Dallas Buyers Club decision: Federal Court mans sluice gates to hold back excessive damages

The almost 5,000 users who downloaded Dallas Buyers Club have had a stay of execution -- but only because the film studio overreached itself in its quest for never-ending damages.
Written by Corinne Reichert, Contributor

"If matters had rested there, I would have given DBC access to the account holder information," said Justice Nye Perram crucially in his judgment in the case of Dallas Buyers Club v iiNet.

He was explaining the feverish overreach that saw Dallas Buyers Club (DBC) attempt to claim damages under not two, but four, heads -- and ultimately miss out on attaining the invaluable account details associated with 4,726 IP addresses that had allegedly breached the copyright of the studio by downloading infringing copies of the film.

On Friday morning, the Australian Federal Court ruled that DBC would not be permitted to send its draft letters out, as two of the heads of damages being claimed were "untenable" and therefore unrecoverable.

After ruling in early April that DBC would be able to contact alleged copyright infringers from internet service providers (ISPs) iiNet, Dodo, Internode, Adam, Amnet, and Wideband for compensation, the court then began the process of managing the film studio's damages expectations, which, as it turns out, exceeded the scope of the reasonable.

In an attempt to prevent "speculative invoicing", through which DBC has demanded that alleged copyright infringers in the United States either compensate Voltage by up to $9,000 or potentially pay hundreds of thousands of dollars in damages under court order, the Australian Federal Court ordered the film studio to provide a copy of the draft letters it intended to send.

As Perram put it in his judgment on Friday: "The court was not going to open the sluice gates until it saw the proposed correspondence, and until DBC satisfied the court that it was that approved correspondence, and not something else, such as a dead cat, that DBC was going to send to account holders".

However, it was only once Justice Perram had made it abundantly clear that he would not approve the release of customer details until DBC had provided him with a monetary figure -- and the process by which it would calculate damages for each individual -- that the company provided it. On July 2, he made a confidentiality order for DBC's bottom-line figure for negotiations, although the lawyers representing the ISPs were also granted access to it. These lawyers in turn submitted on July 15 that DBC was, in fact, engaging in speculative invoicing.

Perram on Friday revealed the methodology being used to claim compensation. The four heads of damages were: The actual cost of legally purchasing the film; the infringer's uploading activity of the film; additional damages for an infringer's other downloading history; and damages covering the cost it took for DBC to obtain that infringer's details.

In regards to the first head of damages, which the court allowed, Perram noted that DBC would be charging infringers the cost to purchase rather than rent the film, because they had downloaded a permanent digital copy.

"The idea that DBC's damages should equal the value of what was taken from it without its permission is not, self-evidently, a ridiculous claim and, indeed, has a certain biblical charm," he explained.

On the fourth point, wherein DBC is seeking to recover the costs it spent on retrieving the account details associated with each IP address, the court ruled that although it would be a large figure, it would be spread out over the infringers, and was "squarely within the kind of consequential loss which can be recovered on ordinary principles".

"If matters had rested there, I would have given DBC access to the account holder information by lifting the stay," he began.

Unfortunately for DBC, with the infringing account holders in its crosshairs and only a draft letter to be rubber stamped, it overreached itself, ultimately ensuring that the letters were knocked back -- with costs.

The second head of damages, which referred to the infringer's uploading activity of the film, would have been dismissed immediately from court had it been the sole damages claim, according to Perram.

It had "no reasonable prospects of success", as "the idea that any court would assess DBC's damages on the basis that BitTorrent users who were going to share the Film over the BitTorrent network would have avoided infringement by approaching DBC to negotiate a distribution arrangement in return for a licence fee is so surreal as not to be taken seriously".

And the third attempted claim of damages, wherein DBC nobly took at stab at charging alleged infringers for downloading unrelated copyrighted materials under the ownership of others, is not even covered by Australian law.

This attempt is unequivocally "inconsistent" with Section 115(4) of the Copyright Act altogether, with Perram saying, rather obviously, that the legislation "does not permit recourse to other acts of infringement of other people's copyright".

