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Software maker Kazaa can't be held liable for the copyright-infringing actions of users of its namesake file-sharing application, a Dutch appeals court ruled Thursday. The court decision marks a setback in the recording industry's battle against piracy.

The Amsterdam Appeals Court overturned a November ruling by a district court in favor of the recording industry, represented in the Netherlands by music rights organization Buma/Stemra.

"The making available of means for publishing or copying of copyright protected materials is not in its own a publishing or copy," the appeals court writes in its ruling, adding that if any infringement is taking place, it is the user's responsibility, not Kazaa's.

"We are stunned by the verdict," says George Knops, spokesperson for Buma/Stemra. "We will study the verdict and decide whether we want to pursue the case in front of the Supreme Court of the Netherlands."

Kazaa is "very pleased" with the ruling, even though it came a little too late, says Kazaa lawyer Christiaan Alberdingk Thijm. The Amsterdam software company sold most of its assets to an Australian company because it was facing hefty fines it could not afford after the November ruling.

"It is a little sad, because the business has been sold, and for a much lower price than it would be worth today," says Alberdingk Thijm.

He says the ruling could have significant international impact, as he built his defense largely on international rulings, including the 1984 U.S. Supreme Court ruling that said device makers, a VCR maker in that case, can't be held liable for infringing use by users.

Kazaa is peer-to-peer software that allows users to search the hard drives of other users for files they want, and to download them. Kazaa, which is used by millions of people worldwide, doesn't require a central server to work, unlike Napster, which was successfully shuttered as a result of legal action by the recording industry in the United States.

In its defense, Kazaa distinguished itself from Napster by stressing that it can't shut down its network because it is not centralized like Napster.

However, this claim recently came under attack when Morpheus, a similar peer-to-peer file sharing service that runs on the same technology Kazaa uses, was shut down earlier this month. Opponents of the freewheeling file swappers have been pointing to the Morpheus blackout as ample evidence that the companies running the peer-to-peer services have control over their systems.

In the United States, Kazaa faces suits from the Recording Industry Association of America and several major Hollywood studios, which allege copyright infringement.

Although an RIAA representative expressed disappointment at the Dutch court's verdict today, he does not believe it will affect the group's case against Kazaa in the United States.

"I'm concerned that [the ruling] reflects a view that content is not important and that the wholesale infringement of creative effort should be sanctioned, but I don't think that it will affect our case," says Matt Oppenheim, senior vice president of business and legal affairs for the RIAA.

Oppenheim adds that the Dutch case was a summary judgment in which just one person testified, giving what he claims was false information. The RIAA expects to be able to present ample evidence against the file-swapping system in its U.S. case, he says.

One thing that the group intends to make clear, by pointing to the Morpheus shutdown, is that Kazaa can control its system, according to Oppenheim.

The RIAA's case against Kazaa, Morpheus, and fellow file-swapping service Grokster is set to go to trial in October.

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