Under the court settlement, Grokster will pay $50 million to the Recording Industry Association of America (RIAA), and agreed to a permanent injunction prohibiting infringement of the music companies' copyrighted works. It may no longer distribute Grokster software, and must cease running ads on its site or engaging in any type of profit-generating activity.

Grokster's home page now carries the following announcement: "The United States Supreme Court unanimously confirmed that using this service to trade copyrighted material is illegal. Copying copyrighted motion picture and music files using unauthorized peer-to-peer services is illegal and is prosecuted by copyright owners. There are legal services for downloading music and movies. This service is not one of them. Grokster hopes to have a safe and legal service available soon."

In June, the US Supreme Court had judged that peer-to-peer downloading services Grokster and StreamCast can be held liable for copyright infringement activity undertaken by their users. The Motion Picture Association of America had asked the Supreme Court to re-examine an appeals court ruling which stated that peer-to-peer file sharing networks such as Grokster, Kazaa and Morpheus could not be held legally responsible for the copyright-infringing activities of their customers.

Supporting a ruling delivered by a lower court, the 9th US Circuit Court of Appeals in Los Angeles in August 2004 announced that the file-sharing firms cannot be held responsible for the use to which their services are put, so long as they are not directly able to stop the copyright infringing acts in question.

However, writing on behalf of the majority, Supreme Court Justice David Souter announced that: "We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement."

He went on to add: "The record is replete with evidence that from the moment Grokster and StreamCast began to distribute their free software...each one clearly voiced the objective that recipients use it to download copyrighted works and each took active steps to encourage infringement."

The Supreme Court did not, however, overturn the 1984 Sony Betamax decision upon which the P2P services based their defence.

Other firms have been given an end-of-the-month deadline by the RIAA to discontinue file-sharing services or face court action similar to the Grokster suit. But Grokster's co-defendant, Streamcast, has refused to settle with the RIAA.

In September, the RIAA sent cease-and-desist letters to seven firms offering file-sharing services, reportedly including BearShare, LimeWire and WinMX. Suggesting that the file-sharing firms are likely to find constructing a legal defence difficult in the wake of the Supreme Court's recent ruling on the liability of Grokster for the copyright infringing activities of its customers, the RIAA announced in a statement that:

"Companies situated similarly to Grokster have been given ample opportunity to do the right thing. There is a right way and a wrong way to conduct a business. Those businesses that continue to knowingly operate on the wrong side of that line do so at their own risk."

Whether all this activity will make much difference to the reality of massive file-sharing is open to question. Grokster's software is widely distributed, and its use is not under the company's control. The same can be said for alternative file-sharing services, and new ones pop up every day, many of them offshore where they can't easily be reached by US legislators.