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The company alleges that the labels and studios used unauthorized and unlicensed versions of Kazaa to monitor users of the network in order to catch infringers.
KAZAA SUITS AGAINST LABELS A GO
Judge Says Sharman Networks Can Now Pursue Its Own Claim of Copyright Infringement Against Film Studios and Record Companies
File this one under, "Uh-oh."

The company behind the Kazaa file-sharing network has been given a legal go-ahead to pursue its own copyright infringement case against the record labels and Hollywood studios that accuse it of promoting piracy, according to a report in today’s L.A. Times.

Sharman Networks Ltd., the company behind the Kazaa file-sharing network, can now legally pursue its own copyright infringement case against the record and film companies.

The company alleges that the labels and studios used unauthorized and unlicensed versions of Kazaa to monitor users of the network in order to catch infringers. It also claims that the labels breached the license agreement on Kazaa software by sending instant-message warnings and bogus files through the network.

U.S. District Judge Stephen V. Wilson in Los Angeles ruled last week that Sharman can pursue those claims.

Legal experts said they weren't surprised by the ruling because judges are often reluctant to dismiss claims before the parties have a chance to gather evidence.

Sharman, which is based in the South Pacific, where it is not subject to U.S. copyright laws or taxes, also accused the entertainment companies of violating antitrust laws by refusing to do business with its partner, Altnet Inc.

The labels and studios first sued Sharman in 2002 for infringement, as well as the companies behind popular file-sharing sites Morpheus and Grokster.

Wilson ruled in April that the Morpheus and Grokster programs were legal, prompting an appeal. But he has not rendered any decisions on Sharman or the Kazaa software, which is similar to Grokster.

Sharman countersued early in 2003, only to have Wilson dismiss most of the claims last summer. The judge noted the company may have a tough time proving its breach-of-contract claims because it made previous statements that the license agreement was "unenforceable" and "intended to operate as an honor code."

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