Aussie court orders Sharman, Altnet to filter.

Thirty record companies have won the largest copyright infringement case in Australian history today (Sept. 5) against Sydney-based Sharman Networks and others directly involved with the Kazaa peer-to-peer network.

After nine months of off-and-on hearings and a review of thousands of documents, the Federal Court of Australia concluded the liability phase of the trial finding six of the 10 "respondents" liable in Universal Music Australia Pty. Ltd. vs. Sharman License Holdings Ltd., case no. FCA 1242.

The court held Sharman Networks, Sharman CEO Nicola Hemming, Altnet, Altnet CEO Kevin Bermeister, LEF Interactive and Brilliant Digital Entertainment Inc. liable for authorizing Kazaa users to infringe the labels' copyrighted recordings and for entering into a common design with each other to "carry out, procure or direct" the authorization to infringe.

"This is a milestone in the fight against Internet piracy worldwide," says IFPI chairman/CEO John Kennedy. "Today there is a resounding signal to other unauthorized file-swapping networks: they should adapt their systems and go legitimate now."

The court dismissed claims against Sharman License Holdings, Brilliant Digital Entertainment Pty. Ltd., Philip Morle and Anthony Rose. It also dismissed all claims that were not based on copyright infringement.

Despite the fact that the Kazaa Web site warns users against sharing copyrighted files and the end-user license requires users to agree not to infringe copyright, "those measures are ineffective to prevent, or even substantially to curtail, copyright infringements by users," Justice Murray Wilcox wrote. The respondents "have long known that the Kazaa system is widely used for the sharing of copyright files."

The court noted that advertising is the bulk of revenue for Sharman and Altnet. It would be against their financial interest to curb users from sharing unauthorized files even though there are technical measures that would enable them to curtail the sharing of copyright files, the court said. "It is in the respondents' financial interest to maximize, not to minimize, music file-sharing."

In finding that the six parties authorized infringement, the court focused on evidence that Sharman and Altnet have included on the Kazaa Web site "exhortations to users to increase their file-sharing" and a Web page headed "Join the Revolution" that criticizes record companies for opposing peer-to-peer file sharing.

Although the "Kazaa Revolution" campaign sponsored by Sharman and Altnet does not expressly advocate file-sharing, to a young audience 'the effect of this webpage would be to encourage visitors to think it "cool" to defy the record companies by ignoring copyright constraints, the court wrote.

The court stopped short of ordering all activity in connection with Kazaa to stop. Noting that infringement cannot be totally prevented, the court gave the six respondents two months to modify Kazaa "in a targeted way, so as to protect the applicants' copyright interests (as far as possible) but without unnecessarily intruding on others' freedom of speech and communication." If a filtering system is accepted by the labels, the six respondents and the court in November, then the parties may continue to operate Kazaa.

In addition to declaring the six parties liable for authorizing infringement, the court issued an order restraining them from any future infringements.

Damages will not be assessed until the next phase of the trial, which is expected to begin "almost immediately," Michael Williams with Gilbert & Tobin in Sydney, tells

The "applicant" labels from Australia, North America and Europe will argue for substantial damages against the six respondents, Williams says. They will use the respondents' own promotional material as evidence that billions of files were traded each month. Then they will argue that damages should be calculated accordingly.

The labels believe they will be able to collect the damages. Williams says, "We have frozen millions of dollars worth of assets" from Hemming and Bermeister.

Sharman says in a statement, "In the judgment handed down today, both parties have had a win, although neither side has had a complete victory. Sharman Networks is obviously disappointed that we have not been completely successful. But, we will appeal those parts of the decision where we were not successful and are confident of a win on appeal."

Williams adds, "It remains to be seen whether they will try this [filtering] process, whether they appeal or whether they try to avoid the effect of the judgment. They've got a real uphill battle."