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Hollywood studios lost a landmark copyright court case against an Australia Internet provider on Thursday, when a court ruled iiNet could not be held responsible for unauthorized downloads of movies using its service.

The suit against iiNet was filed by a group of the biggest Hollywood studios including Village Roadshow, Universal Pictures, Warner Bros, Paramount Pictures, Sony Pictures Entertainment, 20th Century Fox and Disney.

The consortium had hoped to prove iiNet not only failed to take steps to stop illegal file-sharing by customers, but breached copyright itself by storing and transmitting the data through its system.

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Australia's Federal Court in Sydney ruled it was impossible to hold iiNet responsible for users infringing copyright.

"While I find that iiNet had knowledge of infringements occurring, and did not act to stop them, such findings do not necessitate a finding of authorization," Judge Dennis Cowdroy said in handing down the judgment.

"The evidence establishes that iiNet has done no more than to provide an internet service to its users," Cowdroy said.

iiNet told the court it was not required by law to act on allegations of copyright infringement, that customers were innocent until proven guilty in court, and that the case was like suing a power company for things people do with electricity.

Michael Malone, managing director of iiNet, welcomed the ruling, but added he hoped to be able to work with the film consortium on ways to prevent illegal downloads in the future.

"We would like to engage with all the movie studios and the other rights holders, and see if we can find a way to get this stuff legitimately online," Malone told reporters.

The Australian Digital Alliance, a coalition of libraries, universities, museums and galleries, said the ruling would benefit cultural institutions that make their collections available online and can be vulnerable to illegal downloads.

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"The practical impact of the decision for ISPs has been to overrule the copyright industry's demands that they must police the activities of their users," said alliance chairman Derek Whitehead.

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