From “cool to criminal”: a warning for internet service providers

Friday 11th May 2012
Article written by: Thomas Huthwaite

In the early 2000s, few would have grasped the worldwide legal ramifications for offering file sharing software and services.  Following Napster, file sharing technology was new and exciting, consumers were embracing the idea, and service providers saw golden business opportunities.

One of the service providers was Kim Dotcom.  Mr Dotcom saw the great potential in ‘cloud’ or ‘digital locker’ services long before many others.  He sought legal advice and consulted the provisions of the United States Digital Millennium Copyright Act.[1]  After satisfying himself that he was protected from the actions of his users as an “online service provider” under US law, his company set about making its millions.

Of course, we all know that the Mega Upload story does not end there.  While many users of the Mega Upload website were not breaking the law, there were many others who were using it for improper purposes (for instance, copyright infringement).  Furthermore, this was known to the company.  Legal issues were bound to arise.  Their resolution is likely to prove fascinating.

Mr Dotcom’s case is not the only example of a service provider being pursued by copyright owners.  Copyright owners seeking reparation, or at least positive action, from service providers include The Pirate Bay website, the English BT Net and Newzbin2 cases, and the recent Australian iiNet cases.[2]

Only recently have other file sharing services begun to fully appreciate the risks and recognise that they may be liable in a contributory sense for the actions of those using their websites.  To quote US law professor Peter Swire, file sharing service providers in the wake of the Mega Upload saga “have gone from cool to criminal all at once”.[3]

The new ISP in town: FYX

On 7 May 2012, Auckland company, Maxnet, launched its own internet service provider (ISP), called FYX.  In addition to providing internet protocol addresses, FYX is also offering its customers access to geo-blocked websites such as Netflix and Hulu.

Geo-blocking is a form of technology used to prevent internet users from accessing websites from specific countries.  The list of websites that are blocked off to New Zealand internet users includes Netflix, Hulu, BBC iPlayer, and many other on-demand or video streaming websites.  Even certain youtube and iTunes content may be blocked from time to time.
The core issue here is the territorial nature of intellectual property, and the licensing of that intellectual property.  Basically speaking, a copyright owner has the right to decide who gets to use, listen to, or watch its material.

The movie studios have licensed companies like NetFlix, Hulu, and Australasian QuickFlix, to stream certain movies to users who pay a subscription fee.  However, these subscriptions are limited, territorially speaking.

The contractual terms of sites like NetFlicks and Hulu do not for instance allow New Zealand users to access content on the websites, even if they are willing to pay the subscription fee.  It is not simply an issue of an arbitrary internet roadblock that has been placed in the way of the users – it all comes back to who has been authorised to access the copyright material.

It is unclear at this stage how FYX intends to conduct its service.  It is possible that FYX will offer a type of Virtual Private Network (VPN) service, the likes of which are offered by a handful of companies and already used by many New Zealanders.  What is clear is that FYX intends to use technology that circumvents geo-blocking for its users.

Many will argue that FYX is not doing anything wrong – it is simply offering a service.  However, there will still be the issue of whether internet users use FYX’s services for illegal purposes, for example, breaching the terms of websites like NetFlix.  This may involve breach of contract or copyright infringement or both.  The Mega Upload case suggests that service providers embarking on such projects should be wary.

FYX has stated on its website that it:
   “does not guarantee access to any particular or specific websites or content, but works to improve the overall accessibility of content from around the world.”

It also states:
   “Many websites, whether available because of Global Mode or not require you to agree to terms and conditions before you start using its service. Global Mode does not negate you from these responsibilities or act on your behalf.”

In other words, buyer beware: the onus is on you.  But that’s not necessarily the end of the story for the ISP.  We’ve seen a worldwide trend of service providers being held liable (in a contributory, joint, or conspiracy sense) for the actions of their users, regardless of what warnings they give.

Depending on exactly what FYX is offering, and how it goes about offering it, it may later be liable in some manner for copyright infringement or breaches of contract by its users.

Infringing File Sharing

As a side note, the ISP entering this field will also have to ensure that the blocking mechanism it uses does not allow internet users to freely and illegally share copyright files.  The Copyright (Infringing File Sharing) Amendments placed certain obligations on ISPs.

As to the issue of geo-blocking, the issue has not yet been legally regulated or tested, and as such, ISPs should be wary of exploiting the business opportunities they see before them.

[1] In particular, refer to Digital Millennium Copyright Act 1998, Title II: the Online Copyright Infringement Liability Limitation Act.
[2]Roadshow Films Pty Limited v iiNet Limited [2011] FCAFC 23; [2012] HCA 16.

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