With thank to Bloomber and Robert Fenner

Hollywood's biggest movie studios, including Walt Disney Co. and Paramount Pictures, lost a suit seeking to stop customers of Australia's Iinet Ltd. from illegally downloading movies in a ruling that may set a precedent for the industry.

Iinet, Australia's third-biggest Internet service provider, didn't authorize copyright infringements and shouldn't be held liable for the actions of its customers, Justice Dennis Cowdroy told the Federal Court in Sydney today, as he dismissed the suit.

The suit, led by Village Roadshow Ltd.'s Roadshow Films, sought to stop Iinet customers from using BitTorrent software to download films such as “Happy Feet” and “I Am Legend.” Disney, News Corp.'s 20th Century Fox, Sony Corp. and Viacom Inc's Paramount joined the case.

“It is no doubt a win for ISPs and a huge disappointment for owners of copyright content,” said Andrew Wiseman, a partner in intellectual property at law firm Allens Arthur Robinson. “The content providers are not in the business of suing their customers, but if they can't get the conduit they might go for the end user.”

The suit has parallels to earlier litigation involving photocopiers and video cassette recorders, where manufacturers weren't held liable for the actions of users, said Wiseman, whose firm wasn't a party to the lawsuit.

While evidence showed copyright infringements occurred on a “large scale,” Perth-based Iinet wasn't responsible, Justice Cowdroy said.

Iinet shares surged 11 percent to A$2.20 at the close of trading in Sydney, their largest gain in eight months. The stock has gained 18 percent this year.

Industry ‘Setback'

The Australian Federation Against Copyright Theft, an organization that represents the studios, said the decision was a “setback” for workers in the Australian film industry.

“We will now take the time to review the decision before making further comment on next steps,” AFACT Executive Director Neil Gane said in an e-mailed statement. “We are confident that the government does not intend a policy outcome where rampant copyright infringement is allowed to continue unaddressed and unabated via the Iinet network.”

Iinet said it never “supported or encouraged” breaches of the law.

“Today's judgment is a vindication of that and the allegations against us have been proven to be unfounded,” Chief Executive Officer Michael Malone said in a statement on Iinet's Web site.

“The ruling will serve as a reference to similar cases in other jurisdictions,” said Charles Mok, chairman of the Internet Society's Hong Kong division. “This case shows that if an Internet service provider can demonstrate it has put in place a mechanism for dealing with complaints from content owners, then the law will afford an adequate safeguard.”

Calls for comment to the Australian offices of Paramount and Disney were referred to AFACT.

The case is Roadshow Films Pty. Ltd. v iiNet Limited (No. 3). Federal Court of Australia (Sydney.)