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Intermediary Liability for Copyright

  1. Copyright Authorisation (the Australian Position)
    1. University of New South Wales v Moorhouse
    2. Legislative Amendments: Codification of the Moorhouse Test
    3. Mere Conduits
  2. The Digital Agenda Cases
  3. The Intervening Years: BitTorrent
  4. Intermediary Copyright Liability – The US Position
    1. The Next Generation: Aimster, Grokster, StreamCast, Kazaa
  5. Direct Infringement by Intermediaries
  6. Recent developments
    1. European Copyright Directive: the ‘link tax’ (Article 15)
    2. The ACCC’s news bargaining code

In this Chapter, we will focus on the liability of online intermediaries for the infringing acts of their users, principally intermediaries who provide software or services that facilitate copyright infringement. It explains the Australian position on copyright authorisation followed by the United States (US) position on intermediary liability. We will generally assume that there has been primary infringement by the users. You are not expected to know the general principles of copyright in detail, and you do not need to know the rules for establishing primary infringement. The Chapter also outlines intermediary liability for direct infringement.

Copyright Authorisation (the Australian Position)

Video Overview by Kylie Pappalardo

Sections 36(1) and 101(1) of the Copyright Act 1968 provide that copyright is infringed “by a person who, not being the owner of the copyright, and without the licence of the owner of the copyright, does in Australia, or authorizes the doing in Australia of, any act comprised in copyright”.

It is this idea of authorising someone else to commit copyright infringement that is at the heart of intermediary liability for copyright infringement in Australia. This is the part of the copyright law that potentially applies to ISPs, website hosts, and other internet intermediaries. This doctrine is called “authorisation liability”.

University of New South Wales v Moorhouse

One of the leading authorisation case in Australia is University of New South Wales v Moorhouse (1975) 6 ALR 193 (“Moorhouse”). It provides the modern foundation for the authorisation doctrine in Australia.

In that case, the Australian Copyright Council arranged for a graduate of the University of New South Wales (UNSW) to photocopy an infringing portion of a book by Frank Moorhouse entitled, The Americans, Baby, on a photocopier in the UNSW library. It then brought a test case against UNSW, claiming that UNSW had authorised the infringing reproduction by making photocopying machines available in its library without exercising supervision over how the machines were used and without displaying proper notices as to copyright exceptions and limitations. The High Court unanimously held that UNSW was liable for authorising infringement.

In Moorhouse, the court considered what it meant to “authorise” something. They adopted the definition that “authorise” means “sanction, approve, countenance”. Something more than merely providing the facilities for infringement is required.

Two separate bases for finding authorisation were advanced:

  • Gibbs J found UNSW liable predominantly because they should have known that copyright infringement was likely and had the power to prevent or discourage it but declined to do so.
  • Jacobs and McTeirnan JJ found UNSW liable predominantly because UNSW had, by locating photocopiers within the library, effectively extended an invitation to library patrons to infringe copyright. This invitation was unqualified as UNSW had not done anything to indicate to users what was allowed under copyright law.

In the ensuing years, the most influential judgment proved to be that of Justice Gibbs. In particular, His Honour’s statement: 1

It seems to me… that a person who has under his control the means by which an infringement of copyright may be committed – such as a photocopying machine – and who makes it available to other persons, knowing, or having reason to suspect, that it is likely to be used for the purpose of committing an infringement, and omitting to take reasonable steps to limit its use to legitimate purposes, would authorize any infringement that resulted from its use.

Legislative Amendments: Codification of the Moorhouse Test

Video Overview by Kylie Pappalardo

Madeline Urmoneit explains what ‘authorise’ means in Australian copyright law

In the year 2000, the Copyright Amendment (Digital Agenda) Act inserted the following subsection into sections 36 and 101 of the Copyright Act:

(1A) In determining, for the purposes of subsection (1), whether or not a person has authorised the doing in Australia of any act comprised in the copyright… without the licence of the owner of the copyright, the matters that must be taken into account include the following:

  • (a) the extent (if any) of the person’s power to prevent the doing of the act concerned;

  • (b) the nature of any relationship existing between the person and the person who did the act concerned;

  • (c) whether the person took any reasonable steps to prevent or avoid the doing of the act, including whether the person complied with any relevant industry codes of practice.

This subsection was designed to codify the principles set out in Justice Gibb’s statement in Moorhouse, extracted above. The legislative amendments were intended to promote certainty within the law for the communication and IT industries that provided online access to copyright material.2

Mere Conduits

It is also useful to be aware of sections 39B and 112E of the Copyright Act 1968 (Cth). These are known as the ‘mere conduit’ provision. They ensure that “A person (including a carrier or carriage service provider) who provides facilities for making, or facilitating the making of, a communication is not taken to have authorised any infringement of copyright … merely because another person uses the facilities so provided to do something the right to do which is included in the copyright.” So, an important question for our purposes is when an online intermediary will be held to do more than ‘merely’ provide facilities.

