updated 9/5/2005 3:43:03 PM ET 2005-09-05T19:43:03

A federal judge on Monday ordered distributors of the popular file-swapping program Kazaa to alter the software, which millions have downloaded, so it can no longer be used for music piracy.

Hailed as a victory by the recording industry that brought the suit, the decision has implications well beyond Australia, where Kazaa executives are based, because Kazaa’s users span the globe.

In some ways, it mirrors the U.S. Supreme Court’s June ruling that Hollywood and the music industry can sue technology companies that encourage their customers to steal music and movies over the Internet.

Federal Court Judge Murray Wilcox determined in Monday’s ruling that Kazaa’s owners and distributors, led by Sharman Networks Ltd., took no action to rein in illegal file-sharing despite posted warnings on their Web site 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, as well as Altnet, a Sharman software partner, guilty of copyright infringement and ordered them to pay 90 percent of the record industry’s costs in the case.

A hearing will be set 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 who have downloaded Kazaa.

In a brief statement, Sharman said it would appeal and Kazaa software remained available online, with more than 800,000 downloads reported last week and 390 million total since Kazaa first became available in 2001. 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 copyright material.

He said that if Kazaa is to continue its owners will have to ensure that new versions of the software filter out unlicensed copyright 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 “without unnecessarily intruding on others’ freedom of speech and communication.”

Kim Weatherall, a lecturer in intellectual property law at Melbourne University, called Wilcox’s decision brave but potentially chilling to technology innovators.

“It is clear that the judge is concerned not to stop the technology completely but to try and work some middle line,” she said.

The case is the latest in a long line of courtroom showdowns between purveyors of so-called peer-to-peer (P2P) networks and copyright holders led by the music and movie industries.

The U.S. Supreme Court’s related June decision gave those industries the go-ahead to proceed with suits against file-sharing software developers Grokster Ltd. and Streamcast Networks Inc. It said such companies can be liable if they deliberately encourage customers to infringe on copyrights as their businesses attempt to grow audiences and sell more advertising.

In a statement Monday, the Recording Industry Association of America praised Wilcox’s ruling as continuing in that vein: “... this decision reflects a growing, international chorus: those who promote theft can be held accountable no matter how they may attempt to escape responsibility.

“A corrupt business strategy of attempting to hide off-shore is not off-limits to the enforcement of rights by creators or law enforcement,” the RIAA added.

Kazaa has lost significant popularity since its 2002 heyday, due in part to 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.

FastTrack, the network tapped by Kazaa users, accounted for 10 percent 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.

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