Speaking to the Communications and Media Law Association (CAMLA), Senator Conroy said the legal battle "embodies the challenge of how to lay down the rules for tomorrow."
He said that the digital confidence of the content and entertainment industries is being undermined "by reports that indicate a large amount of internet traffic is peer-to-peer file sharing".
"They have a concern that a large proportion of the activity may be infringing content ownership rights," Conroy said.
"This level of infringement would be difficult to replicate in the offline world and, if it did occur, would likely be dealt with by laws and norms.
"But in the online space, the activity persists in ways that potentially undermine the commercial sustainability of the industry and promote an uncivil disregard for the law."
Conroy outlined two potential resolutions, including making ISPs become more active in policing file sharing on their networks or getting content industry players to change their business models and adopt Internet delivery mechanisms.
It appears the Minister will leave it to the Courts to decide which resolution sticks.
"This legal battle... symbolises the important challenge we face [in the digital economy] today," Conroy said.
"The Government is obviously watching developments with interest."
Reports by a major Sydney newspaper of yesterday's preliminary hearing indicated that iiNet's lawyers are expected to clarify the ISP's position on whether the documentation provided by the Australian Federation Against Copyright Theft (AFACT) is enough to identify individual infringements on its network.
A formal hearing of the case is expected later this year.
Senator Conroy has previously admitted that the Government may seek to test technologies that can filter peer-to-peer and BitTorrent traffic as part of its content filtering trials.
Conroy also said last night that "cross-jurisdictional collaboration" would be needed to improve digital confidence, not just national measures.
"The internet is global. It transcends national boundaries and is therefore hard to regulate [but] just because it is a challenge does not mean there should be no regulation," he said.