The Digital Agenda Cases

There are two relevant cases that have applied s. 101(1A) to online file sharing: Universal Music Australia Pty Ltd v Sharman License Holdings Ltd and Cooper v Universal Music Australia Pty Ltd (2006) 237 ALR 714. We will consider these cases in turn:

Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242 (“Sharman”)

This case dealt with the distribution of the peer-to-peer file-sharing software, Kazaa. The applicants were holders of copyright in certain sound recordings. They alleged that users had downloaded and made available for download, via the Kazaa network and without licence, copies of the whole or a substantial part of recordings owned by the applicants. They claimed that Sharman had authorised this infringement by operating and maintaining the Kazaa software and by failing to implement mechanisms to prevent or avoid the infringing activities.

The court found for the applicants. Justice Wilcox held that at all material times, the respondents were aware that a major use of the Kazaa system was the transmission of copyright material.

Power to Prevent

A key factor in finding liability was Sharman’s perceived power to control or prevent infringement via filtering and other technological controls. This was a contentious factual issue in the case, because the respondents presented evidence – cautiously accepted by the court – that there was no Kazaa ‘central server’ through which Sharman could exercise substantial control over users’ activities to prevent the sharing of copyright files. Consequently, much of the judgment focused on expert testimony as to whether Sharman could effectively implement a filter, in the absence of a central server, to prevent the display files with metadata that matched the particulars of sound recordings listed in the applicants’ catalogues.

The court determined that a filter could be implemented by an upgrade in the Kazaa software, but acknowledged that users were unlikely to upgrade if the new software imposed a keyword filter on users’ searching and sharing of files. However, the court accepted evidence that users could be “persuaded” to upgrade by “driving them mad” with pop-up dialogue boxes for the upgrade, essentially “rendering the existing version impracticable to use”.3

Evidence was also accepted by the court of another technological method of impeding the filesharing of copyright works. This method, labelled the ‘gold file flood filter’, involved “flooding” a user’s search query results with files containing only copyright infringement warnings, in response to searches for copyrighted works. This would essentially crowd out any unlicensed files from the search results.

Nature of Relationship

Sharman was also found to derive a direct financial benefit from infringement (s. 101(1A)(b)). Sharman explicitly disclaimed use of the software for copyright infringement on its website, and the Software agreement (EULA) secured an agreement from users that they would not use the software for infringement. But there was evidence that Sharman also condoned and encouraged infringement – the most notable example was Sharman’s “Join the Revolution” campaign, which the Court read as encouraging users to infringe. Sharman’s business model was based on advertising, and the Court found that its revenues were directly linked to attracting users who wanted to infringe.

Reasonable Steps

The court found that Sharman had not taken any reasonable steps to prevent infringement. The Court explicitly distanced itself from the US Supreme Court’s reasoning about inducement liability in Grokster. Nevertheless, the court took a very dim view of Sharman’s directors and actions – it was clear that Sharman was a ‘bad’ actor that had encouraged copyright infringement.

Cooper v Universal Music Australia Pty Ltd (2006) 237 ALR 714 (“Cooper”)

Video Overview of Cooper v Universal by Ed Green

The defendant ran a website, ‘MP3s4FREE’, which contained a list of hyperlinks that directed users to other websites where they could download infringing music files. Visitors would submit links to music files through an automated form and Cooper exercised no editorial control over the links. In this case, the court was influenced by evidence that the defendant deliberately designed his website to facilitate the infringing downloading of sound recordings.

The court held that Cooper had the power to prevent infringement by exercising supervision or control – editorial responsibility. Their Honours considered the defendant’s financial benefit derived from the website to be relevant to the second statutory factor – the nature of the relationship between the alleged authoriser and the primary infringer – because it made the relationship into a commercial one. They also held that the defendant had not taken any reasonable steps to prevent or avoid the infringements occurring as a result of his website. They accordingly found Cooper liable for authorisation.

The court also found Cooper’s ISP liable for authorisation. The ISP had provided free hosting in exchange for advertising on the high traffic site. The ISP and its directors had knowledge, derived a direct financial benefit, had the power to take the site down, and took no reasonable steps to prevent infringement.

The appellants attempted to rely on the s 112E exception to the s 101(1). However, the Court concluded that both parties had done more than merely facilitate the infringements by others, and therefore, the exception could not apply to the appellants. As the exception did not apply, the Court concluded that the primary judge was correct as Cooper and E-Talk had authorised the copying and communication of copyright sound recordings. The Court dismissed the appeals.

