In a unanimous decision Thursday, California's Ninth Circuit Court of Appeals ruled that distributors of peer-to-peer (P2P) software Grokster and Morpheus, created by StreamCast, cannot be held liable for unauthorized activities of users who download copyrighted material. The ruling is a significant blow to the recording and film industries, whose representatives claim that this technology robs them of billions of dollars annually.

The court's ruling is based on the fact that P2P technology, which allows users to directly share files from their hard drives, has legitimate uses: specifically that it can help artists earn money and exposure. The decision also said that distributors have no control over users' activities on the decentralized networks.

"Today's ruling will ultimately be viewed as a victory for copyright owners," said Fred von Lohmann, an attorney representing the P2P distributors. "The entertainment industry has been fighting new technologies for a century, only to learn again and again that these new technologies create new markets and opportunities. There is no reason to think that file sharing will be any different."

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