Like the old version of Napster, Kazaa users can exchange copyrighted material without paying royalties to the owners. While Kazaa claims to be "completely legal," there are those who disagree: The free-to-download blue files are controlled by Kazaa users and include copyrighted content. Movie studios and record labels have filed several infringement lawsuits not only against Kazaa, but also against individual Kazaa users.
In 2001, Kazaa was sued by a Dutch music company and was ordered to stop its users from violating copyrights or face steep penalties. In response to the decision, Kazaa transferred ownership to offshore companies, primarily Sharman Networks Limited on the island of Vanuatu. But in 2002, a Dutch appeals court overturned the previous judgment, ruling that Kazaa was not responsible for the actions of its users (see afterdawn.com - Dutch appeals court: KaZaA is legal). Its decentralized structure means that Kazaa is not involved in the actual file sharing -- all searches and downloads take place between actual user computers. Later that year, Kazaa was sued again, this time in the United States by the Recording Industry Association of America (RIAA) and the Motion Picture Association (MPAA). As of February 2005, the decision in that suit is still pending.
Kazaa's argument that its decentralized setup frees it from liability was given a boost in 2003, when a U.S. District Court judge ruled that Grokster and Morpheus, two other file-sharing services, were not liable for their users' actions.
That leaves only the users themselves as liable for sharing copyrighted material. In 2003, the Recording Industry Association of American (RIAA) began targeting individual users with lawsuits. The RIAA didn't go after just anyone -- they zeroed in on people who had made thousands of copyrighted files available to other users. These repeat file sharers were identified by their IP address and hit with lawsuits ranging from $750 to $150,000. In October 2004, the International Federation of the Phonographic Industry (IFPI) similarly launched lawsuits against several hundred users of Kazaa and two other file-sharing services.