The Intervening Years: BitTorrent

Video Overviews of BitTorrent by Lindsay Mengel and Jordan Bell

Technology developers responded to the legal requirement that no central party should oversee, control, or even know about infringing filesharing. Most relevantly, Bram Cohen developed the BitTorrent filesharing protocol. BitTorrent still relied on a central index ‘tracker’, but trackers could easily be set up by any interested party. An uploader (‘seed’) of content creates a small index file that lists all of the pieces of the content and lists the address of the tracker, which coordinates the swarm. The seed begins to distribute pieces of the content to computers in the swarm. Each peer downloading the content (usually) simultaneously makes the pieces it receives available to other clients in the swarm.

BitTorrent is extremely efficient because each downloader is also potentially a simultaneous uploader. Once one whole copy of the content is distributed throughout the swarm, it turns into a flood of data flowing throughout the network, as each client copies and uploads all of the pieces.

This differs significantly from older P2P protocols in two main ways:

  • BitTorrent files are transmitted in small pieces from many different sources, rather than through larger one-on-one downloads between peers. This more effectively makes use of the swarm’s upstream bandwidth.
  • BitTorrent seeds prioritise the transmission of the rarest pieces to the swarm, ensuring higher reliability (and higher throughput) of the swarm.

The index file contains a list of the pieces and the location of a tracker. Torrent files are readily available on many websites, including some of the larger indexers (like ThePirateBay). Both trackers and indexers can claim to have no knowledge of the contents of any given file, relying on a defence drawn from the Sony rule that the software has substantial non-infringing uses and their sites provide a general purpose service. As in Grokster, this will not work in the face of direct evidence of inducement. But since indexers and trackers are easy to move and cheap to set up, they can be very elusive.

The protocol and the clients that implement it also are general-purpose with substantial non-infringing uses. Since many clients are pure software projects (often open source), rather than filesharing businesses, there’s also often no strong financial link on which to found inducement liability. Lacking targets to sue, rightsholders are increasingly seeking to hold ISPs responsible for copyright infringement of their users.

Roadshow Films v iiNet

Video Overview of Roadshow Films v iiNet by Kylie Pappalardo

Roadshow v iiNet [2012] HCA 16 involved an appeal from the Full Federal Court of Australia on the issue of whether iiNet, an ISP, authorised its customers’ infringing acts of communicating films owned by the appellants over a BitTorrent file sharing system.

The Full Federal Court had found for iiNet (Jagott J dissenting) on the issue of authorisation, but all members of the Full Court had found that iiNet was not entitled to the benefit of the safe harbour provisions in the Copyright Act. iiNet did not appeal the findings in relation to the safe harbour provisions.

iiNet provides general internet access to its customers under the terms of its Customer Relationship Agreement (“CRA”), which provides in section 4.1 that in using the internet service, the subscriber must comply with all laws, in section 4.2 that the subscriber must not use or attempt to use the service to infringe another person’s rights, and in section 14.2 that iiNet may, without liability, immediately cancel, suspend or restrict the supply of the service if the subscriber breaches clause 4 or otherwise misuses the service.

The Australian Federation Against Copyright Theft (AFACT), an organisation that represents owners and exclusive licensees of copyright in films and TV programs, employed in August 2007 a company called DtecNet Software to gather evidence of alleged copyright infringement by Australian internet uses (see [28]). DtecNet used a computer program (“the DtecNet Agent”) to gather evidence against iiNet customers. As explained by French CJ, Crennan and Kiefel JJ:

“In essence, the DtecNet Agent is a BitTorrent client with an additional function – at the same time that it receives and shares pieces of a file, it gathers and records information about the peers in the swarm who are also receiving and sharing the pieces of that file. By using only .torrent files associated with the appellants’ films (identified as such by hash values) and connecting only to peers with a public IP address that matched an IP address which had been sold to iiNet, DtecNet claimed that it was able to identify instances of copyright infringement by iiNet customers.” (at [29])

From July 2008 to August 2009, AFACT began sending notices to iiNet every week (“the AFACT notices”), which alleged infringement by iiNet users. Each notice contained a spreadsheet document that purported to contain information relevant to the infringing activities. iiNet responded that it did not understand AFACT’s data, that an IP address does not identify a particular user, and that AFACT should refer its allegations to the appropriate authorities. iiNet did not suspend or terminate any customer account in response to the AFACT notices. iiNet had suspended or terminated accounts under the CRA in the past (usually to do with spamming or not paying bills), but “the taking of those steps did not depend upon the accuracy of information provided by others” (at [35]).

