Dallas Buyers Club – customer details not to be released (yet)

In the Dallas Buyers Club proceeding, Dallas Buyers Club and Voltage Pictures sought preliminary discovery from a number of ISPs of customer names and addresses associated with 4,716 IP addresses alleged to have been used to infringe copyright. As we previously reported (see our post here), on 7 April 2015, Justice Perram was satisfied in principle that the ISPs should give preliminary discovery, but ordered that production be stayed to allow the Court’s consideration of DBC’s proposed correspondence to ensure that DBC did not engage in “speculative invoicing”.

In a twist of events on 14 August 2015, Justice Perram refused to lift a stay on the production of identifying customer details. Justice Perram reviewed several proposed letters proposed to be sent by DBC and found that two of the four heads of damage claimed were impermissible. Unless DBC gave an undertaking in relation to the claims to be made in letters and paid a bond of $600,000, Justice Perram would not order preliminary discovery.

This post will focus on two interesting aspects of the decision (Dallas Buyers Club LLC v iiNet Limited (No 4) [2015] FCA 838): first, his Honour’s consideration of the copyright claims and second, the potentially wide-reaching implications of the decision for future preliminary discovery applications.

What heads of damage were permissible?

Before Justice Perram would order production, his Honour indicated that DBC would have to provide the Court with the proposed correspondence, including what DBC was proposing to demand monetarily or the methodology underlying its approach to the amounts that it was going to claim.

The figures that DBC proposed to demand consisted of four heads of claimed damage. Justice Perram found that two of these four heads were plausible. These were:

a claim for the cost of an actual purchase of a single copy of the film; and
a claim for damages arising from the amount of money it had cost DBC to obtain the infringer’s name.

However, Justice Perram found that the remaining two heads were impermissible:

a claim for an amount relating to each infringer’s uploading activities. Given the way in which BitTorrent operates, with each user uploads “slivers” of the film, the number of uploads were potentially very large. DBC sought damages apparently calculated on the basis of a “distribution licence” fee. Justice Perram found that the idea that BitTorrent users would have applied for a distribution licence was “so surreal as not to be taken seriously”.
a claim for additional damages under s 115(5) of the Copyright Act by reference to how many other copyrighted works had been downloaded by the user. Justice Perram found that additional damages could not be calculated on the basis of infringements other than the one the downloader is being sued for.

Unless DBC gave an undertaking to use the information obtained only for the permissible heads of damage, Justice Perram declined to lift the stay on the production of customer details.

Implications of the decision for preliminary discovery procedures

Justice Perram found that an untenable claim for relief was outside the proper ambit of power for the grant of preliminary discovery. Importantly for future preliminary discovery actions, while a prima facie case of copyright infringement had been demonstrated, what Justice Perram found untenable was the head of damages sought under that claim. Justice Perram moved away from his previous indication that the court would “approve” the content of the letter that could be sent to customers. Rather, the purpose of the court viewing correspondence was only to discern whether the applicant’s purpose was within r 7.22.

His Honour found that the power to grant discovery was discretionary (the use of “may” rather than must was used in the rules) and noted that the centrepiece of preliminary discovery was the right to obtain relief against an unidentified person. In considering whether to exercise the Court’s discretion, his Honour said that it was relevant to consider whether DBC had a right to obtain the sums of money it proposed to demand from users. Preliminary discovery would only be granted if what the applicant proposed to do with the information accorded with a purpose contemplated by r 7.22 of the Federal Court Rulese. While preliminary discovery could be used to gather information to sue and also to negotiate, Justice Perram stated that the Court could not facilitate cases or negotiating positions that lacked legal substance.

Justice Perram stated that in the future, in cases where preliminary discovery is sought against persons such as ISPs with a view to contacting a large class of potential defendants, it would be an essential step for the applicant to show that it sought discovery for a “purpose countenanced by r 7.22”, and in particular, put on evidence of the nature of the demands or claims it proposed to make. In addition, it would be useful to grant discovery only on the provision of an undertaking to only use the information for the purposes specified and require security for that undertaking.

What happens next?

While there is to be no disclosure of customer details for now, it is not clear at this stage whether or not those details will eventually be disclosed. Putting to one side the possibility of an appeal, the ISPs will be ordered to produce customer details in two circumstances:

First, DBC must give an undertaking to use the information obtained only for the two permissible heads of damage.
Second, in order to secure that undertaking (since DBC had no presence in Australia and would be unable to be punished for contempt), DBC must lodge a bond of $600,000 with the Federal Court Registrar. The amount of $600,000 was set by Justice Perram having regard to the potential revenue that DBC might make if it breached its undertaking not to demand sums under the two impermissible heads of damage.