Judge Stephen Wilson threw out the case against Streamcase Networks Inc., the company behind the Morpheus file-sharing software, and Grokster Ltd, saying they "are not significantly different from companies that sell home video recorders or copy machines, both of which can be and are used to infringe copyrights."
The ruling is a major blow for the music industry, which has become used to winning most of its internet music battles since it first began the war with a lawsuit against Napster in December 1999. Napster ultimately collapsed under the cost of litigation, and the Recording Industry Association of America (RIAA) has pursued successor networks. Unfortunately for the RIAA, they operate in a manner significantly different to Napster.
Napster required users to connect to its servers to identify the files that could be downloaded from another user's home computer, a system known as centralised P2P. Grokster and Morpheus are decentralised, meaning that once the users have the netowrking software, they no longer need to connect to the companies' servers to access other users' computers. Accordingly, the companies do not know what files are being exchanged, and cannot stop the network operating or exercise control over user activity.
Judge Wilson also found it significant that Napster had developed its own networking software, unlike Friday's successful defendants.
Grokster and Morpheus are popular file-sharing services, but they exist in the shadow of KaZaA, by far the biggest P2P network. Although KaZaA is the subject of a separate lawsuit, it will be delighted by Friday's ruling.
The RIAA has inevitably vowed to appeal in a matter which many expect to conclude only in the Supreme Court.
Hilary Rosen, Chairman and CEO of the RIAA, said:
"We disagree with the District Court's decision that these services are not liable for the massive illegal piracy that their systems encourage and we will immediately appeal to the 9th Circuit Court of Appeals."
However, she also took comfort from the Court's affirmation that, as she put it, "individual users are accountable for illegally uploading and downloading copyrighted works off of publicly accessible peer-to-peer networks."
This aspect of Judge Wilson's ruling supports the RIAA's recent focus in P2P litigation: targeting individual users to deter others.
Referring to another case in which ISP Verizon was last week ordered to identify a P2P user, Rosen said: "individual infringers cannot expect to remain anonymous when they engage in this illegal activity."