The appellants argued that iiNet’s contractual relationship with its customers gave it an indirect power to control the use of its services and to prevent infringement. “That led to the submission that, once iiNet had received credible information of past infringements sufficient to raise a reasonable suspicion that such acts of infringement were continuing, failure to enforce the terms of the CRA…amounted, at the very least, to ‘countenancing’ the primary infringements.” (at [58])

Roadshow Films v iiNet Judgment: French CJ, Crennan and Kiefel JJ

French CJ, Crennan and Kiefel JJ considered what “countenance” means. They noted that some of the meanings of “countenance” and not co-extensive with “authorise” and they highlighted the danger in placing reliance on one of the synonyms for “authorise” found in the dictionary.

The judges then addressed the s101(1A) factors:

Power to Prevent

The judges stated:

“An alleged authoriser must have a power to prevent the primary infringements. … As explained, the extent of iiNet’s power was limited. It had no direct power to prevent the primary infringements and could only ensure that result indirectly by terminating the contractual relationship it had with its customers.” (at [69], [70])

Reasonable Steps

French CJ, Crennan and Kiefel JJ thought it relevant that while termination of a customer’s iiNet account would prevent that customer from communicating a film using that particular account, the customer could easily engage another ISP for access to the internet. The judges thought that “this circumstance shows the limitations on iiNet’s power to command a response from its customers, or to prevent continuing infringements by them.” Additionally, iiNet would be exposed to risk of liability for wrongful termination of a customer’s account.

Their Honours stated:

“The evidence showed that the inactivity was not the indifference of a company unconcerned with infringements of the appellant’s rights. Rather, the true inference to be drawn is that iiNet was unwilling to act because of its assessment of the risks of taking steps based only on the information in the AFACT notices.” (at [75]-[76])


French CJ, Crennan and Kiefel JJ stated:

“The appellants’ submission, that iiNet should be taken to have authorised the infringements unless it took measures with respect to its customers, assumes obligations on the part of an ISP which the Copyright Act does not impose.”

Their Honours concluded that iiNet had not authorised infringement, and dismissed the appeal with costs.

Roadshow Films v iiNet Judgment: Gummow and Hayne JJ

Justices Gummow and Hayne discussed the meaning of “authorise”. They said, “After a century, the selection of the term ‘authorise’ to identify the activity constituting secondary infringement continues to give rise to difficulty. But the difficulties, which reflect both technological developments and changes in business methods, are unlikely to be resolved merely by recourse to a dictionary.” (at [117]) Further, they warned that:

“it would be wrong to take from [this definition] one element, such as ‘countenance’, and by fixing upon the broadest dictionary meaning of that word seek to expand the core notion of ‘authorise’.”

Power to Prevent

Their Honours found that iiNet only had the power to “control” the primary infringements committed using Bittorrent in a very attenuated sense – by terminating its contractual relationship with its customers.

Reasonable Steps

Gummow and Hayne JJ stated:

“At all material times iiNet had many thousands of account holders. Was it a reasonable step to require of iiNet that it monitor continually the activities of IP addresses to provide precise details of primary infringements that had been committed, and then take further steps to forestall further infringements? Warnings might or might not have that effect. Evidence was lacking of likely behaviour in that respect by users of ISP facilities. Further, with respect to the AFACT Notices, was it reasonable to expect iiNet to issue warnings or to suspend or terminate the contracts of customers when AFACT had not fully disclosed the methods used to obtain the information in the AFACT Notices? Those methods were disclosed only by the provision of expert evidence during the preparation of the case for trial.

In truth, the only indisputably practical course of action would be an exercise of contractual power to switch off and terminate further activity on suspect accounts. But this would not merely avoid further infringement; it would deny to the iiNet customers non-infringing uses of the iiNet facilities. And, in any event, in the absence of an effective protocol binding ISPs (and there is no such protocol) the iiNet subscribers whose agreements were cancelled by iiNet would be free to take their business to another ISP.” (at [138]-[139])


Justices Gummow and Hayne dismissed the appeal. They concluded:

“These matters, taken together, do not establish a case of authorisation… The progression urged by the appellants from the evidence, to “indifference”, to “countenancing”, and so to “authorisation”, is too long a march.” (at [143])

Dallas Buyers Club v iiNet

Video Overviews of Dallas Buyers Club v iiNet by Kylie Pappalardo

The Dallas Buyers Club series of cases in 2015 concerned an application for a preliminary discovery order by Dallas Buyers Club LLC and its parent company, Voltage Pictures LLC, under the Federal Court Rules 2011 (Cth) r 7.22.

The applicants were seeking information regarding the identities of 4,726 individual ISP account holders from six ISP respondents. The purpose of disclosure was to enable the applicants to sue the account holders for allegedly infringing (by downloading and sharing) the Dallas Buyers Club film on the peer-to-peer file sharing network BitTorrent.

