A PLAN to send infringement letters to Australian internet users identified as having pirated illegal movies and TV shows has been shelved due to disagreement over who will pay for the cost of the scheme.

The code was intended to introduce a “graduated” system where Aussie pirates would receive letters from their internet service providers on behalf of rights holders if their account was identified as engaging in the downloading or sharing of illegal torrent files.

A repeat offender could be punished with slower internet speeds or a temporary account suspension, while a third notification would involve the threat of serious legal action.

Known as the Copyright Notice Scheme Code, it was originally slated to be introduced in September 2015 after being submitted to the Australian Communications and Media Authority earlier in the year.

Negotiations over who would cover the various costs of the letter-sending scheme were carried out towards the end of 2015 but have since broken down.

John Stanton, the chief executive of Communications Alliance — the body representing the ISPs that would have been tasked with carrying out the scheme — has confirmed to news.com.au that negotiations have broken down.

He said a disagreement between ISPs and rights holders was unable to be resolved, and that the parties could only agree on four of the five elements needed to pay for the scheme.

Speaking to CNET, Graham Burke of Village Roadshow — a major content rights holder involved in the negotiations — said an independent audit of the scheme showed the cost would be “too much of an imposition to ask the ISPs, and also from our own point of view”.

The outspoken campaigner for anti-piracy measures said the cost of sending an individual infringement notice would be between $16 and $20, which amounted to a “prohibitive” expense.

Village Roadshow has since informed the Communication Alliance it would no longer pursue the notification scheme, Mr Stanton said.

Ultimately, content rights holders were the driving force behind the introduction of the scheme. “Unless rights holders are keen to work on an agreement, there won’t be one,” Mr Stanton said.

The decision comes shortly after Hollywood right holders Dallas Buyers Club LLC declined to appeal a decision by an Australian court to protect the identity of iiNet users who illegally shared the Dallas Buyers Club film.

Mr Stanton said the final outcome of the high-profile case played no part in the decision to abandon the scheme.

“The outcome of Dallas Buyers Club case was encouraging from the perspective that any penalty ought to be proportional to the losses of rights holders,” Mr Stanton said, adding that “some useful markers were set” in that case.

Mr Burke said he believed rights holders would likely hold out for an automated version that would automatically send notifications when it detected violations. By removing the cost of labour, the system could conceivably send notifications for the cost of “cents”, he told CNET.

However Mr Stanton told news.com.au that he was “not aware of any ISPs undertaking that investment at the moment”.

“You need to have a strong sense it’s going to make a difference in deterrence,” he said.

Such a system was put in place in New Zealand in the past but ultimately fell by the wayside when rights holders declined to pursue offenders and infringement notices “slowed to a trickle”.

Mr Stanton said it remained unclear whether the ACMA would formally suspend the application of the Copyright Notification Scheme.

“There’s not a lot of legal precedent here,” he said.

Last week, Village Roadshow, along with Foxtel, launched legal action with an Australian Federal Court to block a number of websites that facilitate illegal piracy.

Village Roadshow, backed by Hollywood studios, is seeking to have SolarMovie.com blocked by Australian ISPs. The site allows users to stream movies and TV shows and has been blocked in the UK and Singapore.

Meanwhile, Foxtel has also sought to block a number of illegal torrent sites including the notorious Pirate Bay. Both cases appeal to the newly minted Copyright Amendment (online infringement) Act.

They are the first action to be taken under the controversial site-blocking legislation passed by the Australian Government last June.

Foxtel is part owned by News Corp Australia, the publisher of news.com.au.