Kazaa is the most popular of the file-sharing services, which allows users to download free peer-to-peer software and use it to access the music, images and movie files stored in other users' computers.
The latest ruling is from the highest European court yet to consider the legality of file-sharing, so can be considered a major blow to the entertainment industry.
Brought by Dutch music rights society Burna/Sternra, the original district court decision went in favour of the industry, and led to KaZaA BV being sold by its original owners Fasttrack to Australian company Sharman Networks. (Incidentally, Sharman has since tweaked the brand name from KaZaA to Kazaa.)
In March 2002 the Amsterdam Court of Appeal determined that KaZaA BV was not infringing copyrights by offering the file-sharing software. Burna/Sternra appealed, but the ruling has now been upheld.
Niklas Zennström and Janus Friis, the founders of KaZaA BV, called the ruling a "historic victory for the evolution of the internet and for consumers."
In a statement, industry association the International Federation of the Phonographic Industry (IFPI) called the ruling a "flawed judgement" (sic), but insisted that it "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 IFPI pointed to an on-going legal action in the US against Sharman Networks, which many expect to be the decisive action in the battle between file-sharing networks and the music industry. This, said the IFPI, means that the recent decision would likely be of little importance.