A landmark Federal Court battle on copyright fraud has sparked major concern for the film industry and Internet Service Providers alike. The case may still be ongoing but the ramifications have already spilled over into the world of home automation.

In October 2009, following 59 weeks of investigation into copyright infringement, film industry watchdog, the Australian Federation Against Copyright Theft (AFACT), launched action against Perth-based iiNet, the third largest Internet Service Provider (ISP) in Australia.

AFACT represented a group of 34 film and television giants (including Warner Bros, Sony Pictures, Disney and the Seven Network) and told the Federal Court of Australia that iiNet not only failed to take steps to stop illegal file-sharing by customers, but breached copyright itself by storing and transmitting the data through its system.

In February, Justice Dennis Cowdroy found it “impossible” to hold iiNet liable for what its users had done.

He ruled that iiNet wasn’t responsible for encouraging or authorising people to share the illegal content, and the BitTorrent software that was used to trade programs was not something that iiNet owned, controlled or operated.

But it’s not over yet, as an appeal is likely to be heard later this year.

So, how does this case impact the home automation industry? In order to see how the two worlds combine, we must look back to how the iiNet lawsuit first came about.

AFACT claimed iiNet customers used BitTorrent to trade movies, such as American Gangster and Mamma Mia!, as well as popular television shows like Heroes and Two and a Half Men. The group argued there were 94,942 instances where iiNet customers made available online copies of the applicants’ titles.

“Films and video require a large amount of bandwidth to share via BitTorrent, which is the program of choice for internet users who are intent on infringing copyright. iiNet profits from selling bandwidth to its customers,” says AFACT barrister Tony Bannon, SC.

“In this case there was no issue that infringements had been occurring on the iiNet network weekly, daily and hourly since 23 June 2008. There was no issue that iiNet was made aware of the infringements on its network – they were aware because AFACT informed them every week for 59 weeks.”

On the other side of the fence, iiNet cited that it clearly and publicly promoted the distribution of licensed content and prohibited users from infringing copyright via its facilities.

“iiNet is no different to Australia Post, as all it does is transmit packages of information from A to B,” an iiNet spokesperson says.

“If someone sends something through the post that’s illegal, they will sue the person sending the material and/or the person receiving it. Australia Post won’t get sued, and that’s the crux of the argument. iiNet was just providing the network, and we demonstrated through the case that iiNet certainly wasn’t authorising or approving that activity.”

The case ran for 20 days, until Justice Cordoy handed down his judgement in favour of iiNet. AFACT promptly submitted a Notice of Appeal containing 15 grounds of appeal, which is expected to come before the Full Court later this year.

AFACT executive director Neil Gane says the judgement was out of step with the well established copyright law in Australia.

“This decision allows iiNet to pay lip service to provisions that were designed to encourage ISPs to prevent copyright infringements in return for the safety the law provided. If the decision stands, the ISPs have all the protection without any of the responsibility.

“By allowing internet companies like iiNet to turn a blind eye to copyright theft, the decision harms not just the studios that produce and distribute movies, but also Australia’s creative community and all those whose livelihoods depend on a vibrant entertainment industry,” he says.

According to iiNet, however, the fault lies within the film industry, which hasn’t been able to keep up with the rapid changes in technology and the needs of its customers.

iiNet’s chief executive Michael Malone says this case hasn’t stopped one illegal download, and further legal appeals will not stop piracy.

“It is more than disappointing and frustrating that the studios have chosen this unproductive path,” he says.

“People are crying out to access the studios’ material, so much so that some are prepared to steal it. A more effective approach would be for the studios to make their content more readily and cheaply available online.”

Unlike the music industry, this was the first time the film industry has sued a service provider for the alleged acts of its customers. In the United States it’s a different story, where several actions have been taken against internet users, but not ISPs.

Industry observers are now speculating whether individuals are next on the hit list. So far, AFACT has not attempted to prosecute individuals for illegally sharing copyright movies over the internet. But things could change.

Assuming the appeal is upheld, the job of a custom installer, as a service provider, is set to become a lot more complicated. The question is now: If you’re integrating a product, such as media centres, that may be able to override decryption software, are you legally responsible if your client abuses copyright?

“The issue is really a pretty straightforward one legally,” says copyright lawyer and CEDIA legal counsel Michael Leahy.

“Here is a metaphor – axes are sold in hardware stores and have many legal users. If someone uses an axe for an illegal purpose, to harm someone else, you don’t prosecute the person who sold them the axe, do you?”

When it comes to the issue of whether an installer can be prosecuted for helping clients to download unlicensed DVD decryption software, however, the advice is to be more cautious.

“It is a different matter if the item itself is illegal and should not be sold,” says Michael.

“If the product itself is illegal and is specifically and solely designed for downloading pirate software, then that’s a problem.”

Installers should be wary of working on a job that they suspect is going to be used for an illegal purpose.

“Installers could be sued if they were selling software which was specifically designed to allow their clients to deliberately create pirate copies – and decryption software would appear to fall into that category.”

This case has raised many questions about copyright fraud, but another hot topic is why the action was taken against iiNet, rather than the larger providers – Telstra and Optus.

According to University of Queensland law professor and intellectual property expert Kimberlee Weatherall, AFACT meant business when it closed in on iiNet.

“I believe iiNet may have been targeted because the industry was concerned about peer-to-peer (P2P) infringement,” she says. “But AFACT couldn’t get the government to legislate or ISPs to cooperate, meaning their only option was to litigate against ISPs, considering that suing users is still unattractive.”

As iiNet is the third largest ISP in Australia, there is also speculation that launching litigation against this smaller ISP could set a strong precedent for AFACT to go after the bigger players in the industry.

“The ruling is obviously an important one, especially if it stands on appeal as it sets a couple of key precedents,” Kimberlee says.

“Firstly, it says a general purpose ISP will not be said to be liable for the infringements of its users in the absence of active engagement with those infringements. Secondly, it stops what has lately been a marked tendency of the Australian courts to expand liability to providers of technology for the copyright infringements of users of that technology.”

As the case continues, it is important for installers to be aware of the outcome of AFACT’s appeal. Ultimately it comes down to ensuring that, whatever you do to assist a client, you come out of the transaction with a clear conscience.

As the appeal comes before the Federal Court, Connected Home Australia will provide updates on the case in later issues.