London's High Court today found that popular cut-price online music store CDWOW was in contempt of court and ordered the service to pay damages for breach of copyright.

Mr Justice Evans-Lombe ruled that CDWOW had "no tenable ground of defence" to accusations of parallel importing. CDWOW had been accused of copyright infringement by importing CDs from the Far East into the United Kingdom.

The High Court copyright claim, a class action, was brought against CDWOW's parent Music Trading Online (HK) by the British Phonographic Industry on behalf of its members. The BPI first launched legal proceedings against CDWOW in 2002.

CDWOW signed undertakings that it would not import CDs from outside the European Economic Area, just days before that case was due to be tried. It was the breach of these undertakings which formed the basis of the contempt proceedings, the BPI said in a statement today.

CDWOW was today ordered to disclose its trading records to the BPI by April 20, and to pay £150,000 ($291,000) to the trade body by April 17 as a contribution to its costs, and was refused leave to appeal.

Evans-Lombe deferred consideration of any further penalty to be imposed on CDWOW for breaching the agreement until after an enquiry into damages. The full amount will be decided at a hearing in early July.

Sources say CDWOW could be liable for costs up to £4 ($7.78) per CD or DVD involved, meaning the ultimate damages could potentially run into millions.

The BPI will "be using this judgment to ensure that no other company unfairly undermines legitimate retailers in the U.K. that are trading successfully and respecting the law," comments BPI general counsel Roz Groome in a statement.

The judge rejected claims by CDWOW that damages should be assessed only by reference to a group of 33 "test purchases," which were examined for the purpose of the case. Each of the 33 tests proved positive, with non-EEA product delivered into the U.K.

CDWOW claims that the breaches were a result of human error in their Hong Kong warehouse, where it says EEA products are stored separately from non-EEA products.

In reference to the BPI's contempt of court claims, Evans-Lombe pointed to "strong evidence that CDWOW was committing widespread breach of the undertakings... when the contempt application was launched" and that "CDWOW had taken no effective steps to ensure compliance with the undertakings even after an application for contempt had been served".

Speaking afterwards, the company's founder Henrik Wesslen pledged to continue providing the cheapest possible CDs and DVDs to customers.

"We knew the verdict was always going to be a negative one because we held our hands up to a number of incidents, even though it was not intentional," he said. "However, this is a harsher verdict than we would have hoped for and we will be taking this further to fight this injustice."

Wesslen added, "At a time when the record industry is losing vast revenue to piracy, it seems ludicrous that they can set out to destroy a section of the market that is actually making them money."