The court backed that country's data protection commissioner, who said that Logistep violated Switzerland's Data Protection Act when it used the software. The IP addresses were personal data, the Court said, and processing that data without the knowledge or permission of the person concerned was a breach of the law, it said.
The Court recognised the economic interest that copyright holders had in stopping the illegal sharing of material in which they had rights, but said that that interest did not justify what it called a significant intrusion into the privacy of each affected user.
Logistep's File Sharing Monitor software searches peer-to-peer (P2P) networks and when it finds copyright-infringing files logs the IP address of the uploader. This information is then passed to copyright holders, who can use it as the basis of legal action.
The status of IP addresses has been hotly contested in Europe, with some privacy advocates arguing that they are personal data as defined in the EU's Data Protection Directive, and others arguing that though they are personal data in some circumstances, that is not always the case.
Switzerland is not a member of the EU so is not bound by the Data Protection Directive, but its court has found that in this case the IP addresses did qualify as personal data. This means that anybody using and storing the IP addresses must abide by its data protection laws.
Switzerland's data protection commissioner had told Logistep that its behaviour violated the law, but a lower court had sided with the company. The Federal Court has reversed that decision.
Richard Schneider of Logistep said in a statement that his company's work had been recognised in other European countries. In an automatic translation his statement said that the verdict could lead to "a massive and uncontrolled illegal distribution of copyright-protected content in Switzerland, a sort of legal limbo".
IP addresses on their own do not identify individuals, but when combined with information held by an internet service provider (ISP) they can be used to identify which internet connection was used.
A French court ruled earlier this year that a French music royalty collection society did not breach data protection law when using IP addresses and that the addresses were not personal data because they did not directly identify users.
In 2008 the then-head of a committee of the EU's data protection officials told OUT-LAW Radio that though there were circumstances in which IP addresses were not personal data, they should always be treated as such as a matter of good data protection policy.
"In the most cases IP addresses have to be seen as personal related and therefore the European Directive on Data Protection covers also the use of IP addresses," said Peter Schaar. "I understand that under specific circumstances IP addresses are not personal-related but in general we would say as data protection authorities IP addresses are personal data because they identify indirectly the user of computer systems connected to the internet."