A group of 34 movie studios headed by Village Roadshow has lost its appeal against a Federal Court judgment involving internet service provider iiNet.

In a landmark ruling a year ago, the court found it was impossible to hold iiNet responsible for its users illegally downloading movies and television shows.

In the initial case the studios had tried to prove iiNet not only failed to take steps to stop illegal file-sharing by customers, but breached copyright itself by storing the data and transmitting it through its system.

Other studios to join the legal action included Universal Pictures, Warner Bros, Paramount Pictures, Sony Pictures Entertainment, 20th Century Fox, Disney and the Seven Network.

But the studios on Thursday heard in the Federal Court that the appeal had been lost.

They are now expected to take their case to the High Court.

iiNet chief executive Michael Malone said outside court he was "very relieved" about the outcome.

"Our original contention was upheld that we don't believe we ever authorised or did anything to encourage customers to breach copyright," he said.

"We've won at the lower court, we've won at the Federal Court now in the appeal, but all this legal action hasn't stopped one customer from downloading anywhere in Australia.

"Same as we said last time, invite the rights holders back, let's make the content available legally and legitimately so customers can get access to it, and let's find a better way to be able to police those who don't do the right thing."

He said there needed to be a lot more clarity on what was expected of carriage services providers in terms of copyright laws.

"Ultimately this is only going to be resolved by the Government stepping in and giving clarity on the situation," he said.

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

Potential 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 last year that AFACT 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 the requests to disconnect users were unreasonable.

AFACT said iiNet had admitted to tens of thousands of copyright infringements.

"It cannot be right that, in effect, the ISP who has the power to prevent copyright infringement online, and admitted they were taking place, does not share the responsibility to stop them," executive director Neil Gane said.

"Copyright infringement now goes on unabated on the internet.

"We will be taking our time now to examine the judgment in detail and consider all of our options."

- ABC/AAP