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Dallas Buyers' Club Case

 

Rights Owners Strike Back? Preliminary Discovery post Dallas Buyers Club

Published by Lexis Nexis Internet Law Bulletin 18/2015 and Australian Intellectual Property Law Bulletin 28/2015

By Grant Hansen

In 2012 the ISP iiNet achieved a notable victory in the High Court in  Roadshow Films Pty Ltd v iiNet Ltd (2012) 95 IPR 29 (“iiNet”). In the wake of that decision, most observers concluded that rights owners of film and music were left with no cost effective way of policing internet infringement of their rights. Precisely for that reason, much vaunted Chatham House style negotiations between ISPs and content owners to produce an industry code of conduct for registration under the Telecommunications Act 1997 (Cth) proceeded to go precisely nowhere.

Putting to one side the optics and economics of litigating against domestic consumers (and these are complex considerations whose answers are not as obvious as one may think), the  fundamental problem is that evidence of end user infringement is almost impossible to come by. Parents do not inform on children, and outside the world of Orwell’s 1984, vice versa.

There are however technologies out there that can identify the participants in a BitTorrent “swarm”. Essentially they participate in the swarm and collect information on their co-swarmers. But that information stops at the IP address. And the person who knows the subscriber using that address is the ISP who allocated it.

ISPs do not want to disclose these details for all sorts of reasons. In iiNet the High Court observed that by mid 2008 more than half of iiNet’s traffic by volume was attributable to BitTorrent file sharing. (French, Crennan and Kiefel JJ  para.38). In iiNet, rights holders tried to use the authorisation cause of action in the Copyright Act to hold the ISPs liable for infringement which they were on notice of. The rights owners failed because, essentially, the High Court found the ISPs had no means of directly preventing that infringement (notwithstanding their ability to disconnect subscribers).

In Dallas Buyers Club LLC and others v iiNet [2015] FCA 317 (“Dallas Buyers Club”) the content owners have struck back by succeeding in obtaining preliminary discovery of the details of 4,726 subscribers whose IP addresses had used BitTorrent file sharing. (Though it may be a pyrrhic victory for reasons to be explained below).

Prior to Dallas Buyers Club, the preliminary discovery jurisdiction in the Federal Court had developed into a technical minefield. The decision however is a welcome return to a judicial approach more likely to deliver the objectives of the preliminary discovery jurisdiction.

Two Types of Preliminary Discovery

There are two types of preliminary discovery. Under FCR 7.22  the prospective applicant knows they have a cause of action but does not know precisely who to sue. Under FCR 7.23 the prospective applicant thinks it may have a claim but does not have enough information to make a decision as to whether to commence proceedings.

A review of FCR 7.23 will give an insight into the challenges posed by the jurisdiction.

Preliminary discovery under FCR 7.23 requires evidence, at the time of the application, that: the Prospective Applicant:

(a) Believes it may have the right to obtain relief in the Court from a Prospective Respondent;

(b) after making reasonable enquiries, does not have sufficient information to decide whether to start proceeding ;

(c) reasonably believes that:

i) the Prospective Respondent has or is likely to have, or has had or is likely to have had, in its control, documents directly relevant to the question whether the Prospective Applicants has a right to obtain the relief; and

ii) .inspection of the documents sought by the Prospective Applicants ;

would assist in making the decision to commence substantive proceedings.

This sounds like a pretty useful forensic weapon. As stated by Hely J in St George Bank Ltd v Rabo Australia Ltd [2004] FCA 1360 at [26(f)]:

the question posed by subpara (b) of the rule is not whether the applicant has sufficient information to decide if a cause of action is available against the prospective respondent. The question is whether the applicant has sufficient information to make a decision whether to commence proceedings in the Court: Quanta Software at [33] — [34], Alphapharm at 24–26. Accordingly, an applicant for preliminary discovery may be entitled to discovery in order to determine what defences are available to the respondent and the possible strength of those defences, or to determine the extent of the respondent’s breach and the likely quantum of any damages award’.

Hely J’s statement was subsequently endorsed by the Full Court in Echo Tasmania Pty Ltd v Imperial Chemical Industries PLC [2008] FCAFC 58 per Black CJ and Sackville J and Apache Northwest Pty Ltd v Newcrest Mining Ltd [2009] FCAFC 39 per Moore and Gilmour JJ.

The test of reasonable belief is an objective test[1].  There must be some evidentiary basis for the belief that takes it beyond a mere “assertion”.[2].  For a belief to be ‘reasonable’, “there must be available sufficient material to make the applicant’s belief objectively reasonable[3].

An applicant, however, is not required to establish a prima facie case[4].  While objective circumstances must exist sufficient to demonstrate a reasonable cause to believe, this can be established even if something is left to surmise or conjecture[5].

Not as Simple as it Sounds

Straightforward? Well not really. This first problem is that evidence of reasonable belief requires evidence from an appropriate decision maker within the Prospective Applicant. Given that Prospective Applicants are typically large and or multi-national corporations with complex internal delegations of authority, careful consideration is necessary. In Telstra Corporation v. Minister for Communications (no. 3) [2007] FCA 1567 the Prospective Applicant failed because the evidence going to the Prospective Applicant’s reasonable belief was from a person with insufficient authority to make the decision to commence proceedings.

