He found that, while iiNet had knowledge of infringements occurring and did not act to stop them, such findings did not necessitate a finding of authorisation. He said an ISP such as iiNet provided a legitimate communication facility, which was neither intended nor designed to infringe copyright.

He said it was only by means of the application of the BitTorrent system that copyright infringements were enabled, but iiNet had no control over this system.

"iiNet is not responsible if an iiNet user uses that system to bring about copyright infringement ... the law recognises no positive obligation on any person to protect the copyright of another," Justice Cowdroy said. Justice Cowdroy remarked that the case had attracted widespread interest both in Australia and abroad. It was the first Australian trial to be covered on Twitter and the first trial of its kind in the world to proceed to hearing and judgment.

Neil Gane, executive director of the Australian Federation Against Copyright Theft, which brought the case on behalf of the studios, said the decision was a set back for the 50,000 Australians employed in the film industry. "But we believe this decision was based on a technical finding centred on the court’s interpretation of how infringements occur and the ISP's ability to control them."

He said AFACT would review the decision before deciding whether to appeal. iiNet welcomed the decision and reiterated that it has never supported nor encouraged illegal file sharing.

The suit against iiNet was filed in November 2008 by a group of the biggest Hollywood studios including Village Roadshow, Universal Pictures, Warner Bros, Paramount Pictures, Sony Pictures Entertainment, 20th Century Fox and Disney, as well as the Seven Network.

They claimed iiNet was liable for ‘‘authorising’’ copyright infringement on its network because it did not warn or disconnect offending customers when repeatedly notified of the infringements by the movie studios. The studios had hired an online investigator firm to intercept BitTorrent traffic over 59 weeks and record instances of iiNet users downloading pirated movies. iiNet argued that it was not required by law to act on ‘‘mere allegations’’ of copyright infringement, that customers were innocent until proven guilty in court, and that the case was like suing the electricity company for things people do with their electricity. But during the trial iiNet’s managing director Michael Malone conceded that the notices provided by the movie studios presented “compelling evidence” of copyright infringement by iiNet customers. However, iiNet’s legal counsel, Richard Cobden, said privacy provisions in the Telecommunications Act prevented it from forwarding the studios’ infringement notices to customers.

He said iiNet was also protected under Safe Harbour provisions of the Copyright Act, which limit an ISP’s liability if it takes ‘‘reasonable steps’’ to deal with repeat copyright infringers. The barrister for the studios, Tony Bannon, said that iiNet failed to take any ‘‘reasonable steps’’ to combat copyright infringement. He said iiNet’s practice of forwarding infringement notices to police and stating in its terms and conditions that illegal downloading was not permitted – while not enforcing this rule - did not constitute reasonable steps. The studios also presented email evidence which showed that, despite iiNet’s claims that it could not act on the notices, Westnet, which was acquired by iiNet in May 2008, was in fact passing them on to customers until Malone told a Westnet senior staff member to drop the policy. Other ISPs, including TPG, have also been passing copyright infringement notices on to customers.

Cobden said the studios were trying to place an ‘‘unreasonable burden’’ on ISPs and that ‘‘we will not take on the rights holders’ outsourcing of their rights enforcement’’. Loading Justice Cowdory agreed and said that, while iiNet was entitled to protection under the Safe Harbour provisions, there was no need for iiNet to take advantage of this as he did not find it authorised its users' copyright infringement. He found that a scheme for notification, suspension and termination of customer accounts was not in this instance a relevant power to prevent copyright infringement.