In one of the latest battles over the rights to restrict the transmission of music, movies and other copyright-protected files over the Internet, a Los Angeles federal judge ruled on April 25 in favor of two online services that create software allowing users to share files for free. Simply creating the software does not mean the services are contributing to copyright infringement, the judge found, so Grokster and StreamCast Networks are off the hook for now.

The ruling is just one in the sea of legal quandaries associated with digital downloads of copyright-protected material. On the one side is the recording industry, which asserts that services like Grokster and StreamCast are encouraging piracy. The Recording Industry Association of America (RIAA), which deferred to a statement on its Web site in response to calls seeking comment for this story, has this to say about file-swapping: "Businesses that intentionally facilitate massive piracy should not be able to evade responsibility for their actions. We disagree with the District Court's decision that these services are not liable for the massive illegal piracy that their systems encourage, and we will immediately appeal to the 9th Circuit Court of Appeals."

On the other are people like Grokster founder Daniel Rung, who claims Grokster and other similar Web sites should not be penalized for providing a service that allows users to share files meant for free distribution (like songs from up-and-coming bands and other noncopyrighted works) just because some users have used the software to pirate copyright-protected music. (Services like Grokster and StreamCast differ from Napster, which was shut down in July 2000: Grokster operates a peer-to-peer network--not a central server where individual files are accessed; this eliminates some of the accountability issues, because Grokster has no direct knowledge of when and what types of files are shared.)

"This [Grokster/StreamCast] case is not about stopping piracy; it's about controlling new technologies," says Fred von Lohmann, senior intellectual property attorney for the Electronic Frontier Foundation, a San Francisco organization created to protect free expression, privacy and other rights in the digital arena. "The court ruled that merely making and distributing software, even if it is used by some people for bad purposes, does not put the technology company on the hook for everyone's misdeeds."

But the entertainment industry sees things a little differently, and the recent Grokster/StreamCast ruling has only added fuel to the fire. Now, however, instead of targeting the software companies that facilitate the file-sharing, the industry has shifted its focus to individuals.

In April, the RIAA charged four university students from three colleges with directly infringing copyrights by using the campus computer network to make popular songs available for other students to copy. And late last month, the RIAA used the Digital Millennium Copyright Act (DMCA) to convince a U.S. district judge to order Verizon, whose offerings include Internet service, to hand over the names of at least two individuals suspected of offering copyright-protected music as free downloads. Verizon is currently seeking to delay the subpoena to serve up the names until the company can appeal the decision.

The DMCA, enacted in 1998 to prevent Internet piracy, makes it illegal to break the digital locks that protect intellectual property, such as a CD or a DVD. But some companies--even those not in the entertainment industry--have clued in to the potential broad reach of the law. In another potentially precedent-setting legal battle, for instance, printer manufacturer Lexmark is invoking the DMCA to try to control the sale of aftermarket products, like toner cartridges, by smaller competitors.

Other companies, like Apple--which jumped onto the digital bandwagon with its 2001 slogan "Rip, Mix, Burn"--have responded to the download debacle with the April 28 launch of its iTunes Music Store. With the backing of all five major record labels, iTunes--which offers downloads at 99 cents a pop--is Apple's attempt to sway users away from free services.

So what do current copyright rulings say to innovators in the technology sector? "You're finally free to be creative and to try to fulfill the promise that technology can deliver," says Grokster president Rosso (founder Rung was unavailable for comment). But intellectual property experts are quick to point out that the Grokster ruling is only one battle in a much larger war. With the possibilities evolving almost daily in the digital landscape, it's tough to say when and how the conflict between innovation and intellectual property will be resolved.