Australian court rules against Kazaa

SYDNEY--An Australian court on Monday ruled that the managers of peer-to-peer software Kazaa had authorized users to infringe on music copyrights and directed them to modify the application to reduce the practice.

Justice Murray Wilcox of Australia's Federal Court ruled largely in favor of music labels, including Universal, Sony, Warner and Festival Mushroom, which had argued that the Kazaa software--owned by Australian-based Sharman Networks--was used to undertake copyright infringement on a massive scale. The labels had also targeted United States-based Altnet, which provides a search technology for Kazaa and is a close partner of Sharman.

Wilcox also ordered respondents Sharman Networks, LEF Interactive, Sharman CEO Nicole Hemming, Altnet and Brilliant Digital Entertainment boss Kevin Bermeister to pay 90 percent of the music industry's court costs.

The judge dismissed the music industry's claims the Kazaa parties had contravened Australia's Trade Practices Act and engaged in conspiracy, as well as dismissing as "overstated" the industry's allegation that Kazaa's managers were engaged in copyright-infringing behaviour themselves. "The more realistic claim is that the respondents authorized users to infringe the applicants' copyright in their sound recordings," he said.

Kazaa can remain in operation, Wilcox said, if the software maker meets either of two conditions. First, "non-optional key-word filter technology" would need to be included in current versions of the software received by new users and in future versions of the software and if "maximum pressure" was exerted on existing users to upgrade to a new version containing the technology. The other option was that the Altnet search software--called TopSearch--be restricted to providing lists of non-copyright-infringing works.

Proceedings were dismissed against respondents Sharman License Holdings, Sharman Chief Technology Officer Philip Morle, Brilliant Digital Entertainment and Altnet CTO Anthony Rose.

A separate hearing is to be held for the music industry's claims for damages against the respondents.

The Recording Industry Association of America, which has been a driving force against illegal sharing of music files, responded enthusiastically to Wilcox's ruling.

"This judgment is first and foremost a global victory for legitimate online music services, the creative community that gives those businesses life and the fans who look forward to a constant array of new music," RIAA Chief Executive Mitch Bainwol said in a statement.

"On the heels of the unanimous Grokster ruling by the U.S. Supreme Court, 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," Bainwol said.

The Australian decision comes a little more than two months after the U.S. Supreme Court ruled unanimously that peer-to-peer companies--most notably Grokster--could be held liable for copyright piracy that occurred over their networks. As part of that ruling, the justices returned the case to a lower court for further action.

In the Kazaa case, Wilcox said the applicants had refused to implement technical measures that could curtail, though "probably not totally...prevent" the sharing of copyright files, as to do so would not be in their financial interest.

"Far from taking steps that are likely to effectively curtail copyright file-sharing, Sharman Networks and Altnet have included on the Kazaa Web site exhortations to users to increase their file sharing and a Web page headed 'Join the Revolution' that criticizes record companies for opposing peer-to-peer file sharing," he said. "They also sponsored a 'Kazaa Revolution' campaign attacking the record companies.

"The revolutionary material does not expressly advocate the sharing of copyright files," he said. "However, to a young audience--and it seems that Kazaa users are predominantly young people--the effect of this Web page would be to encourage visitors to think it 'cool' to defy the record companies by ignoring copyright constraints."

Long legal battle
Sharman Networks, associated companies and major record labels have been at loggerheads over Kazaa for more than three years.

In 2002, Kazaa was the most popular file-sharing software on the Internet. The record labels alleged millions of copyright infringements were occurring each day on the network.

The battle began in earnest in Australia in February 2004. Music Industry Piracy Investigations (MIPI), a division of the Australian Recording Industry Association (ARIA), seized hard drive images and other documents from the Sydney offices of Sharman, associated company Altnet and the homes of executives Hemming and Bermeister under a court-sanctioned civil search order.

The seized materials were crucial to the record labels' evidence against Sharman in the subsequent Federal Court action, which began in November 2004.

The labels alleged Sharman and Altnet had conspired to attract thousands of copyright infringers to Kazaa, and profited from advertising revenue. Altnet operates a search system within the Kazaa Media Desktop.

Sharman argued that it was unable to filter copyright materials involved in the Kazaa software, while the labels said Sharman encouraged users to infringe copyright through the design of the peer-to-peer software, and by promoting it with terms like "free music."

Lawyers for Sharman argued the company had never authorized copyright infringement. Users received copyright notices as part of Kazaa, according to Sharman, and the decentralized nature of the peer-to-peer application made controlling and monitoring users almost impossible.

The company called several academic witnesses during the trial who testified that filters would be ineffective in preventing copyright-infringement, as users would soon find ways to circumvent them. The academics also testified that peer-to-peer applications, such as Kazaa, were capable of substantial non-infringing use.

The record labels also attacked the ownership structure of Sharman, which is registered in Vanuatu for "tax reasons."

Both Hemming and Bermeister declined to take the witness stand during the trial.

Lawyers for the record labels claimed Sharman was controlled largely by Altnet's Bermeister. The two companies operate under Bermeister's command to exploit the traffic on Kazaa for the advertisements seen via the TopSearch facility, the labels allege.

Sharman claims the two companies are business partners only.

Sharman purchased the Kazaa software from Dutch company, Kazaa BV, in 2002.