The respondent ISPs resisted the application on several bases. These arguments failed.

In the alternative, they argued that the court should decline to order preliminary disclosure for eight reasons specified at [73] of the judgment. Most consideration was given to the fifth discretionary factor, which was the suggestion that the applicants were going to engage in the practice of speculative invoicing.

Speculative invoicing is the practice of copyright owners sending grossly inflated monetary demands to consumers who are alleged to have infringed copyright. The demands are accompanied by the threat of further legal action if the consumers do not pay the amount (often in the thousands) to settle the claim. For further discussion about the issue of speculative invoicing, see: the conversation link.

In the Dallas Buyers Club judgment, Justice Perram followed the approach taken by the English High Court of Justice in Golden Eye (International) Ltd v Telefonica UK Ltd [2012] EWHC 723 (Ch) and the Federal Court of Canada in Voltage Pictures LLC v John Doe [2014] FC 161. This approach was to impose conditions on the applicants to prevent speculative invoicing. Before preliminary disclosure would be allowed, the applicants were required to submit to the Court a draft of the proposed correspondence to be sent to the account holders once identified.

Later in the series of Dallas Buyers Club decisions,4 Dallas Buyers Club LLC submitted to the court a number of draft correspondence to be sent to relevant account holders.

Justice Perram identified some differences in the legal context of the English and Canadian decisions he had referred to earlier in proceedings. He pointed out that Australian law obliged him to try to accommodate the competing rights of account holders to privacy and the copyright owners right to sue for infringement to the best of his ability, rather than to apply a proportionality approach taken in the overseas jurisdictions. To do this, it was necessary to consider whether the proposed use of the information accords with the purpose of FCR r 7.22. Of particular focus was subrule (1)(a), which is the requirement that the prospective applicant has a right to obtain relief against a prospective respondent. To determine whether this right existed, an inquiry into whether the monetary demands contained in DBC’s proposed correspondence could plausibly be sued for was undertaken by the Court.

The monetary demands in DBC’s proposed correspondence fell into four heads (at [15]): (1) the purchase price of a single legitimate copy of the film; (b) a fee for sharing the film to other BitTorrent users (an amount which was mentioned to be an undisclosed, albeit substantial, sum); (c) an amount of additional (punitive) damages sought under s 115(4) of the Copyright Act 1968 (Cth) which would depend on the users’ downloading activities for other, unrelated content where the user had infringed copyright; and (d) a claim for costs related to the process of identifying account holders and BitTorrent users who had infringed copyright.

The Court accepted only the demands made under the heads of (a) and (d).

The applicant sought recovery of damages under (b) as a kind of ‘licence fee’ representing DBC’s entitlement from each uploader for DBC to give them the authority to share the film on BitTorrent. Justice Perram rejected this claim, and described the idea that BitTorrent users who were concerned with avoiding infringement would have approached DBC to negotiate a right to distribute the film in exchange for a licence fee as “so surreal as to not be taken seriously” [23].

With respect to the damages claimed under (c), Perram J was critical of DBC’s claim for payment for unrelated content and the fact that DBC could not articulate this head of damage with sufficient precision.

The Court would have allowed recovery of damages under (a) and (d). The Court refused to lift a stay on the order for preliminary disclosure unless an undertaking was made by DBC to only use the account holders’ identities and contact details for demands under those heads. Due to the fact that DBC has no physical presence in Australia, and as such could not be punished for contempt if they failed to honour such an undertaking, the Court set a bond of $600,000 before any information regarding account holder identities were to be provided.

DBC failed to provide a letter limited to the heads of damage under (a) and (d) by the date set by the court, and consequently this action was terminated. The result was that DBC was not provided access to account holder details in this case.

Intermediary Copyright Liability – The US Position

Video Overview of the US Position by Kylie Pappalardo

The United States does not have a concept of “authorisation” for intermediary copyright liability, like we do in Australia. Instead, the US uses several tests developed from tort law. There are three heads of intermediary liability in US copyright law:

Contributory infringement applies to “one who, with knowledge of the infringing activity, induces, causes or materially contributes to the infringing conduct of another” (Gershwin v Columbia 443 F.2d 1159 (2nd Cir 1971). The two elements here are: (1) knowledge of the infringement; and (2) induces, causes or materially contributes to the infringement.

Vicarious liability – A person will be vicariously liable for the infringing acts of others if they: (1) Have the right and ability to supervise the acts of the primary infringer; and (2) receive a direct financial benefit from the infringing activities.

