District Court Judge Liam O'Grady has just issued a detailed memorandum explaining why Cox isn't entitled to a safe harbor defense. He ruled that Cox willingly failed to disconnect repeat or flagrant 'pirate' subscribers, a decision that could have an enormous impact on all U.S. Internet providers.

Today marks the start of a crucial trial that may define how U.S. Internet providers deal with pirating subscribers in the future.

Internet provider Cox Communications is facing a lawsuit from BMG Rights Management which accuses the ISP of failing to terminate the accounts of subscribers who frequently pirate content.

BMG claimed that Cox gave up its DMCA safe harbor protections due to this inaction, something District Court Judge Liam O’Grady agreed on last week in a summary judgment.

This order puts the Internet provider at a severe disadvantage while facing millions of dollars in damages. In a memorandum published a few hours ago Judge Liam O’Grady justified his decision.

According to the court there is enough evidence to conclude that Cox did not terminate the access of repeat infringers under appropriate circumstances.

“The record conclusively establishes that before the fall of 2012 Cox did not implement its repeat infringer policy. Instead, Cox publicly purported to comply with its policy, while privately disparaging and intentionally circumventing the DMCA’s requirements,” the memorandum (pdf) reads.

Judge O’Grady notes that Cox had a policy in place to deal with repeat infringers, but that in reality these users would simply be reconnected upon request. They would then start over with a clean slate.

“Cox employees followed an unwritten policy put in place by senior members of Cox’s abuse group by which accounts used to repeatedly infringe copyrights would be nominally terminated, only to be reactivated upon request.”

“Once these accounts were reactivated, customers were given clean slates, meaning the next notice of infringement Cox received linked to those accounts would be considered the first in Cox’s graduate response procedure,” O’Grady adds.

The Judge cites several emails and other communication from Jason Zabek, Cox’s Manager of Customer Abuse Operations, who instructs employees not to be too harsh. Keeping customers on board appears to be a prime motivation.

Below is a snippet from an email Zabek sent to a group of employees:

“After termination of DMCA, if you do suspend someone for another DMCA violation, you are not wrong. However, if the customer has a cox.net email we would like to start the warning cycle over, hold for more, etc. A clean slate if you will. This way, we can collect a few extra weeks of payments for their account. ;-)”

In other emails asking about whether repeat infringers should be reconnected Zabek replied with statements such as “It is fine. We need the customers,” “DMCA = reactivate,” and “You can make him wait a day or so if you want. ;-).”

In 2012 Cox abandoned this unofficial reactivation policy but that didn’t have a positive impact on the number of account terminations, on the contrary in fact.

The record shows that the number of disconnections dropped significantly, to less than one per month on average. In addition, emails show instances where Cox prefers to keep frequently pirating customers on board as they provide a significant revenue stream.

“BMG has identified specific instances in which Cox knew accounts were being used repeatedly for infringing activity yet failed to terminate,” Judge O’Grady writes.

“Cox does not seriously challenge these examples. Labeling them as ‘nothing more than conjecture and hyperbole,’ Cox argues that these snippets of conversations do not show what actions call centers actually took against accounts,” he adds.

For its part, Cox argued that it’s up to a court to decide that the appropriate response to infringement is the termination of the account of a subscriber, noting that copyright holder complaints may not always be accurate.

But Judge O’Grady disagrees and notes that when an ISP has actual knowledge that an account holder is a persistent pirate, his or her account should be terminated.

“Appropriate circumstances arise when an account holder is repeatedly or flagrantly infringing copyrights. Thus, when Cox had actual knowledge of particular account holders who blatantly or repeatedly infringed, the responsibility shifted to Cox to terminate their accounts,” he writes.

While BMG also submitted several other arguments, Judge O’Grady found the above sufficient to rule that Cox is not entitled to DMCA safe harbor protection.

The ruling means that it will be more difficult for Cox to defend itself against BMG’s copyright infringement claims. However, it will also raise alarm bells at various other U.S. Internet providers. At the moment it’s rare for ISPs to disconnect pirating users and this case has the potential to alter the landscape.