Peer-to-peer file-sharing service Kuro has lost a landmark court case in China.

The Second Intermediate People Court of Beijing on Dec. 19 ruled that Kuro was liable for infringing intellectual property rights.

The complaint, filed by the Shanghai Push Sound Music and Entertainment Co in August 2004, accused Kuro of violating China's 1987 Copyright Law. Kuro was said to have distributed 53 song titles owned by Shanghai Push Sound without obtaining copyrights from the company.

The court ordered Kuro to stop distributing the songs immediately and pay an infringement penalty of 210,000 Chinese yuan ($26,900), along with a litigation fee of 7,000 Chinese yuan ($897).

"The case marks the first P2P litigation in China, and is the first ruling affirming that P2P operators are liable for copyright infringement," said Rong Chao, an attorney for Shanghai Push Sound. "This ruling has a profound influence on the record market in terms of legal side and sales, especially sales of online music."

In the past, P2P file-sharing companies made use of the loophole in the law and engaged in online piracy activities, Rong noted. With the new ruling, copyright holders can drive out illegal P2P companies and establish a fair market for legal online music operators, Rong added.

Although the fine is lower than Shanghai Push Sound's claim for 380,000 Chinese yuan ($11,735), the company is satisfied with the result, Rong said.

By allowing users to swap unlimited music files for a monthly fee of NT$99 ($3.04), Kuro established itself as Taiwan's largest P2P file-sharing site. Parent company Fashionow Taiwan Inc duplicated the business model in China in 2000.

From 2001, it started charging users 20 Chinese yuan ($2.56) per month for unlimited downloads and has accumulated 2.3 million users this year, according to the written judgment, citing statistics from the Kuro site.

Fashionow was sued by IFPI Taiwan for infringement of intellectual property rights in August 2003, and was found guilty in September 2005.

In September 2006, Fashionow agreed to pay $9.1 million to settle the case, and shut down the Kuro Taiwan and Kuro China sites the following month.

In the meanwhile, Fashionow has sold a majority stake in Kuro to C-Media Electronics Inc, a Taiwan-based computer audio product maker, which set up a new company Chuang Lien Wang to run the service.

The Kuro site in China is expected to be relaunched in the first quarter.