A new head of liability, called inducement, was developed in the Grokster case, though it is unclear whether this is separate to or part of contributory infringement. In that case, the court held that those who actively induce others to commit infringing acts will be liable. This head of liability incorporates the notion of intent.

Sony Corp. of America v. Universal City Studios, Inc. 464 U.S. 417 (1984)

Video explaining the ‘Sony rule’ by by Tamara Moretto

In 1984, the United States Supreme Court decided the landmark case of Sony Corp. of America v. Universal City Studios, Inc. (Sony). Sony manufactured the Betamax VCR, which some consumers used to record television programs broadcast over the public television airwaves. Respondents, who owned copyright in some of these programs, argued that Sony was indirectly liable for the copyright infringement of these consumers because Sony marketed and sold the means of infringement – the Betamax – to them.

The court turned to the Patent Act’s staple article of commerce doctrine for guidance, holding that:

[T]he sale of copyright equipment, like the sale of other articles of commerce, does not constitute contributory infringement if the product is widely used for legitimate, unobjectionable purposes. Indeed, it need merely be capable of substantial noninfringing uses.

The court determined that the Betamax VTR was capable of substantial noninfringing uses because the practice of taping programs off the air for the purpose of watching them at a more convenient time (“time-shifting”) was a legitimate use, either because the use may be authorized by other copyright holders or because the use was covered by the doctrine of fair use in the Copyright Act. It was also relevant that Sony had no right or ability to control how people used the technology.

The Sony rule, as it came to be known, has emerged as a crucial doctrine in the secondary liability landscape. It ensures that producers who design or distribute a product capable of substantial noninfringing uses will not be held liable for enabling copyright infringement even if they know that some infringement will occur by use of their product.

Online intermediaries can continue to benefit from the Sony rule if:

  • Their product has a substantial non-infringing use;

  • They do not have actual or constructive knowledge of copyright infringement by its users; and

  • They are not liable under another form of intermediary liability (i.e. inducement or vicarious liability)

A & M Records, Inc. v. Napster, Inc. 239 F. 3d 1004 (9th Cir. 2001) (“Napster”)

The question of how the Sony rule would apply to the sharing of content over computer systems was addressed in A & M Records, Inc. v. Napster, Inc., which concerned a p2p music file sharing system.

Plaintiff: A&M Records Inc. – Record label owned by Universal Music Group

Defendant: Napster Inc. – ‘Peer-to-peer’ file sharing web service

Background: Napster was the first case to test intermediary liability in the context of ‘peer-to-peer’ file sharing technology. Use of this technology was arguably inspired by the ‘substantially non-infringing uses’ rule in the Sony case.

Facts: Napster service involved the reproduction and distribution of popular sound recordings in an .mp3 format. The service used an index on a central server, which listed all the .mp3’s available for download. Napster provided a technical support service, a user chatroom, and free interface software to facilitate its service for users. This software could be used by entering search terms to locate .mp3 files. These files (.mp3’s) were uploaded/downloaded by users without authorisation from copyright owners. Evidence showed that Napster was aware of this activity but did not act to prevent infringements.

Issue: Was Napster liable as an intermediary for either contributory infringement or for vicarious liability?

Decision: Napster was liable for contributory infringement and vicarious liability.

Contributory infringement:

  • Actual and constructive knowledge found as Napster actively supported the infringements. Napster could not avoid liability on the basis of the Sony rule by arguing its service had substantially non-infringing uses, because Napster already had knowledge of primary infringements.
  • Material contribution found as Napster had the capability to block access by infringing users and remove infringing files.

Vicarious liability:

  • Napster had the power and authority to control its users infringement because it maintained a central database of songs and could monitor incoming searches. Napster had the right to block users or terminate their accounts, as well as remove infringing content from the central indexing database.
  • Napster derived a direct financial benefit from infringement. Napster had an intention to profit in the future; actual profit was not required.
  • The court read Sony only to apply to contributory, not vicarious, liability.

The court acknowledged the importance of the Sony rule, stating, “Absent specific information which identifies infringing activity, a computer system operator cannot be liable for contributory infringement merely because the structure of the system allows for the exchange of copyrighted material” (at 1021). The court found, however, that Napster did have specific knowledge of the infringing files as well as an ability to remove these files from its system, and on these grounds the court distinguished Napster from Sony and found Napster to be liable for contributory infringement. The court also found Napster to be vicariously liable because it received a direct financial benefit from advertising sales and had both the right and ability to control the infringement by filtering or blocking the exchange of the infringing files or blocking infringing users from its service.

The Next Generation: Aimster, Grokster, StreamCast, Kazaa

Since Napster was liable because it had knowledge of the files shared on the network (contributory liability) and a centralised point of control (vicarious liability), the next generation of filesharing software was developed to have no central servers.

