A federal court ruled Monday that the popular file-swapping program Kazaa infringes copyright and gave its purveyors two months to alter the system so its users can no longer engage in music piracy.
Hailed as a victory by the recording industry, the court's decision has implications well beyond the borders of Australia, where Kazaa executives are based, because of the Internet's global nature.
Federal Court Judge Murray Wilcox determined that Kazaa's owners and distributors, led by Sharman Networks Ltd., took no action to rein in illegal activity despite posted warnings on their website urging Kazaa users not to swap copyright material.
Wilcox said it had been in the financial interest of Sharman and its partners "to maximize, not minimize, music file sharing."
He found six of the 10 defendants, including Sharman; its Sydney-based chief executive, Nikki Hemming; and Altnet, a Sharman software partner, guilty of copyright infringement and ordered them to pay 90% of the record industry's costs in the case.
A hearing will be held later to establish damages.
"We will ask the court when it comes to damages to reflect the value of the music these people ripped off," Michael Speck, a spokesman for the Australian recording industry, said of the millions of people who have used Kazaa to swap copyrighted music.
In a brief statement, Sharman said it would appeal and Kazaa software remained available online, with 800,000 downloads reported last week. Sharman says its software is no different from a tape recorder or photocopier -- and that Kazaa could not control copyright infringement by users.
But Wilcox said that Kazaa's distributors actively encouraged users to share files, the vast majority of which were copyrighted material.
He said that if Kazaa is to continue its owners will have to ensure that new versions of the software filter out unlicensed copyrighted material, a task the judge said would be extremely difficult.
Wilcox stressed, however, that he was anxious not to damage legitimate file swapping with his ruling. He said Kazaa needs to be changed to protect copyrighted material "but without unnecessarily intruding on others' freedom of speech and communication."
"It is clear that the judge is concerned not to stop the technology completely but to try and work some middle line," said Kim Weatherall, a lecturer in intellectual property law at Melbourne University.
The case is the latest in a long line of courtroom showdowns between so-called peer-to-peer networks and copyright holders led by the music and movie industries.
In June, the U.S. Supreme Court ruled that Hollywood and the music industry can file piracy lawsuits against technology companies caught encouraging customers to steal music and movies over the Internet.
The London-based International Federation of Phonographic Industries praised Monday's ruling as "a milestone in the fight against Internet piracy worldwide."
"Today's judgment shows that Kazaa -- one of the biggest engines of copyright theft and the biggest brand in music piracy worldwide -- is illegal," federation Chairman John Kennedy said.
But Kazaa has lost significant popularity since its 2002 heyday, partly because of legal pressure and sabotage efforts by the recording industry but also to the emergence of competing technologies.
Other peer-to-peer file-sharing tools and services that similarly do not require a central server, including BitTorrent and eDonkey, have supplanted it as the Internet's most popular file-sharing service.
FastTrack, the network tapped by Kazaa users, accounted for 10% of traffic volume in a six-week study begun in June of data swapped using the Internet's top four file-sharing applications. The study was done by CacheLogic.