A United States federal judge on Monday narrowed a lawsuit by EMI Group and 14 record companies and music publishers that accused MP3tunes of letting users copy their songs without permission.
US District Judge William Pauley in Manhattan said MP3tunes and its chief executive, Michael Robertson, did not violate the federal Digital Millennium Copyright Act in permitting downloads, except as to songs specifically identified as having been pirated.
In essence, he said it was users rather than MP3tunes that were responsible for any infringements.
"While a reasonable person might conclude after some investigation that the websites used by MP3tunes executives were not authorised to distribute EMI's copyrighted works, the DMCA does not place the burden of investigation on the Internet service provider," Pauley wrote.
MP3tunes is a so-called cloud music service that lets users store music in online "lockers." Amazon.com, Apple and Google have or are developing similar services.
Pauley did find the defendants liable for "contributory" copyright infringement for songs where notices of alleged infringement were provided.
He also said Robertson was liable for having personally transferred songs from unauthorised websites.
"This is a huge victory," said Greg Gulia, a partner at Duane Morris who represents MP3tunes and Robertson.
"Users can still download songs from publicly available websites, and store them without a separate license fee, so long as MP3tunes complies with takedown notices.
"The main takeaway is that MP3tunes' fundamental business model has been upheld."
Citigroup owns EMI and is trying to sell it. An EMI spokesman expressed disappointment with the decision.
"EMI believes that companies like MP3tunes, which knowingly build a business based on stolen music, should not be entitled to any DMCA safe harbor defense, and we're evaluating our options to seek review of those portions of the decision," the spokesman said.
The four-year-old lawsuit is part of the music industry's effort to stop websites from letting people download and share music online without paying for it.
On May 12, the operators of LimeWire agreed to pay record companies $US105 million to end a federal trial over copyright infringement damages owed by the once popular but now defunct file-sharing service.
There were 3189 recordings, 562 musical compositions and 328 album cover images at issue in the MP3 tunes lawsuit.
The case is Capital Records Inc et al v. MP3tunes LLC et al, U.S. District Court, Southern District of New York, No. 07-09931.
(Reporting by Jonathan Stempel; editing by Andre Grenon, Gary Hill)