A federal appeals court has decided that Isohunt, a BitTorrent index accused by a Hollywood film studio of encouraging users to share pirated moves and TV shows, is liable for the copyright infringement committed by users and isn't entitled to protection under section 512 of the Digital Millennium Copyright Act. These are commonly known as the DMCA's safe harbor provisions. The decision could strip away some of the protections that internet services have previously won in court.

The Ninth Circuit of Appeals issued its 59-page ruling today and upheld most of a lower-court's decision in the seven-year-old case of Columbia Pictures v. Fung. Gary Fung is Isohunt's founder. Columbia claimed that the evidence showed Fung and the sites he operated encouraged people to swap pirated copies of the studio's movies, and the court agreed. The judges wrote that Fung "induced third parties to download infringing," materials.

"This ruling affirms a core principle of copyright law," the Motion Picture Association of America said in a statement. "Those who build businesses around encouraging, enabling, and helping others to commit copyright infringement are themselves infringers, and will be held accountable for their illegal actions."

The three-judge panel of Harry Pregerson, Raymond Fisher, and Marsha Berzon ruled Isohunt wasn't entitled to safe harbor protection because Fung possessed "red flag" knowledge of the infringement occurring on his service. The DMCA was passed in 1998 to help balance the need to safeguard copyrighted work on the internet while also encouraging innovation. To be eligible for the protections, site operators must adhere to a specific criteria, which includes promptly removing any infringing materials once notified by a rights owner, and not have "actual knowledge" that infringing material is on their service. A site operator must also not be aware that "infringing activity is apparent."

Ira Rothken, Isohunt's attorney, disagreed with the court's reading of section 512 and said that it effectively bans torrent trackers from safe harbor protections. "The logic of the tracker exception is inconsistent with the plain meaning of the safe harbor," Rothken said, "and puts at risk a large part of the internet infrastructure including, for example, automated intelligent load balancers."

The court noted that Fung encouraged the uploading of infringing files. The panel of judges wrote Fung "communicated a clear message by responding affirmatively to requests for help in locating and playing copyrighted materials." Fung "communicated a clear message by responding affirmatively to requests for help in locating and playing copyrighted materials," and "posted numerous messages to the Isount forum requesting that users upload torrents for specific copyrighted films," the judges said in their decision.

The court's decision represents the first courtroom setback that Internet services have suffered in a while. The courts have generally broadened the ability of internet service providers to seek protection from liability for infringing conduct of customers. Because of previous benchmark decisions in Viacom v. YouTube and Universal Music Group v. Veoh, some legal experts had concluded that there wasn't any way to prove a site operator had red flag knowledge. What the court makes said today is that if site operators are found to induce, the safe harbor is closed to them.