Kazaa Loses Copyright Case in Australia

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

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

The decision is a blow to Kazaa operator Sharman Networks Ltd., whichhas been battling the closely-watched case since early last year. In abrief statement Monday, the company said it was disappointed with thedecision and vowed to appeal it vigorously. The company will notcomment further until it has studied the decision in detail, aspokeswoman said.

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

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

The plaintiffs did not get all they had asked for. Justice Wilcoxdenied claims that Sharman Networks violated Australian trade practicesand conspiracy claims, and he ruled that the company’s directors werenot themselves guilty of copyright infringement. “The more realisticclaim is that the respondents authorised users to infringe theapplicants’ copyright in their sound recordings,” he wrote.

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

The second option is that Kazaa’s TopSearch feature be modified so thatit only returns results for works that have been licensed for use onKazaa.

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

“[I]t has long been obvious that those measures are ineffective toprevent, or even substantially to curtail, copyright infringements byusers,” Justice Wilcox wrote. “The respondents have long known that theKazaa system is widely used for the sharing of copyright files.”

Sharman Networks could have used keyword filtering or file filtering toreduce illegal file sharing, according to the judge. It chose not to,he said, in part because it makes more advertising revenue if it letsusers share a larger number of files. Instead, on its Web site SharmanNetworks criticized music companies and urged people to “Join theRevolution,” 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 inAustralia picked up steam in February 2004, when investigators workingfor the recording industry raided Sharman Networks’ offices there, aswell as the homes of some of its executives, in search of evidencelinking the company to copyright infringement.

The Sydney trial began in November. Lawyers for Sharman Networks arguedthat the company did not authorize any breaches of copyright committedby its users. The recording industry said it could have filtered outcopyright 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 wouldnot play properly when downloaded. Kazaa was accused of providing falseinformation about whether it maintained central servers that could helpit to monitor its users’ activity.

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

The two sides relied heavily on independent experts, and Justice Wilcoxcomplained Monday about a lack of direct evidence presented in thecase. The defendants called only one witness directly involved withoperating Kazaa or Altnet — Sharman Networks’ Philip Morle.

“As Sharman’s Director of Technology, he might have been expected tohave a comprehensive knowledge of both the Kazaa and Altnettechnology,” Justice Wilcox wrote. “However, he made a disappointingcontribution to my knowledge of those matters. He claimed ignorance ofmany matters about which I would have expected him to be informed.”

In the U.S., meanwhile, the U.S. Supreme Court ruled in June thatGrokster Ltd. and StreamCast Networks Inc. could be held liable forcopyright infringements committed by users of their peer-to-peerfile-sharing software. That decision had little bearing on the SharmanNetworks case, Justice Wilcox said Monday, because of differences inthe how the services work, and between Australian and U.S. laws.

Along with Sharman Networks, the other “infringing respondents” in thecase are Altnet Inc., LEF Interactive Pty Ltd., Brilliant DigitalEntertainment Inc., Nicola Anne Hemming and Kevin Glen Bermeister.

Hemming is chief executive officer of Sharman Networks, which employsits Australian staff through its management company LEF. Bermeister isCEO of Brilliant Digital, which owns Altnet, the U.S. company thatprovides Kazaa’s TopSearch feature and collects a share of SharmanNetworks’ revenue.

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

By James Niccolai – IDG News Service (Paris Bureau)