Aimster was developed in a way that obscured any centralised knowledge of traffic on the network, but Judge Posner held that Aimster’s actions amounted to wilful blindness, and accordingly knowledge was imputed: In re Aimster 334 F.3d 643 (7th Cir. 2003)

Grokster, StreamCast, and Kazaa were better designed:

  • The networks were able to demonstrate ‘substantial non-infringing uses’ to satisfy the Sony test;
  • The networks were designed to operate autonomously, with no central control. The central agent provided the software, but after the software was connected to the network, the network would pass on search requests, and transfer files without any intervention from a central server.
MGM Studios Inc., v. Grokster Ltd. 545 U.S. 913 (2005)

Overview of the Grokster Case by Joe Sherman

The Sony rule was narrowed somewhat in the 2005 decision, Metro-Goldwyn-Mayer Studios Inc., v. Grokster Ltd. (Grokster), another p2p file-sharing case.

Grokster and Streamcast were next-gen P2P platforms. They avoided the mistake that Napster made by ensuring that the protocols were designed to give them no central control. They were accordingly not liable under the Sony rule because the software had substantial non-infringing uses and they had no actual knowledge of infringement at a time at which they had a power to prevent it. They were not liable for vicarious liability because they had no right or ability to monitor or control use of their software. The 9th Circuit granted summary judgment, following the Sony rule. The case was appealed to the Supreme Court.

The Supreme Court held that Sony was never meant to foreclose rules of fault-based liability, and that distributing a device with the object of promoting infringement (inducement) would trigger liability. In the court’s language: “purposeful, culpable expression and conduct” where “the distributor intended and encouraged the product to be used to infringe.”

On this inducement theory, the court found Grokster to be secondarily liable for copyright infringement. It premised its finding of inducement on three key factors: (1) efforts to satisfy a known demand for infringing content; (2) an absence of design efforts to diminish infringement; and (3) Grokster’s marketing strategy.

Evidence was that Grokster had intentionally marketed itself to appeal to Napster users once Napster was shut down. It had also distributed information about how to access popular music and had responded to user requests to help find copyrighted materials.

The Grokster court expressly stated that evidence of factors (2) or (3), standing alone, would not be enough to show inducement. However, commentators have queried whether these two factors (i.e. a failure to filter plus a business plan that benefits from but is not entirely dependent on infringement), taken together, would suffice to establish inducement. Professor Jane Ginsburg observed that the district court on remand in Grokster “easily equated defendant Streamcast’s refusal to filter with its economic self-interest, and thus with an intent to induce infringement”. 5

The court set aside the summary judgment and remanded the case to trial. Grokster and Sharman settled after the US Supreme Court decision. StreamCast (Morpheus) went to trial and lost on summary judgment. District Court (CD Cal) found that StreamCast overwhelmingly distributed Morpheus with the intent to induce infringement.

Direct Infringement by Intermediaries

Video Overview by Kylie Pappalardo

As services on the internet evolve, we are increasingly facing a new type of copyright liability question. What happens when the intermediary performs the infringing act on behalf of users? For example, cloud computing services make copies of items that users upload in order to store them (think about Dropbox).

Australian courts have been reluctant to extend fair dealing exceptions to intermediaries acting on behalf of users. The established case in this area is De Garis v Neville Jeffress Pidler, and we now have a case considering this question in the digital environment with Singtel Optus Pty Ltd v National Rugby League Investments Pty Ltd (No 2) [2012] FCA 34.

Contrast the Australian position with that of the courts in Canada (below).

De Garis v Neville Jeffress

In De Garis v Neville Jeffress Pidler Pty Ltd (1990) 18 IPR 292, the respondent, a press-clipping agency, was held to have infringed the copyrights in book reviews and newspaper articles reproduced as part of its service. The respondent monitored newspapers and other media sources and provided clippings and photocopies of material from those sources to clients in return for a fee. Materials were provided in response to general subject areas of interest as indicated by the client. When faced with suit for copyright infringement, the respondent claimed that its conduct constituted a fair dealing for research or study. The court rejected this claim, holding that Jeffress’ dealings with the works were done for a purpose other than research, namely, for the commercial purpose of supplying a photocopy of material already published in return for a fee. Importantly, the court continued, “There is another reason why s 40 cannot apply here. The relevant purpose required by s 40(1) is that of Jeffress, not that of its customer. That is to say, even if a customer were engaged in research, this would not assist Jeffress”.

