SAN FRANCISCO, Aug. 19 -- The makers of two leading file-sharing programs are not legally liable for copyrighted works swapped online by their users, a federal appeals court ruled Thursday in a blow to the entertainment industry.
Among other reasons, the U.S. Court of Appeals for the 9th Circuit said Grokster Ltd. and StreamCast Networks Inc., unlike the original Napster LLC, were not liable because they don't have central servers pointing users to copyrighted material.
"In the context of this case, the software design is of great import," Judge Sidney R. Thomas wrote for the unanimous three-judge panel, which upheld a lower-court ruling that dismissed the bulk of a lawsuit brought by movie studios and music labels.
The panel noted that the software firms simply provide tools that let individual users share information over the Internet, regardless of whether that shared information is copyrighted.
"The technology has numerous other uses, significantly reducing the distribution costs of public domain and permissively shared art and speech, as well as reducing the centralized control of that distribution," Thomas wrote.
There was no immediate word on whether the entertainment industry would appeal to the U.S. Supreme Court.
A ruling against the file-sharing services could have made them unavailable for legitimate uses, analogous to banning VCRs to watch a school play because they could also record and play copyrighted TV shows.
Civil libertarians had also warned that a defeat for Grokster and StreamCast could have forced technology companies such as Microsoft Corp. to delay or kill innovative products that give consumers more control.
Thursday's ruling puts additional pressure on the entertainment industry to take the more costly and less popular route of going directly after online file-swappers. Recording companies already have sued more than 3,400 such users; at least 600 of the cases were eventually settled for roughly $3,000 each.
Napster was shut down after the 9th Circuit ruled that its centralized servers, which contained directories of thousands of copyrighted songs, made it legally liable for contributing to copyright infringement.