the relief that the court would grant to the plaintiff.

According to the explanatory memorandum that accompanied the introduction of these subsections, they were specifically designed to 'capture commercial-scale Internet infringements that occur through peer-to-peer file sharing'. Nonetheless, Justice Perram acknowledged that aspects of the provisions are 'puzzling' from a drafting perspective; not least of which is the fact that they appear to rely on whole copies of works being shared online, when in fact BitTorrent relies on the exchange of thousands of slivers of works.

Justice Perram indicated that these subsections may have assisted Dallas in arguing that, in an action against an account holder for copyright infringement, the court could conclude that the film was shared many thousands of time on BitTorrent. Nonetheless, he concluded that Dallas never properly explained what they intended to demand from account holders as a result of the subsections. As a result of deficient submissions, then, his Honour said the issue went nowhere.


Impact for other rights holders

The broader impact of the decision for rights holders is that they will need to satisfy the court that they intend to use personal details obtained under an order for preliminary discovery in a way that is consistent with the purpose of the preliminary discovery rule. Effectively this will require rights holders to put on evidence showing:

  • what demands they intend to make of people once they have obtained their contact details; and
  • that these demands would have some prospect of success if litigated.
Relevantly to the second issue, we now know at least two heads of damage that the court considers to be unlikely to be recoverable by rights holders, being:
  • foregone licence fees from online pirates who share content through BitTorrent; and
  • punitive damages, determined by reference to repeated offending of several different copyright works.

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