The Australian film and television industry has lost a case against a major internet service provider whose customers downloaded pirated movies and television programs.

The case against iiNet was filed in the Federal Court by a number of applicants including Village Roadshow, Universal Pictures, Warner Bros, Paramount Pictures, Sony Pictures Entertainment, 20th Century Fox, Disney and the Seven Network.

The legal action followed a five-month investigation by the Australian Federation Against Copyright Theft.

The companies claimed iiNet infringed copyright by failing to stop users engaging in illegal file sharing.

But today the Federal Court in Sydney ruled in the internet service provider's favour.

Justice Dennis Cowdroy said it was "impossible" to find against iiNet for what its users did.

"It is impossible to conclude that iiNet has authorised copyright infringement ... (it) did not have relevant power to prevent infringements occurring," he said.

The judge ordered the studios to pay the court costs.

Outside court, Australian Federation Against Copyright Theft executive director Neil Gane said he was disappointed with the decision.

He said the case was lodged to try to protect the livelihoods of the thousands of Australians who work in the television and film industries.

Mr Gane said he was confident that the Federal Government would now review the laws surrounding copyright infringement.

He said it was too early to confirm if an appeal would be lodged.

"We will now take the time to review the decision before making comment," he said.

Precedent?

The case could potentially set a precedent establishing to what extent Australian internet companies are responsible for illegal downloads on their systems.

The movie houses said iiNet did not do anything to stop its customers from illegally sharing movies and TV programs.

But iiNet said privacy and freedom of speech laws would have been breached if the companies' demands were met.

The court was told that the Australian Federation Against Copyright Theft sent letters and emails to iiNet every week for more than a year.

The entertainment companies compiled their evidence by hiring two investigators to subscribe to iiNet and then begin trading files using different BitTorrent networks.

They kept track of what movies and TV shows they were sharing, when they downloaded them, and the ID numbers of the computers they were sharing these files with.

Every week the entertainment companies sent that data to iiNet and asked that iiNet then disconnect the users who had been sharing the files illegally, but they said iiNet failed to act.

The companies claimed iiNet was refusing to enforce its own user agreement, in which users are asked to agree not to download files or anything illegally.

But iiNet successfully argued that the requests to disconnect users were unreasonable.

The ISP's barrister said that in one week alone iiNet received more than 3,000 pages of allegations of copyright violations by iiNet customers.

"If all the notices iiNet received from film studios over a five-month period were printed it would take 180 large folders and more than 12 trolleys to bring them into the court," Richard Cobden said.

"No-one can seriously be expected to respond to all these."

iiNet argued that there are many steps the studios could take instead of asking the ISP to work as their enforcement team.

The ISP said that if it was possible for the film companies to track iiNet users illegally sharing files, then the film companies should go after the customers directly.

Mr Cobden also suggested that the companies should ask the file-sharing program BitTorrent to do more to crack down on piracy.

He also rebutted assertions that iiNet's profits increased if customers downloaded many films and TV shows illegally.