A law suit launched against iiNet in November by a horde of movie industry plaintiffs seeks to make iiNet liable for breaches of copyright by their subscribers. The alleged liability is based a provision of the Copyright Act 1968 (Cth) that makes it a breach of copyright to authorise another person to do something that is a breach of copyright.
While iiNet has not (as far as I am aware) told its customers that it is OK for them to copy movies online, "authorise" has been interpreted broadly under the Act at times to the degree that somebody who makes facilities available knowing they will be used for copying can be held to have authorised the illegal copying. This has been used to make universities liable because they had photocopiers in their libraries, and more relevantly to make the providers of Peer to Peer file sharing services (Kazaa) and directories of downloadable copyright content (MP3s4Free) liable.
Whether a person has authorised breaches of copyright is a question of fact that will depend on all of the circumstances of the case. That can make it difficult or impossible to identify any strict rules as in most cases it will be a combination of several things that leads the Court to the conclusion that the illegal copying has been authorised.
In the case of an ISP there are additional protections, most notably a provision stating that a carrier is not liable because they provide the carriage service alone. Something more is required. In the Kazaa case, two of the things that counted as "something more" were the fact that Kazaa could have taken measures (including filtering) to prevent the infringement, and that Kazaa appeared to be developing a business plan around users breaching copyright. In MP3s4Free one of the additional factors was that the purpose of the web site appeared to be to facilitate copyright violations (a conclusion that was no doubt easier to reach given the name of the web site). In both cases copyright violation appeared to be an integral part of the process.
It is difficult to identify "something more" in the iiNet case than simply providing a carriage service. Even if iiNet is aware of the copyright violation, the Act does not in its terms impose an obligation on iiNet to police those violations (although if they did so it does provide, separately, a method for iiNet to obtain additional protection if there is something that would otherwise be a breach by iiNET). Breaches of copyright are not an integral part of the iiNet service, although the service may be used for that. iiNet's business model does not depend on breaches of copyright. The ability of iiNet to prevent breaches of copyright is limited because the protocols that might be used to breach copyright are too varied for filtering to be effective, and if filtering were attempted there are too many ways to evade it.
For software businesses, a victory by the movie companies may provide an avenue to fighting software piracy.
For Internet service providers, serious consideration should be given to setting up the contract with the user to allow the ISP to terminate service when the user has breached copyright, and to enforcing those provisions when the ISP does become aware of a breach of copyright by the user. This may provide some additional protection from a suite by angry hordes of movie publishes.