The Supreme Court of the Netherlands today ruled that music file-sharing software maker KaZaa cannot be held liable for infringement of copyright by individual users of its software (see KaZaA is Legal, Says Hague Court).

The decision has infuriated the major record labels, which claim to have lost millions of dollars since the free trade of songs began on the Internet in the late '90s.

"The victory by KaZaa creates an important precedent for the legality of peer-to-peer software, both in the European Union and around the world," said KaZaa's lawyers Bird & Bird in a statement.

The International Federation of the Phonographic Industry (IFPI) -- the music trade group representing independent and major music labels including Warner Music, Sony Music, BMG, EMI, and Universal Music -- not surprisingly, disagrees, slamming the ruling as "one-sided.” A spokesperson for the organization said that it is hardly surprising that a Dutch court ruled in favor of a Dutch company.

"Today's ruling on KaZaa by the Dutch Supreme Court is a flawed judgment, but still leaves no doubt that the vast majority of people who are using file-swapping services like KaZaa are acting illegally -- whatever country they are in," the group said in a statement.

Camilo Schutte, a Supreme Court litigator representing KaZaa said that to call this court nationalist was absurd. “I can safely say that nationality does not matter to this court… The Netherlands has always been an international and open culture.”

Schutte adds that the ruling is likely to be a confirmation for judges in the U.S. who have already ruled in favor of Grokster, which makes a software program similar to KaZaa. “These judges realize that it is wrong to prosecute the companies that make the software -- it has to be those that abuse the tools.” (See Groksters Beat Back Infotainment Giants.)

Niklas Zennström and Janus Friis, the founders of KaZaa, call the ruling a "historic victory for the evolution of the Internet and for consumers."

The case was brought to the Supreme Court by Buma/Stemra, a music rights organization in the Netherlands that may be considered the sister association of the Record Industry of America Association (RIAA) in the U.S.

The Supreme Court did not rule on the issue of whether individual file-sharers violate the copyrights of the music industry. For now, in the United States, there is little doubt that the music industry will continue with its policy of suing individuals it believes are breaching music copyright.

— Jo Maitland, Senior Editor, Boardwatch