The owners of Kazaa have suggested in a key legal battle that the hugely popular file-swapping internet site is a recording device only and that its revolutionary "peer-to-peer" software is no different in principle to the defunct Betamax video recorder.

The claim came as Kazaa outlined its defence against a landmark case brought by the Australian recording industry which yesterday claimed the website was "an engine of copyright piracy to a degree of magnitude never before seen".

Record labels including EMI, Sony BMG and Warner are suing Kazaa's owners for copyright infringements by its users. The labels claim that Kazaa is responsible for three billion music downloads a month and that its success is built on the unlicensed sharing of music files. The defendants in the case include Sharman Networks, Sharman License Holdings and Sharman's Sydney-based chief executive Nikki Hemming.

At a hearing before Australia's Federal Court in Sydney Tony Meagher, Kazaa's lawyer, cited a 1984 US Supreme Court ruling which said that the electronics giant Sony was not liable when people used its Betamax video recorder to copy films illegally because the technology had other uses that did not break copyrights.

The same case was cited in August when the 9th US Circuit Court of Appeals in San Francisco ruled that Grokster and StreamCast Networks, two leading peer-to-peer networks, were not liable for the copyright works their users swap online.

"It is plain [Kazaa] has lawful uses," Mr Meagher told the court, adding that its owners did not authorise piracy but were powerless to prevent it. "We are not in a position to control and we do not control use," he said.

The license agreement that Kazaa asks users to agree to before allowing them to download its file-sharing software states that they are prohibited from using the network to swap copyrighted material but the labels contend that Kazaa has made no effort to enforce these measures.

Earlier, the record labels' lawyer, Tony Bannon, told the court that Kazaa has a policy banning child pornography and had said it would eject any person caught dealing with it. He argued that if Kazaa could bar users for such distribution it should also be able to treat people caught sharing copyrighted material in the same way.

Mr Bannon also accused Kazaa's owners of mascarading as crusaders for true music lovers while following a get-rich-quick scheme based on advertising revenue.

"It's a charade," Mr Bannon said. "The respondents' motives are not altruistic. On the contrary, the respondents trade off the copyright infringing activities."

The global music industry has lobbied fiercely against unauthorised file sharing, arguing that internet pirates have slashed revenues.

That argument took a blow on Friday, however, when the British Phonographic Industry announced the best year for album sales ever. During the summer a study by Harvard Business School associate professor Felix Oberholzer and University of North Carolina, Chapel Hill associate professor Koleman Strumpf said it take at least 5,000 downloads to displace sales of one CD. Even high levels of file-swapping affected album sales to a degree that was "statistically indistinguishable from zero," they wrote.

No decision is expected in the case before next year. If the companies and individuals behind Kazaa and its software are ruled liable for copyright infringements, a separate hearing will be held to decide the level of damages.

The American example

While the American recording industry has been thwarted so far in its attempts to go after companies such as Kazaa, it last week signalled its determination to fight file swapping by suing 761 computer users.

The Recording Industry Association of America claims the defendants used peer-to-peer services, including Kazaa, eDonkey and LimeWire to illegally share music. As in previous cases, the new lawsuits were filed against individuals identified only by their numeric internet addresses. Music company lawyers must obtain the identity of defendants by issuing subpoenas to Internet access providers. In all, recording companies have sued 6,952 computer users in the United States since September 2003.

Also last week, the US Senate dropped from an intellectual property bill several controversial measures that would have made the actions of millions of US internet users who copy music and movies for free over networks such as Kazaa criminal offences.

Among the sanctions under consideration were jail sentences of up to three years for American music lovers found to have illegally downloaded more than 1,000 copyrighted works. The bill would have also required the US Justice Department, which has independently signalled an intention to chase illegal track swappers, to pursue them more aggressively through civil lawsuits.

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