In the latest development in what has colloquial become known as the Dallas Buyers Club case, the Federal Court’s decision on 14 August 2015[1] ordering a stay on the discovery proceedings has provided useful guidance to prospective applicants to determine whether or not to seek to obtain documents and information through the Federal Court’s preliminary discovery processes.

The decision also demonstrates the Court’s preparedness to ensure that its processes are not abused, and its relevance to contemporary issues being faced by a society which is growing more technologically savvy and interconnected.

Background

On 7 April 2015, in relation to an application for preliminary discovery brought by Dallas Buyers Club LLC, in refusing the respondent ISPs’ application for an adjournment, Justice Perram of the Federal Court of Australia foreshadowed that the respondent internet service providers (including iiNet) may be required to provide to iiNet the ISP addresses identifying persons who had allegedly downloaded and shared the Dallas Buyers Club film without authorisation.

At the hearing of that application, the respondent ISPs voiced their concern that if they were compelled to divulge the ISP addresses (particularly before going through the formal resolution process such as court litigation) the applicant would be engaging in a practice known as “speculative invoicing”. In crude terms, speculative invoicing is the sharp practice of writing to potential defendants to threaten and demand a large sum of money, and offering to settle for a smaller sum which would still be in excess of what might actually be recovered in any actual suit.

Notwithstanding the adjournment, the Court acknowledged the respondents’ concerns and ordered further submissions be provided before orders would be issued.

On 6 May 2015, the Court granted preliminary discovery but stayed the operation of the order pending the applicant providing for its consideration a draft letter it intended to send to internet users. The Court also required the applicant to also provide a confidential submission about how it proposed to calculate the sum sought from internet account holders.

Decision

The Court carefully construed the discretion nature of rule 7.22 of the Federal Court Rules 2011 allowing applicants to seek preliminary discovery which relevantly provided:

‘7.22 Order for discovery to ascertain description of respondent
(1) A prospective applicant may apply to the Court for an order under subrule (2) if the prospective applicant satisfies the Court that:

• there may be a right for the prospective applicant to obtain relief against a prospective respondent; and
•  the prospective applicant is unable to ascertain the description of the prospective respondent; and

(c) another person (the other person):

(i) knows or is likely to know the prospective respondent’s description; or

(ii) has, or is likely to have, or has had, or is likely to have had, control of a document that would help ascertain the prospective respondent’s description.

(2) If the Court is satisfied of the matters mentioned in subrule (1), the Court may order the other person:

(a) to attend before the Court to be examined orally only about the prospective respondent’s description; and

(b) to produce to the Court at that examination any document or thing in the person’s control relating to the prospective respondent’s description; and

(c) to give discovery to the prospective applicant of all documents that are or have been in the person’s control relating to the prospective respondent’s description.

Note 1: Control and description are defined in the Dictionary.

Note 2: For how discovery is to be made, see rule 7.25.

(3) The prospective applicant must provide the person with sufficient conduct money to permit the person to travel to the Court.[2]

The court reasoned that the primary purpose of rule 7.22 was the idea that what a prospective applicant for preliminary discovery is ultimately seeking to vindicate is a right to obtain relief against an unidentified person.

Notwithstanding the fact that an applicant may apply under rule 7.22 of the Federal Court Rules 2011 to garner information about unidentified wrongdoers to sue them, the Court acknowledged that it could also permissibly be used to negotiate with them. However, it did not extend to facilitating court cases or negotiating positions lacking legal substance.[3]

The applicant had submitted that it intended to seek recovery from potential litigants under four heads of damages, namely:

• a claim for the cost of an actual purchase of a single copy of the Film for each copy of the Film downloaded (purchase price);

(b) a claim for an amount relating to each infringers’ uploading activities. Here DBC suggested that the number of uploads was potentially very large given the way BitTorrent operates, with each user sharing the Film with other users by means of transfers of slivers across the network (licence fee);

(c) a claim for additional damages under s 115(4) (i.e. punitive damages) depending on how many copies of other copyrighted works had been downloaded by each infringer; and

(d) a claim for damages arising from the amount of money it has cost DBC to obtain each infringer’s name (costs).

