The Federal Court of Australia recently ordered six Internet service providers (ISPs) to provide preliminary discovery of the names and physical addresses of account holders associated with 4,726 unique IP addresses.
In Dallas Buyers Club LLC v. iiNet Limited  FCA 317 and 838, the applicants claimed they had identified account holders who had infringed the copyright in their film, Dallas Buyers Club, by sharing the film online using BitTorrent, a peer-to-peer file-sharing network. The applicants sought discovery of the identity of each of those account holders from the ISPs, on the basis that those account holders might either be infringing the applicants' copyright, or may be able to help the applicants in identifying the actual infringers.
The ISPs resisted the application on a number of grounds, arguing that the applicants' evidence was not sufficient to identify the infringing IP addresses, that any claim against the respondents was speculative and certain preconditions which must be met before preliminary discovery can be ordered had not been satisfied. It was also argued that neither applicant had shown it owned the copyright in the film.
Owner of copyright in the film
The Court found that the Second Applicant, Voltage Pictures LLC, as the film's producer, was the owner of the copyright in the film and could therefore sue for infringement.
The First Applicant, Dallas Buyers Club LLC, was also a producer and the original owner of copyright in the film. There was an argument that Dallas Buyers Club LLC contractually assigned the copyright in the film to a third party entity who was not a party to the proceedings. However, the Court found that it was reasonably arguable that the contract operated as a licence rather than an assignment. Therefore, it was reasonably arguable that Dallas Buyers Club LLC could also sue for infringement.
The ISPs argued that the applicants' evidence was not sufficient to identify the infringing IP addresses. However, the Court was satisfied, on the evidence presented, that there was a real possibility that the IP addresses identified by the software used by the applicants had been utilised by end-users who were breaching copyright in the film by making it available for sharing online using BitTorrent.
Requirements for preliminary discovery
Two types of preliminary discovery are available in the Federal Court of Australia. This case was concerned with preliminary discovery to ascertain the identity of a putative respondent where the identity is not known. The relevant legislation in this case is rule 7.22 of the Federal Court Rules 2011 (Cth) (the Rules). In particular, rule 7.22(2)(c) provides that the Court may order a person 'to give discovery to a prospective applicant of all documents that are or have been in the person's control in relation to the prospective respondent's description'. This is only provided the prospective applicant satisfies the conditions in rule 7.22(1), being that:
(a) there may be a right for the prospective applicant to obtain relief against a prospective respondent; and
(b) the prospective applicant is unable to ascertain the description of the prospective respondent; and
(c) another person (the other person):
(i) knows or is likely to know the prospective respondent's description; or
(ii) has, or is likely to have, or has had, or is likely to have had, control of a document that would help ascertain the prospective respondent's description.
The Court considered that those conditions had been satisfied in this case. Given the definition of 'description' in the Rules is limited to a person's name, address and (for an individual) occupation, the Court limited the discovery to the names and physical addresses of the account holders, and did not agree to make an order for the disclosure of their email addresses.
Exercise of Court's discretion
The ISPs also advanced a number of reasons why the Court should exercise its discretion not to make orders for preliminary discovery. While the Court did not consider that the reasons justified the withholding of discovery, it did accept that some of the reasons impacted on the terms upon which discovery should be granted.
The ISPs argued that the individual allegations of infringement and potential damages were trivial and minor, and it was therefore unlikely that any actual case of infringement would be brought against any of the account holders. However, the Court did not consider this to be relevant, as genuine rights existed that are expressly recognised by statute. The Court also noted that it was possible for a copyright owner to seek potentially higher aggravated damages for copyright infringement under the legislation.
There was also a concern that the applicants would engage in 'speculative invoicing', writing to the account holders demanding a large sum of money and offering to settle for a smaller, but still excessive, sum. The applicants had engaged in such practice in the past. The Court therefore decided to impose conditions on the applicants to prevent speculative invoicing. The applicants were ordered to provide to the Court any proposed draft letter to the account holders, for the Court's consideration.
There were also a number of privacy concerns about the release of details of the individual account holders. The Court imposed safeguards to ensure that the private information remains private, and constrained the use to which the information may be put to purposes relating only to the recovery of compensation for infringement.
Proposed draft letter to account holders
In a subsequent decision, Dallas Buyers Club LLC v iiNet Limited (No 4)  FCA 838, the Court considered a proposed draft letter the applicants had prepared for the account holders. The demands consisted of four heads.
A claim for the cost of purchasing a copy of the film;
A claim for a substantial amount relating to each infringers' uploading activities by way of a one-off licence fee;
A claim for additional punitive damages under section 115(4) of the Copyright Act 1968; and
A claim for damages arising from the amount of money it had cost the applicants to obtain each infringer's name.
The Court found that the claims in (a) and (d) above were tenable, but that claims (b) and (c) were not within the ambit of the power in rule 7.22.
The Court agreed to release the names of the account holders only if the applicants provided a written undertaking to the Court that the information would only be used for the purposes set out in (a) and (d) above. Since the applicants were an overseas company, the Court also required that the applicants secure the undertaking by lodging a bond of $600,000 with the Court.
The decision highlights a number of important considerations in relation to applications for preliminary discovery that can be applied to most cases of intellectual property infringement, whether copyright or trade mark.
- The triviality of the infringement will generally have little, if any, bearing on whether an application for preliminary discovery is granted.
- ISPs will not be in breach of any privacy obligations for the disclosure of information if they are simply disclosing details in accordance with a Court order.
- Whether speculative invoicing is lawful practice in Australia is not an easy question to assess. His Honour considered that such representations may contravene the misleading and deceptive conduct provisions or the unconscionable conduct provisions of the Australian Consumer Law legislation. Rights holders should exercise caution in this regard.
- Generally, the prospective applicant in an application for preliminary discovery will be ordered to pay the costs of the application. However, where the ISPs adopt an adversarial position (as in this case, where nearly every issue was in dispute), the ISPs may be ordered to pay part of the costs of the prospective applicant.
- Generally, the prospective applicant will be ordered to pay the cost of the ISPs complying with the preliminary discovery orders.
- In applications for preliminary discovery, it might be advantageous for rights holders and ISPs to negotiate consent orders and conditions on the disclosure of documents, in order to reduce costs for each of the parties.
- In future cases for preliminary discovery such as this one, prospective applicants will now be required to prove that they seek preliminary discovery for a purpose provided by rule 7.22 and that they put on evidence of the nature of the demands or claims they propose to make. So in the future, prospective applicants should think about preparing a draft letter of demand in advance of the preliminary discovery hearing that the applicants propose sending to potential infringers for approval by the Court.
This decision is the first of this magnitude in Australia and suggests that the courts will afford little tolerance to online infringers. The case may well act as a deterrent to potential online infringers who might have previously formed a view that privacy obligations would protect their identity. However, the courts have acknowledged the need to balance the rights of rights holders and the privacy of individuals. Where it is within their power to do so, the courts will also ensure that lay individuals are protected from potential scare or bullying tactics, such as speculative invoicing.
Where rights holders are aware that their trade marks or other intellectual property are being infringed online, but they are unable to ascertain the identity of the infringer, they might like to consider taking immediate action for discovery of the identity of the potential infringer. Taking pro-active steps may also deter other potential infringers, so the preliminary cost may result in long-term benefits by way of a reduction of online infringement.
A shortened version of this article first appeared here on 1 October 2015 in the INTA Bulletin, and was republished with permission from the International Trademark Association (INTA).