NRL v Singtel Optus - Optus TV Now

Video Overview on NRL v Optus by Andrew Dawson

In NRL v Singtel Optus, NRL owned copyright in broadcasts of sporting fixtures displayed by Optus’ “TV Now” subscription service. The TV Now service copied and stored a television broadcast selected by a subscriber, after the subscriber clicked the “record” button on the subscriber’s Optus compatible device, to be played back at other times (“time-shifting” – minimum delay of 2 minutes). NRL alleged copyright infringement as their television broadcast copied included film and sound recording. The issue to be decided was who the maker of the recording was. HELD, Optus’s role in capturing the broadcast and then in embodying its images and sounds in the hard disk is so pervasive that, even though entirely automated, it cannot be disregarded when the “person” who does the act of copying is to be identified. Without the effort of both parties, the recording could not be made and thus both parties are liable. Optus cannot rely on the “private and domestic use” defence of s 111 as “there is nothing in the language, or the provenance, of s 111 to suggest that it was intended to cover commercial copying on behalf of individuals.”See Federal Court summary,6 and appeal.7

CCH Canadian Ltd v Law Society of Upper Canada [2004] 1 S.C.R. 339

Vide Overview of CCH Canadian v Law Society

In this case, the Supreme Court of Canada had to decide whether the Law Society of Upper Canada, which maintained the Great Library at Osgoode Hall in Toronto, had infringed copyright because it provided a request-based photocopy service for Law Society members, members of the judiciary and other authorised researchers. Under this ‘custom photocopy service’, legal materials were reproduced by library staff and delivered in person, by mail or by facsimile transmission to requesters. Publishers sued the Law Society, alleging copyright infringement. The Law Society denied liability on the basis that the copies were made for the purpose of research and were therefore covered by the fair dealing defence.

In finding for the Law Society, the Chief Justice McLachlin stated: 8

The fair dealing exception, like other exceptions in the Copyright Act, is a user’s right. In order to maintain the proper balance between the rights of a copyright owner and users’ interests, it must not be interpreted restrictively… The fair dealing exception under s.29 is open to those who can show that their dealings with a copyrighted work were for the purpose of research or private study. “Research” must be given a large and liberal interpretation in order to ensure that users’ rights are not unduly constrained. I agree with the Court of Appeal that research is not limited to non-commercial or private contexts… Although the retrieval and photocopying of legal works are not research in and of themselves, they are necessary conditions of research and thus part of the research process.

Relevant to the court’s finding was that the library had an access policy which stated that only single copies of materials would be provided for the purposes of research, review, private study and criticism as well as use in legal proceedings, and that any requests for copies in excess of 5% of the volume would be referred to the Reference Librarian and might be refused. Additionally, the service was provided on a not for profit basis. Also relevant was that there were no apparent alternatives to the custom photocopy service – the court considered it unreasonable to expect that patrons would always conduct their research onsite, particularly as 20% of the library’s patrons lived outside the Toronto area. The court held that the availability of a licence is not relevant to deciding whether a dealing has been fair and that it was not incumbent upon the Law Society to adduce evidence that every patron uses the material provided in a fair dealing manner – reliance on a general practice would suffice.

Recent developments

European Copyright Directive: the ‘link tax’ (Article 15)

Video overview by Katherine Karan on the ‘Link Tax’

Article 15 (previously known as draft Article 11) provides a new copyright rules to allow news websites to be remunerated for their work when displayed or promoted on large commercial platforms, such as Facebook or Google. This does not affect private or non-commercial users. It is designed to increase compensation to the publishers of news articles.

Because the link tax is yet to implemented by countries of the EU, it remains to be seen how states will deal with the ambiguities and potential adverse effects of Article 15. For instance, each platform will only be permitted to present a very short extract of the news article without breaching copyright, however it is at the country’s discretion to determine what constitutes a “very short extract”. This link tax will also have a major potential impact on small news websites that may see less traffic as a result. Exceptions do exist to this link tax, such as individual words, copyright expiry dates and hyperlinks.

The ACCC’s news bargaining code

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  1. University of New South Wales v Moorhouse, 200 (Gibbs J). 

  2. Copyright Amendment (Digital Agenda) Act 2000 (Cth), s. 3; The Parliament of the Commonwealth of Australia, House of Representatives, Copyright Amendment (Digital Agenda) Bill 1999, Explanatory Memorandum, Outline, 

  3. Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242 [304]-[309] (Wilcox J). 

  4. Dallas Buyers Club v iiNet (No 4) [2015] FCA 838 

  5. Jane C. Ginsburg, ‘Separating the Sony Sheep From the Grokster Goats: Reckoning the Future Business Plans of Copyright-Dependent Technology Entrepreneurs’ (2008) 50 Arizona Law Review 577. 


  7. Full Federal Court judgement, 

  8. CCH Canadian Ltd v Law Society of Upper Canada [2004] 1 S.C.R. 339 at [48], [51], [64].