FEDERAL COURT OF AUSTRALIA Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242 UNIVERSAL MUSIC AUSTRALIA PTY LTD & ORS v SHARMAN LICENSE HOLDINGS LTD & ORS NSD 110 OF 2004 - 2 - WILCOX J SYDNEY 5 SEPTEMBER 2005 - 3 - SUMMARY In accordance with the practice of the Federal Court in certain cases of public interest, the Court has prepared a summary to accompany the judgment that is to be delivered today. However, it must be emphasised that the summary forms no part of the judgment. The only authoritative statement of the Court’s reasons is the judgment itself. This summary is intended to assist in understanding the principal conclusions reached by the Court, but it is necessarily incomplete. The published reasons for judgment and this summary will be available on the internet www.fedcourt.gov.au. Universal Music Australia Pty Ltd v Sharman License Holdings Ltd [2005] FCA 1242 - 2 - I am about to deliver judgment in a case that has attracted widespread interest. Extensive evidence was presented at the trial. Much of it was of a technical nature. The facts of the case and the relevant law are both complex. My reasons for judgment are, therefore, necessarily lengthy. Because of those factors, I have prepared this statement in which I will attempt briefly to explain the nature of the case and my major conclusions. This statement is not intended comprehensively to set out my findings of fact, conclusions about the law or reasons for making the orders I will shortly announce. Those interested in obtaining full information about those matters should refer to the Court’s website (www.fedcourt.gov.au), upon which my full Reasons for Decision will shortly be published. The case concerns the operation of the Kazaa Internet peer-to-peer file-sharing system. This system operates world wide. Since early 2002, it has been controlled by Sharman Networks Ltd, one of the present respondents, out of premises in Sydney. Four of the other respondents are directly associated with Sharman Networks. The Kazaa system is available to users free of charge. It enables one user to share with other users any material the first user wishes to share, whether or not that material is subject to copyright, simply by placing that material in a file called ‘My Shared Folder’. A user who is interested in obtaining a copy of a particular work, such as a musical item, can instantaneously search the ‘My Shared Folder’ files of other users, worldwide. If the file is located, the title will be displayed against a blue icon on the first user’s computer as a ‘blue file’. The work can then be downloaded onto the first user’s computer. The technology used to carry out those operations is called FastTrack. Shortly after Sharman Networks took control of Kazaa, the system was expanded so as to add a second type of search. This was done by arrangement with Altnet Inc, a United States company which is also a respondent in this case. Four other respondents are associated with Altnet. Altnet controlled technology called TopSearch, which enables the provision to Kazaa users of licensed works; that is, works made available to users pursuant to arrangements made with the owners of the copyright in those works. Search results for these works are displayed on a user’s computer against a gold icon; they have been called ‘gold files’. - 3 - There are 30 applicants in this case. They include companies associated with the world’s major distributors of sound recordings, mostly in the form of compact discs. The applicants claim the sharing of blue files between users constitutes an infringement of their copyright. They do not contend the sharing of gold files directly infringes their copyright. However, they have joined the Altnet parties because, they say, the arrangements made between the Sharman parties and the Altnet parties constitute a joint enterprise; so all the respondents are involved in the relevant infringements of copyright. Also, they say, Altnet personnel assisted Sharman personnel in constructing the Kazaa website, which contains material encouraging users to infringe copyright in blue file works. The Kazaa system is extremely popular. Documents produced by the respondents contain claims that, at any particular time, several million people are using the system to share files. At the beginning of 2004, the Kazaa website said over 317 million people, worldwide, had downloaded Kazaa onto their computers, thereby enabling them to share files. A banner on the Kazaa website, at the time of the commencement of this proceeding, claimed Kazaa was ‘[t]he world’s most downloaded software application’. A document produced by the respondents stated that Kazaa was used for 79% of worldwide peer-to-peer file-sharing activities. It is clear that a major proportion of Kazaa’s shared blue files are works (mostly musical works) that are subject to copyright. The files are shared without the approval of the relevant copyright owner. It follows that both the user who makes the file available and the user who downloads a copy infringes the owner’s copyright. In this case, the applicants made claims of copyright infringement, contravention of the Trade Practices Act and conspiracy. It is convenient to say immediately that the evidence does not support either the Trade Practices Act or conspiracy claims. Those claims will be rejected. The more arguable claim is infringement of the applicants’ copyright. Before I indicate my conclusions about that claim, I wish to identify two matters that this case is not about. First, many people (including the respondents) argue that the Internet is here to stay, it is being used by an ever increasing number of people and peer-to-peer file-sharing is one of its - 4 - most valuable potential uses. They say that copyright owners, such as the present applicants, could eliminate (or at least substantially reduce) infringement of their copyrights if they were willing to make copyright works available on a licensed basis for a fee, in the way in which Altnet offers gold files. Second, it was suggested at one stage of this case that it would have been possible for the applicants to have made their compact discs less vulnerable to being ‘ripped’ into a computer program by issuing them in a digital rights managed, rather than open, format. Neither of these matters fall for decision in this case. I understand the argument in favour of more widespread licensing of copyright works. No doubt that course would have commercial implications for sound recording distributors. Whether or not they should take it is a matter to be determined by them. Unless and until they do decide to take that course, they are entitled to invoke such protective rights as the law affords them. Similarly in regard to making compact discs less susceptible to ripping; although, in regard to that matter, I add the evidence is insufficient for me to reach any conclusion about the feasibility of doing this. I return to the true issue in the case: the applicants’ copyright claim. Here again, the applicants overstated their case. It cannot be concluded, as the applicants claimed in their pleadings, that the respondents themselves engaged in communicating the applicants’ copyright works. They did not do so. The more realistic claim is that the respondents authorised users to infringe the applicants’ copyright in their sound recordings. Section 101 of the Australian Copyright Act provides that copyright is infringed by a person who, not being the owner of the copyright and without the licence of the copyright owner, authorises another person to do in Australia an infringing act. I have concluded that this more limited claim is established against six of the ten respondents. My reasons may be summarised in this way: (i) despite the fact that the Kazaa website contains warnings against the sharing of copyright files, and an end user licence agreement under which users are made to agree not to infringe copyright, it has long been obvious that those measures are ineffective to prevent, or even substantially to curtail, copyright infringements by users. The respondents have long known that the Kazaa system is widely used for the sharing of copyright files; - 5 - (ii) there are technical measures (keyword filtering and gold file flood filtering) that would enable the respondents to curtail – although probably not totally to prevent – the sharing of copyright files. The respondents have not taken any action to implement those measures. It would be against their financial interest to do so. It is in the respondents’ financial interest to maximise, not to minimise, music file-sharing. Advertising provides the bulk of the revenue earned by the Kazaa system, which revenue is shared between Sharman Networks and Altnet. (iii) far from taking steps that are likely effectively to curtail copyright file-sharing, Sharman Networks and Altnet have included on the Kazaa website exhortations to users to increase their file-sharing and a webpage headed ‘Join the Revolution’ that criticises record companies for opposing peer-to-peer file-sharing. They also sponsored a ‘Kazaa Revolution’ campaign attacking the record companies. The revolutionary material does not expressly advocate the sharing of copyright files. However, to a young audience, and it seems that Kazaa users are predominantly young people, the effect of this webpage would be to encourage visitors to think it ‘cool’ to defy the record companies by ignoring copyright constraints. A question arose as to the form of relief that might be made against the six respondents that I hold to have authorised infringement of the applicants’ copyright. The applicants are entitled to declarations as to past violations of their rights and the threat of future violations.