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By Steven Deare, 5 September 2005 11:45

NEWS The Federal Court of Australia has dealt a heavy blow to the managers of peer-to-peer software Kazaa, finding they had authorised users to infringe music industry copyright and directing them to modify the application to reduce the practice.

The infringing respondents - Altnet, Brilliant Digital Entertainment boss Kevin Bermeister, LEF Interactive, Sharman CEO Nicole Hemming and Sharman Networks - were ordered to pay 90 per cent of the music industry's court costs.

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

While Justice Wilcox dismissed the music industry's claims of contravention of the Trade Practices Act and conspiracy against the parties associated with Kazaa - and dismissed as "overstated" the industry's allegation that Kazaa's owners were engaged in copyright-infringing behaviour themselves - he said: "The more realistic claim is that the respondents authorised users to infringe the applicants' copyright in their sound recordings."

Justice Wilcox said Kazaa could remain in operation if:

• "non-optional keyword filter technology" was included in current and future versions of the software received by new users, and "maximum pressure" was exerted on existing users to upgrade to a new version containing the technology, or;

• the Altnet search software - called TopSearch - is restricted to providing lists of non copyright-infringing works.

The four respondents against whom proceedings were dismissed were Altnet CTO Anthony Rose, Brilliant Digital Entertainment, Sharman chief technology officer Philip Morle and Sharman License Holdings.

Justice Wilcox also granted leave to the Australian Consumers Association, Electronic Frontiers Australia and the New South Wales Council for Civil Liberties to intervene in proceedings.

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

Justice 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.

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

"The revolutionary material does not expressly advocate the sharing of copyright files. 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."

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, a division of the Australian Recording Industry Association, 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 kicked off on November last year.

Steven Deare writes for ZDNet Australia