Perram finished up the ruling by saying that he also did not trust DBC not to ask for these two "untenable" counts of damages when contacting infringers, and he would therefore require a AU$600,000 bond as an undertaking that DBC would take its enthusiasm down a notch.

The future of piracy policing in Australia

Into the future, the court stated that any online copyright-infringement case whereby a company is seeking access to IP accounts must of course align its claims with the Copyright Act, the Federal Court Rules, and the precedent now set by Dallas Buyers Club v iiNet. Claimants will henceforth be required to state firsthand what damages they intend to recover, and via what methodology.

With such undertakings, it will no longer be "appropriate" for the court to read over draft letters, except to ensure that they do not surpass the laws governing copyright.

Any individual cases that do arise out of the present judgment, once account holders are contacted, refuse to negotiate with DBC, and are faced with legal action, are also to be addressed in the Federal Court by self-imposed copyright damages gatekeeper Perram himself.

"At least in the first instance, if the undertaking is forthcoming, I will direct the registrar that any such case which is filed should be listed before me for directions. In particular, any multi-respondent or reverse class-action suit should come before me for directions before it is served on any respondent," Perram ordered.

The day that so-called pirates are forced to pay for their digital bounty is drawing ever closer, with the Australian government making it clear that copyright infringers will soon be out of places to run.

A three-strikes policy for Australians who are caught downloading copyrighted material was released by ISPs and rights holders in February in the form of a draft code (PDF). The two had been asked to collaborate on the code by Australian Attorney-General George Brandis and Communications Minister Malcolm Turnbull late last year.

The government did not, however, make any efforts to examine the cost of implementing the code, nor who would bear this burden. The draft code set out a process by which rights holders would have to at least contribute to costs before notices were sent out to customers.

Similarly, both houses of parliament passed the piracy site-blocking Bill in mid June, which will allow rights holders to obtain a court order to block foreign websites that are deemed to contain copyright-infringing material or facilitate user access to copyright-infringement material, such as torrenting websites.

Again, the government did not order any sort of financial analysis or detail who would bear the costs prior to passing this law -- but it has been projected to cost ISPs more than AU$130,000 per year to implement.

What the government did order a cost-benefit analysis on, however, was a series of amendments proposed by the Australian Law Reform Commission to the Copyright Act that would likely place a burden on rights holders.

Brandis, of course, has historically been unwavering in his support of copyright holders, refusing to see the issue from any other perspective than outrage.

"Without strong, robust copyright laws, they are at risk of being cheated of the fair compensation for their creativity which is their due, and the Australian government will continue to protect them," Brandis said in December 2013.

"In considering the recommendations, we will be particularly concerned to ensure and we will approach the consideration of the report with the view that no prejudice be caused to the interests of rights holders and creators," he added in February 2014.

"Australia's creative industries are not only a vital part of our culture; they are a thriving sector of our economy. Just like any other workers in our economy, they are entitled to the fruit of their efforts."

Ironically, the government released a contradictory research paper last month showing that internet users who download copyright-infringing content in addition to consuming paid content actually spend more than those who only consume non-infringing content.

Indeed, the research paper actually uncovered that only a fraction of users -- 17 to 19 percent -- would cease downloading copyright-infringing materials upon receiving a warning notice from their ISP.

Perram, who on Friday expressed dubiously that DBC's letters just might uncover "true pirates ... sailing under the Jolly Roger [who] would only ever have acquired a copy of the film if they did not have to pay for it", came very close to agreeing with the communications minister's ultimate perspective on the matter.

"Rights holders' most powerful tool to combat online copyright infringement is making content accessible, timely, and affordable to consumers," Turnbull admitted in July.

As the rapid uptake of legal video-streaming services shows -- a sixfold increase from 315,000 to 2 million users over the second half of 2014 -- this statement holds true: Offer content legally, at a reasonable cost, and at the same time as it is released globally, and consumers will opt for it. It is, after all, far easier to boot up Netflix than it is to waste time and bandwidth on finding a good copy of The Walking Dead on a torrenting site.

But while the Federal Court holds out against Hollywood film studios to prevent Australians from being taken to the cleaners, and while the government's own research shows the futility of warning notices, piracy laws continue to pass parliament as the over-legislating of this country continues.

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