The Dutch supreme court on Friday threw out an attempt by a music copyright agency to put controls on popular Internet file-swapping software system Kazaa, a ruling the music industry attacked as flawed.
The decision is a fresh blow to the media industry, which has fought to shut down file-sharing networks they say have created a massive black-market trade in free music, films and video games on the Internet.
"The victory by Kazaa creates an important precedent for the legality of peer-to-peer software, both in the European Union as elsewhere," Kazaa's lawyers Bird & Bird said in a statement.
The decision by the Dutch court, the highest European body yet to rule on file-sharing software, means that the developers of the software cannot be held liable for how individuals use it. It does not address issues over individuals' use of such networks.
The International Federation of the Phonographic Industry (IFPI), the music trade group representing independent and major music labels including Warner Music, Sony Music, BMG, EMI and Universal Music, criticised the ruling as "one-sided" and vowed to continue its legal crusade elsewhere.
The music industry in the US, feeling the pinch of successive years of declining CD sales, has begun suing individual downloaders, many of whom are Kazaa users. The IFPI has said a similar legal campaign could be launched in Europe.
The Supreme Court rejected demands by Buma Stemra, the Dutch royalties collection society, that distribution of Kazaa cease and that future versions be modified so that copyrighted materials cannot be exchanged over the network, lawyers representing Kazaa said.
Kazaa and other new breed peer-to-peer networks have argued they have no centralized servers and therefore cannot control what is exchanged by their users, a defence the IFPI and other media organisations challenge.
The IFPI maintained Kazaa could be modified to filter out copyrighted works. They also demanded the company warn Kazaa users that unauthorised distribution of such materials was illegal.
The supreme court upheld a March 2002 ruling in which an appeals court ruled in favour of Fasttrack, the Amsterdam-based firm that developed Kazaa. Fasttrack later sold the technology to Sharman Networks of Australia.
The media industry has launched a similar suit in the US against Sharman, which many see as the crucial legal showdown for determining the legal future of file-sharing.