Secondly, the “reasonableness” of that belief could always be attacked. This necessarily increased uncertainty and added to length of hearing and cost.

Thirdly, “sufficient information to decide whether to commence proceedings” is an intrinsically difficult concept. It will necessarily be a matter of opinion as to whether the information available is “sufficient” or not. In the Copyright jurisdiction it is sufficient to be able to particularise at least one instance of infringement – FCR 34.35

Fourthly, especially with multiple Respondents (say a group of companies), establishing that all the documents to be produced by each Respondent would assist in making the decision to commence against all of the Respondents was intrinsically difficult.

So a potential applicant who had knowledge of some infringement and reason to suspect that infringement was spread throughout a group of companies (for example) would face a potentially difficult challenge to obtain the information it needed to decide to commence proceedings against all of those potential respondents. And starting on a more limited basis may simply not be economic.

Dallas Buyers Club – The Applicant’s case

The argument in Dallas Buyers Club is an excellent example of just how difficult the fight could becomet. Dallas Buyers Club’s application was under rule 7.22. The Applicant had to persuade the Court that :

i) there may be a right for the prospective applicant to obtain relief against a prospective respondent; and

ii) the prospective applicant is unable to ascertain the description of the prospective respondent; and

iii)         another person (the other person):

(a) knows or is likely to know the prospective respondent’s description; or

(b) has, or is likely to have, or has had, or is likely to have had, control of a

The word ‘description’ is defined in the Dictionary to the Federal Court Rules 2011 as follows:

i)for a person who is an individual—the person’s name, residential or business address and occupation;

ii)for a person that is not an individual, the persons name and corporate details.

The Applicant had used a software programme known as Maverik Monitor to identify some 4,726 IP addresses used to download unlicensed copies of the movie Dallas Buyers Club using Bit Torrent software.

Everyone knows (and the Applicant’s German expert confirmed) the principal reason a consumer installs a BitTorrent client on their computer is to view movies and listen to music for free. And the nature of an IP address is that it is linked to a subscriber account the identity of which is known only to the ISP.

So a clear case for preliminary discovery one might think.

Not according to the Respondents.

The Respondents’ Case – Playing the wrong man

First the ISPs attacked the reliability of Maverik Monitor. (Interestingly this was not the approach taken in respect of the software used in iiNet to identify the subscribers who were using BitTorrent to download illegal movies.)

But in Dallas Buyers Club the attack was directed at a strange target, the technician who gave evidence of how the software was used and the results it produced (unusually cross examination was permitted on an interlocutory application). Curiously, no attempt was made to cross examine the German expert who had given a 27 page report on how the Maverik Monitor software worked.

As a result, press reports which described a blistering cross examination of a seemingly incompetent expert were completely misconceived. As Justice Perram observed “I have spent some time explaining the status of Mr Macek’s evidence because the press coverage it attracted was quite negative….that criticism was ill-informed…” [at para 8].

Because the real expert was not cross examined her evidence was accepted as it stood.[at para 26]

Only slivers

Next the Prospective Respondents attempted to argue that because the BitTorrent Client installed on a subscribers computer only ever sends or receives a “sliver” of data, there was no “substantial” copying. His Honour described this argument as “ambitious” and found that the correct question was whether the subscriber had made the film “available on line”.

Communicating a film to the public is one of the exclusive rights in s86 of the Copyright Act and s10 of the Act defines “communicate” to include “make available on line”.  Perram J found, with respect not surprisingly, that even evidence of sharing of a single “sliver” of the film was “strong circumstantial evidence that the end user was infringing copyright in the film”. As His Honour put it; “I do not regard as fanciful the proposition that end-users sharing movies on-line using BitTorrent are infringing copyright in those movies. Indeed, if there is anything fanciful about this, it is the proposition that they are not.”[at para 30]

Challenging title

At this point the Respondents turn to a frequently used copyright infringement defence – attacking the standing of the applicant to sue. Pursuant to s 98 of the Copyright Act the owner of copyright in a film is its “maker” as defined in section 10 and this is usually the producer of the film. J Perram had no difficulty in inferring that the maker of the film was in fact the applicant based on the evidence of an executive of the company which had caused Dallas Buyers Club LLC to be set up as a special purpose vehicle.

The respondents then submitted that an exclusive distribution licence agreement entered into by Dallas Buyers Club LLC with another entity (Voltage) deprived them of the standing to sue by virtue of there having been an assignment of copyright. His Honour noted that under that agreement Voltage was given the right to enforce its rights in Australia and his Honour granted leave to join Voltage to the proceedings.

At this point, the ISPs sought to show that two other distribution agreements were inconsistent with Voltage having the right to enforce. His Honour rejected this submission on the basis that the first of them predated the creation of the relevant copyright and could not be evidence of an assignment of that copyright while the second agreement again appointed Voltage to enforce copyright.

It is worth noting in passing that it is somewhat ironic that in a case about preliminary discovery the respondent seems to have benefited from very complete disclosure of the legal history of the copyright work in question.

