Supreme Court rules against file swapping

The Supreme Court handed movie studios and record labels a sweeping victory against file-swapping, ruling Monday that peer-to-peer companies such as Grokster could be held responsible for the copyright piracy on their networks.

In a unanimous decision, the justices ruled companies that build businesses with the active intent of encouraging copyright infringement should be held liable for their customers' illegal actions.

The decision comes as a surprisingly strong victory for copyright companies and stands to reshape an Internet landscape in which the presence of widespread file swapping has become commonplace.

With the potential to rewrite the Supreme Court's 1984 Sony Betamax ruling that made VCRs--and by extension any technology with "substantial noninfringing use"--legal to sell, the decision has been closely watched across Silicon Valley.

Hollywood studios and record labels had argued that allowing file-swapping networks to continue with a free pass on copyright issues would undermine any business-producing copyrighted works and, by extension, a large portion of the U.S. economy.

"The most important message from today's historic decision is that progress and innovation do not have to come at the expense of recording artists, songwriters and the people who make their living in the entertainment industry," Warner Music Group CEO Edgar Bronfman said in a statement. "This important decision will allow artists and the creative community to prosper side by side with the technology industry."