MONTREAL — In a decision that could have wide implications for the entertainment industry in Canada, the country’s Supreme Court ruled Wednesday that Internet service providers do not have to pay royalties to artists and songwriters for illegally downloaded digital music files.

Execs in the music industry and film biz watched the court case closely because a ruling in favor of the songwriters could have set a legal precedent for, say, the Hollywood studios to go after ISPs to collect royalties for downloading of their products online.

Court ruled that ISPs like America Online and Yahoo are “intermediaries” and not bound by Canadian copyright law.

The Society of Composers, Authors and Music Publishers of Canada (Socan) had hoped the court would rule it can collect royalties from ISPs to compensate for music illegally downloaded through their services. Ruling reps the second time a court has dealt a major setback to the Canadian music industry’s efforts to fight music piracy.

In March, the Federal Court of Canada ruled that music file-sharing on the Internet was legal and that neither downloading nor sharing digital music files online infringes copyright.

The Canadian Recording Industry Assn. (CRIA) had gone to court to try to force ISPs to reveal the identities of people swapping music online so it could launch copyright infringement suits against them. The CRIA is appealing.

The Canadian Assn. of Internet Providers, which represents companies including America Online and Yahoo!, argue that artists should try to get the royalties directly from the Web sites and peer-to-peer networks that offer the downloads rather than from ISPs.

Socan’s efforts to collect royalties from ISPs is markedly different from tactics employed in the U.S.; Stateside industry representatives have been suing individuals who download pirated music and trying to shut down file-swapping networks.