iiNet board may face governance questions
‘iiNet has of course got a policy for disconnecting repeat offenders. It was written to match the language in the safe harbour provisions. It has of course also been reviewed by Herbert Geer.’
iiNet CEO Michael Malone on Whirlpool, 13 December 2008
In December 2008, iiNet CEO Michael Malone wrote on broadband forum Whirlpool that ‘iiNet has of course got a policy for disconnecting repeat offenders. It was written to match the language in the safe harbour provisions. It has of course also been reviewed by [lawyers] Herbert Geer.’
On Tuesday, in his evidence to the Federal Court on the AFACT case, AFACT’s barrister asked Malone: ‘[iiNet’s repeat offender policy is] not actually written down anywhere, don’t you agree ?’ Malone’s answer: ‘Yes’.
The apparent discrepancy is critical for two reasons.
The ‘credit’ issue
If the Court becomes aware of the apparently opposite statements while Malone is giving evidence, he’ll be given an opportunity to explain them. Perhaps the word ‘written’ in his Whirlpool post was ill-chosen, and he meant ‘designed’ or ‘created’ but not literally ‘written’. That could account for it.
He’d also need to explain how lawyers Herbert Geer ‘reviewed’ the unwritten policy. On such a key policy, lawyers would normally insist that their client state in writing what was to be advised on, especially if the client intended to ‘to match the language in the safe harbour provisions’.
And even if lawyers were prepared to advise on an important policy without a written copy, they’d normally set out, in their advice, the words that had been spoken to them. But perhaps this was a rare case where the lawyers didn’t give written advice on their review.
So, there are certainly ways that the apparently contradictory statements can be reconciled.
The problem is that if the Court wasn’t convinced that the two statements were consistent, it could draw an adverse conclusion about the overall credibility of the witness. That could colour the Court’s view about his reliability on other disputed points.
The ‘safe harbour’ problem
We’ve previously explained in detail how ‘safe harbour’ works. Basically, the Copyright Act says that an ISP that follows a certain code of conduct can’t be ordered to pay mega-damages, even if it is held liable for authorising copyright infringement. It’s a kind of insurance policy. The ISP may be ‘guilty’ of infringement but it still can’t be heavily financially damaged.
A key part of the safe harbour code is that the ISP adopts and reasonably implements a repeat infringer policy. Malone’s Whirlpool post suggests a good understanding of what ‘adopts and reasonably implements’ might involve, especially for a public company. It might well involve a written policy that matched the legal rules and was reviewed by the company’s lawyers.
Well, it now seems possible that none of the above may have happened. Malone swears that there is no written policy. There have been no reports of evidence that lawyers ‘reviewed’ a policy, or that it ‘matched’ the language of the safe harbour rules. It seems to run a substantial risk that the Court will conclude that on Malone’s own view of how such a policy would be implemented, iiNet has failed.
What would that mean ?
It would mean that if iiNet loses the main case, it has no ‘safe harbour’ insurance policy to fall back on. The company’s net worth would be exposed to whatever damages judgment followed.
Our take on it
It’s one thing for an ISP to say ‘We stand for freedom of the Internet.’ It’s quite another for a public company to say ‘We put our shareholders at risk by failing to take out insurance.’ If Malone’s December 2008 statement was wrong and iiNet loses the infringement case, the iiNet board has a serious governance question to answer: How could Australia’s number three ISP stay outside safe harbour while it was receiving infringement warnings from AFACT ?
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