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The Recording Industry Association of America (RIAA) has lost a couple of important rounds in its fight against file sharing.

On December 19, a US Court of Appeals for the District of Columbia overturned a previous ruling by a trial judge ordering Verizon Communications to reveal the identity of an Internet subscriber suspected of illegally trading music recordings. On the same day, the Dutch Supreme Court ruled that makers of file-sharing software Kazaa cannot be held liable for copyright infringement of music or movies traded by its users.

In the US case, Verizon had appealed an earlier order by US District Judge John D. Bates enforcing the subpoena power written into the 1998 Digital Millennium Copyright Act (DMCA). The DMCA allows aggrieved copyright holders to haul suspected violators into court without a judge's order. Verizon had complied in some other copyright cases, while pursuing the appeal. During the process, the RIAA launched hundreds of lawsuits and settled with dozens of defendants around the country, including one widely publicized and much-ridiculed lawsuit brought against a 12-year-old girl in New York City. The recording industry offered a blanket amnesty from prosecution to music fans willing to renounce file sharing and sign away most of their legal rights.

Verizon attorneys successfully argued that the DMCA contains no provisions for controlling peer-to-peer file sharing, which became a widespread phenomenon the year after the bill was signed into law. In 1998, most file sharing of any kind was via large server computers, some maintained by Internet service providers (ISPs). Verizon's Internet service does not store files for its subscribers, and has no control over how its subscribers use their computers, the company's attorneys argued. In acting as a "pure conduit," Verizon could not be held liable for the activities of its subscribers, they said, even if their computers were full of unauthorized material.

The three-judge appeals panel agreed. RIAA attorneys argued that the DMCA was sufficiently broad to find ISPs responsible for what happens on their networks even if lawmakers who wrote the statute didn't anticipate such activity. The court dismissed this argument, characterized by Chief Judge Douglas Ginsburg as one that "borders upon the silly." In its ruling, the appeals court mentioned that to comply with the DMCA, the RIAA must identify any copyrighted material that purported infringers are swapping via an ISP. In other words, mere suspicion that someone is swapping a lot of files is not sufficient to issue a subpoena—copyright holders have the burden of proof of showing that a specific ISP subscriber is trading specific copyrighted files before a subpoena can be issued. General suspicion is no longer sufficient to issue a subpoena.

The ruling isn't expected to have much bearing on the almost 400 antipiracy cases now in process around the US, but will make future cases much more difficult and costly to pursue. RIAA president Cary Sherman admitted that the ruling "unfortunately means we can no longer notify illegal file sharers before we file lawsuits against them to offer the opportunity to settle outside of litigation." He promised that his organization would "continue to defend our rights online on behalf of artists, songwriters, and countless others involved in bringing music to the public."

The appellate ruling is "an important victory for all Internet users and all consumers," said Verizon attorney Sarah Deutsch. "Consumers' rights cannot be trampled upon in the quest to enforce copyright." The Verizon legal team also brought two constitutional challenges against the DMCA, neither of which was addressed by the appellate court.

The recording industry also lost a legal round in the Netherlands, where the Dutch Supreme Court ruled in favor of a 2002 appellate-court verdict in Amsterdam that dismissed a suit filed by music industry trade group Buma/Stemra against Sharman Networks Ltd., parent company of Kazaa, the website and name of the world's most popular file-sharing software. Buma/Stemra had insisted that Kazaa cease from enabling free downloads or face a daily fine of $124,000. Kazaa has as many as four million users worldwide at any given time.

The ruling is a serious setback for the music industry, according to Buma/Stemra chief counsel Cees van Rij. "We now have the unpleasant situation that only the consumers who swap music can be held accountable for copyright violation," van Rij stated. Kazaa founders Niklas Zennstrom and Janus Friis, on the other hand, celebrated the ruling as a "historic victory for the evolution of the Internet and for consumers." Sharman Networks has yet to face the music industry in US courts, an eventuality that may take place in the coming year.