Music industry claims Kazaa win

February 2004: The music industry piracy investigations unit conducts raids on Sharman Networks, associated company Altnet, the homes of executives of both companies, a number of Internet service providers and Universities looking for evidence that can be used in litigation over the peer-to-peer software Kazaa.

March 2004: Federal Court of Australia Justice Murray Wilcox denies applications from Sharman and Altnet to have the evidence seized under the so-called Anton Pillar civil search orders ruled inadmissible.

July 2004: Justice Wilcox sets trial date in November, directing discovery and affidavit processes be completed by October.

November 2004: Trial kicks off with record labels' legal representative Tony Bannon accusing Sharman and associated respondents of benefiting from copyright-infringing behaviour undertaken by the users of Kazaa.

March 2005: Assets of key respondents Nikki Hemming and Kevin Bermeister, as well as their companies, Sharman and Altnet, frozen after court heard they had sold multi-million dollar properties to third parties. Closing statements heard on March 22 and 23.

September 2005: Judgement handed down.

Source: ZDNet Australia research

The infringing respondents -- Sharman Networks, LEF Interactive, Sharman CEO Nicole Hemming, Altnet and Brilliant Digital Entertainment boss Kevin Bermeister -- were ordered to pay 90 percent of the music industry's court costs.

Justice Murray Wilcox this afternoon ruled largely in favour of music labels, including Universal, Sony, Warner and Festival Mushroom, which had argued that the Kazaa software -- owned by Australian-based Sharman Networks -- was used to undertake copyright infringement on a massive scale. The labels had also targeted United States-based Altnet, which provides a search technology for Kazaa and is a close partner of Sharman.

While Justice Wilcox dismissed the music industry's claims the Kazaa parties had contravened the Trade Practices Act and engaged in conspiracy -- and dismissed as "overstated" the industry's allegation that Kazaa's owners were engaged in copyright-infringing behaviour themselves -- he said: "The more realistic claim is that the respondents authorised users to infringe the applicants' copyright in their sound recordings."

Justice Wilcox said Kazaa could remain in operation if:

• "non-optional keyword filter technology" was included in current versions of the software received by new users, in future versions of the software and "maximum pressure" was exerted on existing users to upgrade to a new version containing the technology, or;

• the Altnet search software -- called TopSearch -- is restricted to providing lists of non copyright-infringing works.

The four respondents against whom proceedings were dismissed were Sharman License Holdings, Sharman chief technology officer Philip Morle, Brilliant Digital Entertainment and Altnet CTO Anthony Rose.

Justice Wilcox also granted leave to the Australian Consumers Association, Electronic Frontiers Australia and the New South Wales Council for Civil Liberties to intervene in proceedings.

A separate hearing is to be held for the music industry's claims for damages against the respondents.

Justice Wilcox said the applicants had refused to implement technical measures that could curtail, though "probably not totally ... prevent" the sharing of copyright files, as to do so would not be in their financial interest.

"Far from taking steps that are likely to effectively curtail copyright file-sharing, Sharman Networks 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 criticises record companies for opposing peer-to-peer file-sharing," he said. "They also sponsored a 'Kazaa Revolution' campaign attacking the record companies.

"The revolutionary material does not expressly advocate the sharing of copyright files.

"However, to a young audience and it seems that Kazaa users are predominantly young people, the effect of this Web page would be to encourage visitors to think it 'cool' to defy the record companies by ignoring copyright constraints".

Sharman Networks, associated companies and major record labels have been at loggerheads over Kazaa for more than three years.

In 2002, Kazaa was the most popular file-sharing software on the Internet. The record labels alleged millions of copyright infringements were occurring each day on the network.

The battle began in earnest in Australia in February 2004. Music Industry Piracy Investigations (MIPI), a division of the Australian Recording Industry Association (ARIA), seized hard drive images and other documents from the Sydney offices of Sharman, associated company Altnet and the homes of executives Hemming and Bermeister under a court-sanctioned civil search order.

The seized materials were crucial to the record labels' evidence against Sharman in the subsequent Federal Court action, which kicked off on November last year.

The labels alleged Sharman and Altnet had conspired to attract thousands of copyright infringers to Kazaa, and profited from advertising revenue. Altnet operates a search system within the Kazaa Media Desktop.

Sharman argued that it was unable to filter copyright materials involved in the Kazaa software, while the labels said Sharman encouraged users to infringe copyright through the design of the peer-to-peer software, and by promoting it with terms like 'free music'.

Lawyers for Sharman argued the company had never authorised copyright infringement.

Users received copyright notices as part of Kazaa, according to Sharman, and the decentralised nature of the peer-to-peer application made controlling and monitoring users almost impossible.

The company called several academic witnesses to the trial who testified that filters would be ineffective in preventing copyright-infringement, as users would soon find ways to circumvent them.

The academics also testified that peer-to-peer applications, such as Kazaa, were capable of substantial non-infringing use.

The record labels also attacked the ownership structure of Sharman, which is registered in Vanuatu for "tax reasons". Both Hemming and Bermeister declined to take the witness stand during the trial.

Lawyers for the record labels claimed Sharman was controlled largely by Altnet's Bermeister. The two companies operate under Bermeister's command to exploit the traffic on Kazaa for the advertisements seen via the TopSearch facility, the labels allege.

Sharman claims the two companies are business partners only.

Sharman purchased the Kazaa software from Dutch company, Kazaa BV, in 2002.