In April 2015, Perram J of the Federal Court of Australia made orders requiring a number of Internet Service Providers (ISPs) to provide Dallas Buyers Club LLC (DBC) with the details of over 4,000 account holders who DBC had purportedly identified as having engaged in unauthorised downloading of the Dallas Buyers Club movie.
This article examines how DBC found itself in a position of fundamental defeat after succeeding in its original application. In so doing, this article will highlight some important considerations which should be borne in mind both by:
- Any applicant seeking disclosure orders to pursue suspected piracy; and
- Anyone who might receive such an application.
Justice Perram’s judgment has attracted what could be described as a surprising amount of attention, given it principally concerns the application of an otherwise dry procedural principle: the circumstances in which a Court can compel a non-party to provide information to an applicant which might uncover the identity of a prospective wrongdoer. The public’s interest in the judgment can, however, be easily explained, with research conducted in August 2015 by the IP Awareness Foundation showing that TV and movie piracy rates in Australia linger at high levels – with habits of ‘persistent pirates’ (those who have a sustained habit of pirating content) continuing to escalate. After Perram J’s decision, Australian pirates, for the first time, faced the real risk that they might be identified and called to account.
On 16 December 2015, the Dallas Buyers Club litigation took an interesting turn. In Dallas Buyers Club LLC v iiNet Limited (No 5)  FCA 1437, Perram J took the extraordinary step of making a “drop dead” order – declaring that, if the applicant did not take steps to progress the proceedings by 11 February 2016, the account holder details would not be released, and the proceedings would be dismissed. DBC did not take those steps.
The procedural framework
On its face, DBC’s claim against the ISPs simply required an application of r 7.22 of the Federal Court Rules 2011 (Cth). Rule 7.22 provides an avenue for a party to apply to the Federal Court for an order requiring a third party to divulge the identity of a ‘prospective respondent’, or documents which would assist in identifying the ‘prospective respondent’. To avail itself of r 7.22, the applicant must be able to show that
- It may have a right to obtain relief against a prospective respondent;
- It has made efforts to, but has otherwise been unable to, identify that prospective respondent; and
- The third party either knows the prospective respondent’s identity or has/had control of documents that would help ascertain the prospective respondent’s identity.
In satisfying the first limb of the r 7.22 test, the applicant must convince the Court that it ‘reasonably believes that there may be a right for the person to obtain relief‘ against the prospective respondent.
Dallas Buyers Club LLC v iiNet Limited  FCA 422 – The April judgement
The first decision in the DBC litigation was handed down on 7 April 2015.
DBC, itself a subsidiary of Voltage Pictures LLC, claimed to own the copyright to the 2014 movie with the same title. It had obtained 4,726 unique IP addresses through a process whereby it made a copy of the movie available for public download through the “BitTorrent” protocol, and then, through the use of a piece of specialist software, recorded the IP addresses of those computers who had (either partially or completely) downloaded, and subsequently re-uploaded (shared) the parts of the movie which they had downloaded.
DBC claimed that it, therefore, had fulfilled the first limb of the r 7.22 test because it had ‘some prospect of succeeding‘ against the users behind the IP addresses; DBC claimed these users had breached its copyright in downloading and sharing the movie without having obtained a licence. In response to this, the ISPs challenged the efficacy of the specialist software used by DBC to obtain the IP addresses and raised a concern that DBC only had evidence of users downloading only small parts of the file itself (which constituted a copy of the movie only when complete). In the ISPs’ view, this was not sufficient to show a breach of copyright.
In dealing with these arguments, Perram J confirmed that the hurdle to obtain r 7.22 discovery is low: “[i]t is sufficient that the contemplated suit has some prospect of succeeding, that is to say, it is a real case which is not fanciful’ (at ). Given this, the evidence provided by DBC that the users behind the IP addresses had downloaded “slivers” of the overall movie file was sufficient to show their claim was “real”.
