The Ninth Circuit Court of Appeals has made a crucial decision in support of technology innovators by declaring that distributors of the peer-to-peer software (P2P) Grokster and Morpheus cannot be held liable for the infringing activities of their users. The Electronic Frontier Foundation (EFF) argued on behalf of Streamcast, the creators of the Morpheus software, in a case that pitted dozens of entertainment conglomerates against two small software companies.

The Ninth Circuit decision is based in part on the fact that P2P networks have significant non-infringing uses, and that they can help artists earn money. The ruling is similar to the Supreme Court’s decision in the 1984 Betamax case, which determined that Sony was not liable for copyright violations by users of the Betamax VCR.

“Today’s ruling will ultimately be viewed as a victory for copyright owners,” said EFF Senior Intellectual Property Attorney Fred von Lohmann. “As the court recognized today, the entertainment industry has been fighting new technologies for a century, only to learn again and again that these new technologies create new markets and opportunities. There is no reason to think that file sharing will be any different. The court’s ruling makes it clear that innovators need not beg permission from record labels and Hollywood before they deploy exciting new technologies.”

The court’s decision was unanimous. The entertainment companies are likely to appeal the decision to the Supreme Court.