Internet provider iiNet cannot be held responsible if its users choose to breach copyright laws by downloading movies, a Federal Court judge in Sydney has found.

A consortium of 34 movie studios, headed by Village Roadshow, 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.

Justice Dennis Cowdroy has found it is "impossible" to hold iiNet responsible for what its users have done in the landmark judgment that may secure the future for all internet service providers (ISPs).

"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 authorisation," Justice Cowdroy told the court on Thursday.

"The evidence establishes that iiNet has done no more than to provide an internet service to its users." Justice Cowdroy said it was clear that illegal file downloading was happening on a large and international scale but he could not find against iiNet simply to make a point.

"The evidence establishes that copyright infringement of the applicant's films is occurring on a large scale ... however, such a fact does not necessitate or compel ... a finding of authorisation, merely because it is felt that `something must be done' to stop the infringements," the judge said.

Outside court Michael Malone, managing director of iiNet, said while he was delighted with the outcome, he hoped he would be able to work with the 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," Mr Malone told reporters.

Chief executive of the Internet Industry Association, Peter Coroneos, said the fundamental issue at hand was whether the role of an ISP was that of a gatekeeper, or simply that of a conduit.

"We have always been of the view, as a national industry body, that there is a need for an appropriate balance between the rights of content owners and the efficient functioning of the internet," Mr Coroneos told reporters.

Justice Cowdroy recommended the application be dismissed and that the consortium of studios pay for iiNet's court costs

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