Kazaa loses copyright case in Australia

In a win for the music business, a judge in Australia has ruled that the operators of the Kazaa file-sharing network authorized the widespread violation of copyright works. He ordered that significant changes be made to how the Kazaa service works.

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Federal Justice Murray Wilcox, of the Federal Court of Australia in Sydney, stopped short of ordering that the peer-to-peer file-sharing service be shut down. But he said that changes must be made in order to prevent, to the extent possible, any further copyright violations.

The decision is a blow to Kazaa operator Sharman Networks, which has been battling the closely watched case since early last year. In a brief statement Monday, the company said it was disappointed with the decision and vowed to appeal it vigorously. The company will not comment further until it has studied the decision in detail, a spokeswoman said.

The case against Sharman Networks was filed by the local subsidiaries of most of the big recording labels, including Universal Music Group, Sony BMG Music Entertainment, and EMI Group.

Sharman Networks, along with five affiliates named in the case, was ordered to pay 90 percent of the labels' legal costs. A further hearing will take place to determine monetary damages, Justice Wilcox ordered.

The plaintiffs did not get all they had asked for. Justice Wilcox denied claims that Sharman Networks violated Australian trade practices and conspiracy claims, and he ruled that the company's directors were not themselves guilty of copyright infringement. "The more realistic claim is that the respondents authorised users to infringe the applicants’ copyright in their sound recordings," he wrote.

The Kazaa network can continue to operate if it meets one of two conditions, Justice Wilcox wrote. One option is to include a "non-optional" key-word filter that excludes from the service all works identified in a list provided by the copyright holders. The filter must be available to all new users of Kazaa and in all future versions. Sharman Networks must apply "maximum pressure" on existing users to upgrade to the new version.

The second option is that Kazaa's TopSearch feature be modified so that it only returns results for works that have been licensed for use on Kazaa.

Explaining his decision, Justice Wilcox said that warnings on the Kazaa Web site that its users must not share copyright works, and the fact that users agree not to do so when they sign the end user license agreement, were insufficient.

"[I]t has long been obvious that those measures are ineffective to prevent, or even substantially to curtail, copyright infringements by users," Justice Wilcox wrote. "The respondents have long known that the Kazaa system is widely used for the sharing of copyright files."

Sharman Networks could have used keyword filtering or file filtering to reduce illegal file sharing, according to the judge. It chose not to, he said, in part because it makes more advertising revenue if it lets users share a larger number of files. Instead, on its Web site Sharman Networks criticized music companies and urged people to "Join the Revolution," the judge wrote.

Kazaa has been battling the recording industry since at least 2001, when it was based in the Netherlands and known as Kazaa BV. The case in Australia picked up steam in February 2004, when investigators working for the recording industry raided Sharman Networks' offices there, as well as the homes of some of its executives, in search of evidence linking the company to copyright infringement.

The Sydney trial began in November. Lawyers for Sharman Networks argued that the company did not authorize any breaches of copyright committed by its users. The recording industry said it could have filtered out copyright songs but that it chose not to in order to maximize revenue.

During the trial, the court heard that some of the labels hired a U.S. company to flood the Kazaa network with spoof media files that would not play properly when downloaded. Kazaa was accused of providing false information about whether it maintained central servers that could help it to monitor its users' activity.

This year, lawyers for the recording industry accused Sharman Networks executives of dissipating assets in anticipation of a negative ruling. Nicola Hemming, the company's chief executive officer, sold her property in the exclusive Sydney suburb of Castle Cove for A$2.1 million ($1.6 million) in February, the court was told. The recording industry called for a freeze on further asset sales.

The two sides relied heavily on independent experts, and Justice Wilcox complained Monday about a lack of direct evidence presented in the case. The defendants called only one witness directly involved with operating Kazaa or Altnet -- Sharman Networks' Philip Morle.

"As Sharman’s Director of Technology, he might have been expected to have a comprehensive knowledge of both the Kazaa and Altnet technology," Justice Wilcox wrote. "However, he made a disappointing contribution to my knowledge of those matters. He claimed ignorance of many matters about which I would have expected him to be informed."

In the U.S., meanwhile, the U.S. Supreme Court ruled in June that Grokster and StreamCast Networks could be held liable for copyright infringements committed by users of their peer-to-peer file-sharing software. That decision had little bearing on the Sharman Networks case, Justice Wilcox said Monday, because of differences in the how the services work, and between Australian and U.S. laws.

Along with Sharman Networks, the other "infringing respondents" in the case are Altnet, LEF Interactive, Brilliant Digital Entertainment, Nicola Anne Hemming, and Kevin Glen Bermeister.

Hemming is chief executive officer of Sharman Networks, which employs its Australian staff through its management company LEF. Bermeister is CEO of Brilliant Digital, which owns Altnet, the U.S. company that provides Kazaa's TopSearch feature and collects a share of Sharman Networks' revenue.

Sharman Networks' registered headquarters are in Porta-Vila, Vanuatu, an Island in the South Pacific.