The Court held that while it “needs to be satisfied when it exercises the discretion under r 7.22(2) (by allowing the application or, as here, by lifting an earlier stay) that what a prospective applicant is proposing to do with the information thereby garnered accords with a purpose contemplated by r 7.22. In cases such as the present, that inquiry will devolve into an examination of whether the individual monetary demands which are proposed to be made could plausibly be sued for. If they could not, then it would not be a proper exercise of the discretion to permit release of the account holders’ information.”[4]

The Court held while it was permissible to obtain disclosure for the purposes of seeking damages pursuant to the purchase price and costs (as is the ordinary course of litigation), seeking damages under paragraphs (b) and (c) fell outside the ambit of rule 7.22.[5]

His Honour rejected the licence fee approach as the applicant’s submission that peer-to-peer file sharing users would negotiate a licence with the applicant for each use as “so surreal as not to be taken seriously“.[6] Similarly, the punitive damages claim was rejected and it was held that calculating damages with reference to how many other films each infringer may have downloaded was inconsistent with to section 115 of the Copyright Act 1968.[7]

Conclusion

His Honour declined to lift the stay on the order for preliminary discovery unless the applicant provided to the Court a written undertaking to use the information obtained under the preliminary discovery orders for the purposes of seeking a claim for the purchase price of the film and costs.

In recognition of the applicant’s lack of presence in the jurisdiction and to ensure compliance with the undertaking, the Court noted that such undertaking must be secured by a bond of $600,000.00 to ensure that the applicant would not demand damages calculated under the licence fee or punitive damages approaches.

Lessons and next steps

While in the present case the Court rejected the claims for damages under the licence fee and punitive damages approaches, it did not necessarily rule out that these were not recoverable if a prospective applicant seeking preliminary discovery could a reasonable basis for the calculation and claim for damages arising from the alleged copyright infringement. A claim for damages must arise from and be consistent with the relevant cause of action.

Applicant’s seeking to obtain preliminary discovery pursuant to rule 7.22 against third parties with a view to contacting a potentially large class of defendants will need to satisfy the Court that the purposes of the discovery falls within rule 7.22 and, in particular, that it put on evidence of the nature of the demands or claims it proposes to make to the defendants. The Court may review the actual substance of any proposed correspondence to ascertain whether or not an applicant’s purposes does fall within the relevant rule.

If successful, applicants can expect the Court to grant the preliminary discovery on the basis of an undertaking only to use the information for the purposes specified and, where the prospective applicant is absent from the jurisdiction, to require security for that undertaking.

In arriving at its decision and making the relevant orders, the Court will not permit its processes to be used to facilitate court cases or negotiating positions lacking substance.

Moving forward, while the applicant has not appealed the decision within the 14 day period, it has indicated that it may pursue alternative procedures in an effort to obtain the identities of those alleged copyright infringers.[8]

[1] Dallas Buyers Club LLC v iiNet Limited (No 4) [2015] FCA 838

[2] Federal Court Rules 2011 (Cth) r 7.22

[3] Dallas Buyers Club LLC v iiNet Limited (No 4), above at [33]

[4] Dallas Buyers Club LLC v iiNet Limited (No 4), above at [8]

[5] Ibid, at [33]

[6] Ibid, at [23]

[7] The drafting of section 115 of the Copyright Act 1968 (Cth) treats each instance of infringement and did not permit recourse to other acts of infringement of other another copyright holders’ right. His Honour held that such a claim would be summarily dismissed if brought.

[8] See Claire Reilly, Dallas Buyers Club turns down appeal, holds firm on damages (4 September 2015) Cnet <http://www.cnet.com/au/news/dallas-buyers-club-turns-down-appeal-holds-firm-on-damages>