An Australian federal court yesterday dealt a fresh blow to internet file-swapping in a ruling against a small Sydney-based software company behind one of the world's largest music file-sharing services.

The ruling ordered Sharman Networks to filter out copyrighted material from its Kazaa Media Desktop software within months or face closure. It highlights a worldwide effort to clarify rules about online music distribution and file sharing.

It comes 10 weeks after the US Supreme Court ruled against Grokster, the file-sharing operator, and found that makers of peer-to-peer (P2P) software, which enables file-sharing between computers, could be held liable for any copyright infringements by their users.

In his judgment, Murray Wilcox, Australian federal court judge, said: "Both the user who makes the file available and the user who downloads a copy infringe the owner's copyright."

Nearly 320 million people are estimated to have downloaded Kazaa, which enables people to swap film, music and other digital files over the web, since it began about five years ago.

Judge Wilcox did not hand an outright victory to copyright holders, however. He said Sharman should stop new users from trading copyrighted material via Kazaa software and exert "maximum pressure" on existing users to upgrade to a filtered version that would block such material, but that Kazaa should not be shut down.

Music industry representatives said the ruling might ultimately pave the way for them and other copyright holders to seek billions of dollars in damages.

Australian courts lack jurisdiction overseas, but copyright lawyers said the Kazaa judgment would influence copyright infringement cases worldwide. - (Financial Times Service)