Ruling major setback for peer-to-peer leader

A District Court judge on Monday gave Hollywood and the major labels a greenlight to pursue their lawsuit against Sharman Networks, the foreign-based distributor of wildly popular file-swapping program Kazaa, in a U.S. court.

Judge Stephen V. Wilson threw out Sharman’s motion to dismiss based on the fact that it is incorporated in the tiny, copyright-flouting island of Vanuatu, noting that the company does a substantial amount of business in America.

Ruling is a major setback to the peer-to-peer leader, which lets its 20 million users trade digital music, movie and software files for free worldwide.

“Sharman Networks and (sister company) LEF should be held accountable by U.S. laws, which clearly indicate that what they are doing is illegal and that they should not profit from it,” the Motion Picture Assn. of American and Recording Industry Assn. of America said in a joint statement. “Their attempts to play an intricate and shameless shell game designed to evade a U.S. court’s jurisdiction and avoid liability have rightly failed.”

The case law against file-swappers in the U.S. is formidable: Napster was pummeled by courts last year for contributing to infringement, and smaller P2P operator Madster has recently been dealt a series of strict injunctions.

A victory against Sharman could strengthen that precedent still further by extending the jurisdiction of copyright-friendly U.S. courts to include foreign entities.

But Sharman rep Kelly Larabee said the company would continue to fight the media companies’ legal attacks, arguing that the company will prevail on the merits of the case and predicting that its forthcoming counterclaim “will set forth the full story for the first time.”

File-swappers have had far better luck with courts outside the U.S. to date. Dutch company Kazaa B.V., which sold its software and licensed its peer-to-peer technology to Sharman, fought off a court challenge after a Dutch judge said there wasn’t sufficient evidence to prove that the company actively contributed to copyright infringement.

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