SYDNEY (Reuters)—An Australian court ruled on Monday that users of the popular Internet file-sharing network Kazaa were breaching copyright, and ordered its owners to modify the software to prevent online music piracy.

Federal Court Judge Murray Wilcox ruled that Kazaa's Australian owner and developer, Sharman Networks, had not itself breached copyright but had encouraged millions of Kazaa users worldwide to do so.

"The respondents have long known that the Kazaa system is widely used for the sharing of copyright files," said Wilcox in his ruling in a Sydney court.

The decision follows a similar judgement in June in which the U.S. Supreme Court ruled that file-sharing networks such as Grokster can be held liable if their intent is to promote copyright infringement of music or movies.

"The message is very clear for P2P services: It's time to go legal," said John Kennedy, chief executive of the International Federation of the Phonographic Industry (IFPI). "Today's judgement shows that Kazaa—one of the biggest engines of copyright theft and the biggest brand name in music piracy worldwide—is illegal."

Peer-to-peer (P2P) networks distribute data between users instead of relying on a central server.

Sharman Networks said it was disappointed with the judge's decision, and that it planned to appeal.

The consequences of the Kazaa ruling on illicit file-sharing are uncertain. Previous legal crackdowns on P2P services have usually only served to send users to other networks.

"Inevitably, when you have successes it drives people elsewhere," IFPI boss Kennedy said. "We know we're never going to completely eradicate this kind of piracy, but the progress has been remarkable."

VICTORY FOR MUSIC INDUSTRY

Australian record companies—including units of Universal Music, Sony BMG, EMI Group, Warner Music, and several independents—will now seek damages for hundreds of millions of illicit music downloads at a later hearing.

"The court has ruled the current Kazaa system illegal," Michael Speck, a spokesman for the Australian music industry, told reporters outside the court. "It is a great day for artists, it is a great day for anyone who wants to make a living from music."

Sharman Networks had defended the use of the Internet to download music tracks, telling the court that file sharing represented a revolution in the way music was distributed and sold.