DBC then claimed to have fulfilled the second and third limbs because it claimed the ISPs were the only parties which kept any information (the identity of each account holder) which might lead to identify the users at the end of the collected IP addresses. The ISPs argued that identifying account holders does not identify alleged copyright infringers, because an IP address can be shared by a number of computers. This argument was rejected, with reference to earlier NSW Court of Appeal authority (, ) which confirmed that a Court may still grant preliminary disclosure where it will aid an applicant in obtaining the identity of parties who would be best placed to identify the true wrongdoer. In the NSW decisions, private car park operators obtained disclosure of the identities of the registered operators of vehicles notwithstanding those registered operators may not have been the drivers of the vehicles at the relevant times.
With the Court’s jurisdiction to award discovery pursuant to r 7.22 enlivened, Perram J went on to consider whether he should exercise his residual discretion. Here, cracks in DBC’s position started to appear. The ISPs tendered evidence that Voltage Pictures LLC had engaged in ‘speculative invoicing’ in a number of jurisdictions around the world in which it had obtained orders revealing the identities of potential copyright infringers. ‘Speculative invoicing’ is the practice of issuing written threats to those account holders who had been identified by the ISPs, asserting that the account holder may be liable for substantial damages for copyright infringement, and offering to settle for a lesser (but still significant) sum. Justice Perram proffered the view that ‘speculative invoicing’ might be unlawful under Australian law, for it may constitute misleading and deceptive conduct (per s 18 of the Australian Consumer Law) or unconscionable conduct (per s 21 of the Australian Consumer Law).
To prevent this occurring, Justice Perram made an order requiring that any letter that DBC had prepared to send to the account holders be vetted by the Court.
Dallas Buyers Club LLC v iiNet Limited  FCA 422 – The May judgement
On 6 May 2015, Perram J made orders reflecting the conclusions reached in the April decision. The May judgment is important for two reasons:
- Contrary to the usual position in an application under r 7.22, Perram J ordered the ISPs pay DBC’s costs; and
- Perram J made, and immediately stayed, orders requiring the ISPs to divulge to DBC the details of the account holders that used the IP addresses at the times and dates identified by DBC. This is dealt with in further detail below: see heading “The August judgment”.
In awarding DBC the costs of its original r 7.22 application, Perram J concluded that the ISPs had taken an “adversarial” position, for having put ‘nearly everything in issue’, leading to a 3-day hearing and requiring the cross-examination of DBC’s primary witnesses. Since DBC was successful on its application, save for the proviso that any letter to be sent to the account holders be approved by the Court, Perram J awarded DBC with 75% of its costs on a party-party basis.
Dallas Buyers Club LLC v iiNet Limited  FCA 422 – The August judgement
As noted above, Perram J stayed his order for preliminary discovery pending his satisfaction that DBC would approach the identified account holders in an appropriate manner (and would not attempt to engage in ‘speculative invoicing’). On 14 August 2015, his Honour handed down a further decision which was critical of DBC’s proposed approach. His orders reflect his dissatisfaction with DBC’s proposal, and consequent concerns about DBC’s future conduct of the proceedings. In the August judgment, Perram J also sets out some requirements for future applications that might be brought against online entities seeking similar information to that sought by DBC under r 7.22.
DBC initially offered a draft letter which did not contain any demand for a monetary settlement, but instead requested that recipients call a telephone number and discuss their situation with representatives of DBC. Perram J rejected this approach and refused to consider lifting the stay on the preliminary discovery order until DBC explicitly identified the amounts it would be seeking in compensation from the account holders. DBC ultimately provided submissions on this topic, under protection of confidentiality orders (to protect their negotiating position), which revealed that DBC would be seeking compensation under the following four heads:
- The cost of an actual purchase of a single copy of the movie;
- An amount relating to the user’s re-uploading (‘seeding’) of the downloaded infringing copy of the movie;
- A claim for punitive damages based on how many infringing copies of other copyright movies had been downloaded by users; and
- A claim for a portion of the costs of DBC’s application against the ISPs to identify the users.