Reasonable belief by who

The ISPs now raised the question of whether the Applicant had demonstrated the requisite reasonable belief that it had a claim and that the ISPs could identify the prospective respondent.

In this regard they took the point that the Applicant’s evidence came from an executive of Voltage not of Dallas Purchasers Club LLC and he had then in cross examination said that Voltage owned the copyright but never said that Voltage may have a right to commence proceedings. Therefore, said the respondents no one was deposing to the requisite belief in Voltage.

His Honour found that it was a “trivial” inference that the witness believed that the owner of the copyright in the film, whoever that may be in the group, had a claim and this satisfied the requirement that he Applicant have the requisite belief.

Car Park Cases and the Internet

Of more substance was the ISPs argument that they could not know who had infringed the copyright just because they knew who the subscriber was.

His Honour decided this point by reference to a line of car park cases where the owners of car parks had sought information from the RTA about the registered owners of cars that had not purchased a parking ticket.

The RTA’s defence was that they only had information about the registered owner, not the driver of the car parked.

As his Honour observed however: “From the point of view of principle, it is difficult to identify any good reason why a rule designed to aid a party in identifying wrong users should be so narrow as only to permit the identification of the actual wrongdoer rather than witnesses of the wrongdoing.” [at para 66]

His Honour noted that the current rule replaced a rule worded substantially similarly to the UCPR rule and referred to the relevant explanatory statement which strongly suggested the new wording was not intended to alter the old meaning (which clearly was the same as in the UCPR rule).

Eight Discretionary Factors

Eight reasons were advanced as to why the Court should not exercise its discretion:

(a) that the infringement of a “sliver” of film is a minor infringement;

(b) that the applicant would not seek to recover small sums from end users;

(c) that there was no chance of injunctive relief against end users;

(d) that the applicants had failed to identify serial infringers;

(e) that the applicants were going to engage in speculative invoicing;

(f) privacy law;

(g) the mooted industry code;

(h) that the process was one of investigation not identification.

His Honour dealt with the points going to the enforcement of rights(a) to (d) above by pointing out that the process was simply meant to identify putative respondents not to inform the strength or economic viability of the cases against them.

His Honour stated that he could well imagine circumstances where the enforcement may be economically justified. In particular His Honour referred to additional damages under s115(4) and the need to provide deterrence.

Of more interest was the argument on speculative invoicing. There was evidence that Voltage had a history of doing this in the US. While His Honour was not persuaded that the practice was per se illegal or unconscionable he was prepared to impose conditions that would prevent the practice. Of course for legitimate upholders of copyright this is not a problem. And to be quite clear, making an example of one end user pour encourager les autres is not speculative invoicing.

His Honour dealt with the potential conflict between the Privacy Act and  s280 of the Telecommunications Act by imposing a further condition that the information only be used for the purpose of recovery of compensation for infringement.

As for the Industry Code His Honour pointed out it was draft, incomplete and surely many months from implementation. Certainly at the date of writing the draft code  published on 20 February 2015 remains a draft.

Finally his Honour was not troubled by the fact that there was an element of investigation in the identification process as was the case in the RTA cases.

Conclusion

Given the ferocity of the defense this was a significant victory for the Applicants. With respect,  Perram J’s judgement is a model of clarity and common sense.

But alas it may be a pyrrhic victory. In the judgement His Honour foreshadows ordering that the Applicants pay the costs of the proceedings. Given the effort put into their largely (but not completely unsuccessful) defence this will be a large number.

Who bears the costs of an application for preliminary discovery usually will depend on the circumstances of the case.  The more a prospective Respondent treats an application for preliminary discovery in an adversarial manner, the greater risk they should bear the costs of unsuccessful opposition on the basis that costs generally follow the event[6].

His Honour has yet to bring down reasons on costs and the orders have not yet been made. The matter is listed on 21 April 2015 for the making of further orders.

More generally however, the era of BitTorrent file sharing may well be coming to an end anyway. Because it requires the installation of specialised software it is intrinsically inconvenient. Streaming from illegal sites based in overseas jurisdictions is probably the way most infringement of film and music will occur in future. And that will raise a different type of evidentiary problem, albeit one with which ISPs may well still be able to assist.

 



[1] Hooper v Kirella Pty Ltd [1999] at [39] per Wilcox, Sackville and Katz JJ

[2] Reeve v Aqualast Pty Ltd [2012] FCA 679 at [65] per Yates J.

[3] Guy Carpenter and Company Pty Ltd v Grove [2011] FCA 708 at [31] per Jagot J.

[4] Quanta Software International Pty Ltd v Computer Management Services Pty Ltd [2000] FCA 969 at [24] per Sackville J.

[5] John Holland Services Pty Ltd v Terranora Group Management Pty Ltd [2004] FCA 679 at [14] per Emmett J, cited by Jagot J in Guy Carpenter and Company Pty Ltd v Grove [2011] FCA 708 at [4].

[6] Steffen v ANZ Banking Group [2009] NSWSC 883.

This publication is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. The publication reflects the law at the date the publication was written which may differ at the date the publication is being read. No reader should act on the basis of any matter contained in this publication without first obtaining specific professional advice.
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