A Federal Court battle between the Australian Federation Against Copyright Theft (AFACT) and Australia’s third-largest internet service provider iiNet kicked off this week. Its result will have implications for the entire telecommunications industry, as well as your expectations of privacy online.

What’s it all about?

AFACT claims iiNet is allowing its broadband customers to illegally share copyright-protected movies and TV programs through peer-to-peer networks like BitTorrent. They reckon iiNet is profiting from crime, and they’re after damages.

In opening remarks on Tuesday, AFACT told the court their two investigators became iiNet customers, downloaded files and tracked 94,942 instances of unauthorized copying over 59 weeks. The case, though, focuses on 29,914 instances involving 86 TV shows and movies.

For the back-story, see iTnews’ handy timeline.

Sorry, “peer-to-peer”? BitTorrent?

Peer-to-peer (P2P) means the job of serving out the data is shared amongst individual internet users’ computers without involving a big central server. It’s cheap, efficient, and accounts for roughly half of all internet traffic.

BitTorrent is one of the most popular P2P systems. Crikey has previously explained how it works. Illegal copying is endemic, such as when Victorians downloaded the first series of Underbelly. However BitTorrent also distributes legal material like software installers, scientific data and, in trials, programs for national broadcasters in Norway and Canada.

What is AFACT?

The big end of the movie and TV industries: Village Roadshow, Walt Disney, Paramount, Sony, Twentieth Century Fox, Universal, Warner Bros and the MPAA — though they claim to represent “the 50,000 Australians directly impacted by copyright theft including independent cinemas, video rental stores and film and television producers”.

Surely all ISPs have naughty customers? Why pick on iiNet?

AFACT notifies ISPs of alleged copyright violations, providing the customers’ internet (IP) addresses. Some ISPs then warn those customers or even disconnect them. iiNet refuses to do so.

Conspiracy theorists claim it’s also payback for iiNet speaking out against the government’s internet censorship trials, pointing to Senator Stephen Conroy’s public attack on iiNet’s legal defence. Conspiracy theorists claim many things.

Why did iiNet refuse to act on AFACT’s notices?

iiNet has previously said they won’t disconnect customers on the basis of “an unsubstantiated accusation” from a third party. They’ve told AFACT to go to the police, saying they’d act once a court had proven guilt.

iiNet also says an IP address doesn’t identify a person but a computer. The alleged infringer could be “the partner, child, flat-mate, employee or customer of the account holder”, or even a random stranger using an unsecured wireless network.

What’s this case really about?

It’s about who’s responsible for the content of internet traffic, who’s responsible for monitoring and policing that, and to what level — and, of course, who pays.

AFACT says iiNet has “an obligation under the law to take steps to prevent known copyright infringement via its network,” something prohibited under iiNet’s own terms of service. AFACT says iiNet isn’t doing enough to stamp out known illegal activity, and is therefore “authorising” it.

However iiNet says they can’t be “judge, jury and executioner”, and that they’re no more liable for the actions of their customers than Australia Post would be if someone mailed a box of cocaine.

There’s also a legal grey area where an ISP monitoring its customers’ traffic could constitute an illegal communications intercept. Proposed amendments to the Telecommunications (Interception and Access) Act 1979 originally included a provision granting ISPs an exception to monitor customers’ communication for “appropriate use”, but that’s now been dropped.

What happens now?

If iiNet loses, all ISPs could be hit with similar claims worth millions of dollars. That cost, and the cost of additional monitoring, would be passed on to customers.

The hearing is expected to last until mid-November. Judge’s rulings are expected early next year.

Disclosure: Stilgherrian is a customer of iiNet, as well as Telstra and Virgin Mobile. He has not communicated with iiNet about this case, nor they with him.