The basis of the lawsuit was iiNet customers use of the internet to illegally download movies.
Excerpt from Justice Cowdroy's ruling:
"The evidence establishes that copyright infringement of the applicants' films is occurring on a large scale, and I infer that such infringements are occurring worldwide. However, such fact does not necessitate or compel, and can never necessitate or compel, a finding of authorisation, merely because it is felt that ‘something must be done' to stop the infringements.
An ISP such as iiNet provides a legitimate communication facility which is neither intended nor designed to infringe copyright. It is only by means of the application of the BitTorrent system that copyright infringements are enabled, although it must be recognised that the BitTorrent system can be used for legitimate purposes as well. iiNet is not responsible if an iiNet user chooses to make use of that system to bring about copyright infringement."
Full details here.
This may have global implications if ISP's are considered not liable for the copyright infringements of their users. The Hollywood studios, which included Universal, Paramount, Warner Bros, Disney and Columbia, had seemingly picked iiNet as it wasn't one of the two big internet providers in Australia (Telstra's BigPond and OptusNet). Now that they have lost the test case it will be very interesting to watch the ripple effect and whether a ruling in Australia has any impact on actions in the US.