EMMA ALBERICI, PRESENTER: Hollywood film studios have suffered a major blow in their ongoing battle against movie piracy. The High Court today ruled that the internet service provider iiNet had no direct technical power to stop its customers from illegally downloading pirated films and TV shows.

The legal action was taken by 34 film and TV companies including Warner Bros, Paramount and Fox. It has international significance as it's the first copyright case of its kind to proceed to trial.

Steve Cannane reports.

STEVE CANNANE, REPORTER: Hollywood will have to find a new battleground for its ongoing war on movie piracy. After over three years in the courts, and millions spent in legal fees, the big film studios have failed to pin responsibility for illegal downloading on the companies who sell high speed internet to the movie pirates.

MICHAEL MALONE, CEO, IINET: We're delighted at the end of the day that the High Court has agreed with that position that the Act as it stands doesn't put a positive obligation on us to interfere with what our customers are doing online.

STEVE CANNANE: The movie studios believe the law has failed them.

NEIL GANE, AUSTRALIAN FEDERATION AGAINST COPYRIGHT THEFT: The High Court has unanimously given a judgement that the only fix is a legislative fix. It would seem apparent that the current Australian Copyright Act is incapable of protecting content once it hits the internet on peer to peer networks.

STEVE CANNANE: The Government can expect some intense lobbying from the big American studios to change the law. As this 2010 US diplomatic cable obtained by WikiLeaks shows, Hollywood was hoping this court case would set a worldwide precedent.

US EMBASSY IN CANBERRA 5/2/10 CABLE (voiceover): The hope for Australian Federation Against Copyright Theft and the big studios was that a favourable decision would have established an international precedent that could have forced internet service providers to tightly police the activities of their customers ... the studios must now look for other ways to protect their commercial interests from copyright theft. The Australian Federation Against Copyright Theft will likely increase its lobbying of the Australian government for legislative changes.

STEVE CANNANE: Josh Taylor, a journalist who has been covering the trial, believes that lobbying will lead to a change in the law.

JOSH TAYLOR, JOURNALIST, ZDNET: If a rights holder has said to this ISP, "This customer has infringed" then there would be a set of rules that the Government would have that said this is the procedure that an ISP has to follow in order to deal with that - and that's I think the way that it's going to end up.

STEVE CANNANE: The Attorney-General was unavailable for comment. In a statement a spokesperson said:

SPOKESPERSON ATTORNEY-GENERAL NICOLA ROXON (voiceover): Industry stakeholders have been meeting regularly during the last year to develop a code of conduct to address the issue of illegal downloading. The Attorney-General's Department will continue to facilitate these discussions and we hope that industry will continue to work together to find a range of solutions to illegal downloading.

STEVE CANNANE: If the Government does act they'll be hoping to avoid the kind of backlash that saw two recent anti-piracy bills postponed in the US.

Steve Cannane, Lateline.