Perram J accepted that heads (a) and (d) in DBC’s proposal constituted appropriate heads of loss which could legitimately support demands being made of users, but expressly rejected the notion that DBC should be allowed to claim amounts under heads (b) and (c).
Perram J therefore ordered that the stay on the preliminary discovery order would be lifted if DBC provided an undertaking that it would only use the user account details to claim amounts from account holders under heads (a) and (d). Because DBC was an American company with no presence in Australia (and could not therefore be effectively pursued for contempt), his Honour also required DBC to post a $600,000AUD bond to secure compliance with such an undertaking.
16 December 2015 – the December judgement
Following the August judgment, DBC applied to have the bond reduced to $60,000, and for permission to demand amounts from account holders under the following additional heads:
- Asum representing the fair and reasonable licence fee that DBC would charge for a non-exclusive worldwide licence to distribute the movie; and
- Punitive damages under s 115(4) of the Copyright Act.
Perram J expressly rejected DBC’s application, with costs. His Honour granted leave to appeal the May and August judgments, and made a self-executing order dismissing the proceedings on 11 February 2016 if DBC did not take any further step to progress the proceedings before then. No steps were taken by DBC.
How to avoid snatching defeat from the jaws of victory
In the space of 8 months, DBC went from a position where it had obtained orders for preliminary disclosure, and had been awarded costs in circumstances where it would have ordinarily borne them, to having its claim dismissed for default. There are some instrumental lessons to be learned here.
DBC clearly caught the ire of the Court by failing to be forthright regarding the demands it intended to make against the account holders. DBC was already on the back-foot on this issue because of evidence that it had engaged in ‘speculative invoicing’ (i.e. bullying tactics) against account holders in other jurisdictions. To overcome the Court’s concerns on this issue, DBC needed to be transparent in explaining what it would be claiming in its proposed letters. Such an approach may also have helped avoid the imposition of a significant bond.
A further lesson to be learned from the DBC litigation is: don’t be greedy. Applicants must accept the limitations of copyright law in providing compensation for infringement of works, and acknowledge that Courts will refuse to entertain ‘fanciful’ calculations of loss by reference to, for example, the cost of a licence which would never have been sought or offered in the first place. In this case, Perram J made clear that, while demanding an amount equivalent to a licence fee for the downloading of the movie may have been appropriate, demanding an amount equivalent to an imagined licence fee for worldwide online distribution via BitTorrent was clearly unrealistic. Even after making his position completely clear on this issue in the August judgment, DBC sought to re-litigate the issue, culminating in the December judgment and the self-executing drop-dead order. Had DBC heeded the conclusions drawn by Perram J in the August judgment (or appealed them in the normal way), it may not have ended up facing the extraordinary pressure that a drop-dead order can cause.
The final lesson to be learned is one for recipients of an r 7.22 application: seriously consider the costs consequence of opposing such an application. The reasons why the ISPs took an “adversarial” approach to DBC’s application, and thereby became liable to pay 75% of DBC’s costs of the initial application, are not apparent from the face of either the April or May judgments but presumably included a desire to be seen to protecting their client’s confidentiality and deter a rash of future applications. In the circumstances, Perram J’s decision on costs makes clear that, if faced with a r 7.22 application, serious thought should be given to whether the application should be fought. Where, provision of the information or documents sought would not reveal any wrongdoing on the part of the ISPs , the preferable course may be to consent to suitable orders and claim the costs of compliance from the applicant. Indeed, this was the approach taken by the Canadian ISP that was subjected to a parallel application in the Federal Court of Canada, resulting in the ISP being awarded its costs of compliance: Voltage Pictures LLC v John Doe and Jane Doe  FC 161 (see also Sites N Stores Pty Ltd v Whirlpool.Net.Au Pty Ltd  FCA 1474).
This article was written by Peter Campbell, Partner.