Already facing a court fight that could spell the death of it, Australian-based file-sharing service Kazaa took another blow today when a three-judge panel gave the music industry the green light to start contempt of court proceedings against its owners.

Sharman CEO Nikki Hemming

The new ruling stems from the Australian federal court's landmark decision last September that Kazaa owner Sharman Networks had violated copyright law by allowing copyrighted content to be traded on its networks.

Sharman was ordered to implement a keyword-based filter system to block copyrighted content from its network by last December 5. The filters would have prevented music from 3,000 artists such as Kylie Minogue, Madonna, and Eminem from being downloaded in Australia.

But instead of doing so, it blocked Australian users from downloading the Kazaa software, saying that tactic was sufficient to comply with the court order while it appealed the earlier ruling. The 30 record companies that had sued Sharman, including the Aussie subsidiaries of majors Universal, EMI, Sony BMG, and Warner, disagreed and argued that it merely blocked new Kazaa users from violating copyright--not those who already had Kazaa on their computers.

In a statement, Sharman said, "Today's case was procedural and the judge has confirmed that another court will consider this matter. This clarification by the judge is useful and we look forward to the opportunity to test the record companies' allegations."

One member of the three-judge panel, Justice Catherine Branson, said "I cannot see how it could be argued that [the court order] had an uncertain application in the context of evidence of that character."