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iiNet ruling sheds light on speculative invoicing and punitive damages

iiNet has welcomed safeguards coming out of its court battle with Dallas Buyers Club LLC, but with punitive damages on the table, consumer groups warn of "copyright cowboys" chasing pirates in court.

Dallas Buyers Club. Focus Features

iiNet has welcomed a landmark piracy judgement handed down by the Federal Court yesterday, saying the legal case has shed light on the practice of 'speculative invoicing' and the ruling prevents its customers from being threatened over copyright infringement.

The makers of the Oscar-winning film "Dallas Buyers Club" took iiNet and a number of other smaller ISPs to court in a bid to access the personal information of alleged copyright infringers. Dallas Buyers Club LLC obtained 4,726 IP addresses found uploading the film to torrent networks and used the preliminary discovery application to obtain customer details matching these IPs in order to pursue individual pirates.

iiNet's comments on the case come as one of the key witnesses in the case and a representative of the distributor of "Dallas Buyers Club," Voltage Pictures, says the rights holders would not be pursuing individual pirates for exorbitant settlement fees.

But consumer groups say this case, as well as the final version of an industry-developed copyright code [PDF] released today, could lead to everyday internet users facing letters from rights holders demanding that they "pay up or else."

The practice of speculative invoicing is well established in other regions such as the United States, where individuals accused of copyright infringement can be sent letters by rights holders seeking significant damages for financial losses caused by piracy, or the option to pay a fee to settle out of court.

With Voltage Pictures claiming losses of "tens of millions of dollars" over "Dallas Buyers Club" piracy, there is potential that the customers behind those 4,700 IP addresses could face similarly high fees.

iiNet wins 'safeguard' for customers

In his judgement in the iiNet case, Justice Perram said Dallas Buyers Club LLC would be required to submit any letters of demand to the court for review. The CEO of iiNet, David Buckingham, welcomed this decision as a "positive result" for the ISP's customers.

"By going through the process we've been able to ensure that our customers will be treated fairly and won't be subjected to the bullying that we have seen happen elsewhere," he said.

"Letters issued by the rights holders will be reviewed by the Judge to ensure they are not threatening -- providing a significant safeguard for our customers. As a result, the ruling will put a major dent in the process and business case behind speculative invoicing, since the financial returns could be outweighed by the costs of legal action."

In addition, iiNet said it thought it "unlikely" that Dallas Buyers Club would sue customers, and that the decision would soon be superseded by the industry's new copyright code.

Concerns over speculative invoicing

However, consumer group Choice warned that "copyright cowboys" could soon be chasing individuals for excessive amounts in damages.

"We've yet to see a case in Australia where someone has been taken to court for unlawful online downloads," said Choice Campaigns Manager Erin Turner. "We know that one-third of Australians pirate TV shows and movies and we're worried that under our current copyright laws they could face fines of hundreds of thousands of dollars."

Upper-house political party The Pirate Party said the judgement set a "dangerous precedent" and that "Australians should be prepared for threatening letters demanding they 'pay up or else' for allegedly downloading movies online."

"Speculative invoicing is a bullying tactic," said Pirate Party Secretary Daniel Judge. "Movie studios know that most people will not be able to afford to challenge these allegations in court, so they offer a settlement that in moderate numbers can be quite lucrative. In the United States, settlement figures have been reported as around $5,000 -- which many people choose to pay even if they're innocent."

However, in an interview with Radio National's Breakfast program, Voltage Pictures' Vice President of Royalties, Michael Wickstrom, said the company was "absolutely not" interested in chasing individuals for thousands of dollars. He conceded that the next step in the "natural process" was to send settlement letters to the customers discovered through the iiNet case, he was personally "not for speculative anything."

"I want an Australian solution for an Australian problem -- what works in the US does not necessarily work for other territories," he said.

However, while he would not comment on a dollar figure for damages, he said piracy of "Dallas Buyers Club" had cost Voltage dearly.

"We would estimate [it has cost] tens of millions because we see lower home video revenue, lower pay-per-view revenue," he said.

"It's affecting the film globally when Australians upload and share. An actual download is worth whatever it is being sold on the internet, $10 or so, but when you upload, that's a big problem. Because I have no idea how many people that the film is now being shared with. That one person could turn to 10, could turn to 100, could turn to 1000."

When asked how punitive the damages sought would be, Wickstrom said that was "left up to our Australian attorneys to decide."

Punishment and deterrence

However, the instructing solicitor for Dallas Buyers Club LLC in the iiNet case, Marque Lawyers managing partner Michael Bradley, said that, although his firm would consult with Dallas Buyers Club to arrive at a figure appropriate to "local conditions," it was ultimately a decision for his client.

According to Bradley, damages sought depend heavily on context and could vary on a case-by-case basis.

"If we identify someone who's engaged in quite significant file-sharing activity...then the commercial damage that that person has caused could be very substantial, and the Copyright Act provides for open-ended damages. It also expressly provides for exemplary damages in certain cases," he said, adding that "the court is entitled to take into account issues like deterrence".

Lawyers for Dallas Buyers Club are not expecting to obtain iiNet customer details for several weeks, and from there legal action could be some months away. However, early court cases could set a significant precedent and dictate the tone for piracy crackdowns in the future.

"Exemplary damages are essentially punitive," Bradley said of the dollar figures rights holders could seek in court. "So there's an element of punishment there, but also deterrence -- sending a message to the marketplace saying, the copyright owner is serious about this but also the courts are serious about it."