Taiwan's music industry yesterday suffered a major setback with a Taipei district court ruling in favour of file-sharing service EzPeer. The result marks the first court ruling in the music industry's battle against peer-to-peer (P2P) services in Taiwan, which have been blamed for extensive losses to the industry over the past five years. The case began in July 2002 when the Taipei chapter of the International Federation of the Phonographics Industry filed a complaint alleging copyright infringement by EzPeer. A criminal case was subsequently filed by prosecutors in December 2003 with legal arguments finally coming to a close on June 6. In its ruling yesterday, the Shihlin District Court said that EzPeer was not liable for copyright infringement because there is no law that says P2P services are illegal. That ruling sets a dangerous precedent for the island's music and movie industry, which had been hoping for a favourable court result that would shut EzPeer and rival Kuro. 'We cannot accept this verdict. We will take this case all the way to the end,' said Robin Lee, head of the federation's Taiwan office. The court ruling could become an embarrassment for the Taiwan government, which has worked hard in the past four years to pass tighter copyright laws under pressure from the United States. Earlier this year, the US trade representative downgraded Taiwan's Special 301 status of copyright offending countries, citing improvements in music and movie copyright enforcement. A separate criminal case launched against Kuro is pending, with a ruling expected in September. John Eastwood, an intellectual property lawyer for Wenger and Vieli, said: 'There is some reason to be concerned and certainly there's a lot more work to be done.' However, Mr Lee said that the reason for the defeat lay not with the legislature or the prosecutor, but with the court. 'The judges should take responsibility for this. They cannot just say that because there is no law against peer to peer, they cannot rule against a peer-to-peer service,' he said. EzPeer and Kuro make their money by charging users a monthly subscription fee to use their software and access their networks. No revenue or royalties are given to record labels or their artists. Clark Su, a consultant for EzPeer, said: 'We will talk with labels to create a three-win situation for consumers, labels and copyright holders.' Previous royalty and revenue-sharing offers from P2P services have been dismissed by the record industry as inadequate.