The 34-page ruling by U.S. District Court Judge Stephen Wilson was a major blow to recording companies and movie studios, which have been aggressively filing lawsuits and pushing new laws to stem the illegal copying and distribution of their copyright works.

The decision, if it survives appeal, essentially absolves Grokster Ltd. and StreamCast Networks Inc. of liability. Grokster distributes file-sharing software by that name, and StreamCast distributes Morpheus.

“It’s a vindication. We are not pirates,” said Wayne Rosso, president of Grokster, which is based in Nevis, West Indies. “This is teaching the record companies and the movie companies a lesson. … They need to rethink their business model.”

Andrew Bridges, who was lead counsel for StreamCast before dropping out of the case last year, called the decision a “watershed moment.”

The ruling does not apply to a third and more popular service, Kazaa from Sharman Networks Ltd., because it did not join the request for a summary judgment. A hearing is scheduled Monday on Sharman’s counterclaims accusing the entertainment companies of antitrust violations.

The entertainment companies, which had launched the lawsuit in October 2001, were disappointed by Friday’s ruling.

“Businesses that intentionally facilitate massive piracy should not be able to evade responsibility for their actions,” said Hilary Rosen, chairman and CEO of the Recording Industry Association of America.

Jack Valenti, president and CEO of the Motion Picture Association of America, said he was “surprised and disappointed” by Wilson’s decision, but stressed that the public should not consider it a green light for piracy.

“(Friday’s) ruling does not condone such activity, nor is it an invitation to distribute and copy works without the permission of the owners of copyright,” he said. “We will continue our ongoing efforts to fight piracy on all levels.”

Rosen and Valenti both pledged to appeal the ruling.

In his ruling, Wilson cited the movie industry’s efforts to hold Sony liable for Betamax video cassette recorders that could be used to make illegal copies of copyright works. The Supreme Court in 1984 ruled that sale of copying equipment by itself did not constitute copyright infringement.

Wilson concluded that there was no evidence that Grokster and StreamCast could supervise and control the use of their services.

Unlike Napster, the pioneer file-sharing service ordered shut by the courts, Grokster and StreamCast say they only provide software and technical assistance. Napster hosted directories of users’ files on its servers.

Robin Gross, executive director of IP Justice, an international civil liberties organization in San Francisco, said the court’s decision is not inconsistent with rulings against Napster.

In that case, the courts found Napster had an obligation to police its service because it had a centralized server and the means to delete pointers to illegally acquired copyright files.

Wilson’s decision “was right in line with the Supreme Court decision in Betamax and the 9th Circuit decision in the Napster case,” Gross said.

Fred von Lohmann, senior intellectual property attorney with the Electronic Frontier Foundation in San Francisco, said the ruling was not just a victory for the file-sharing services, but also for technology developers in general.

“The question of when will a technology maker be held responsible for misuses of the tools they produce is a question of equal importance to Cisco when it builds routers, Hewlett Packard when it builds computers and Microsoft when it builds software,” von Lohmann said.

Wilson acknowledged Grokster and StreamCast “may have intentionally structured their businesses to avoid secondary liability for copyright infringement, while benefiting financially from the illicit draw of their wares.” But he said that’s a matter for Congress, not the courts.

Despite the rampant copying and trading of copyright music, software and music by their users, the file-sharing services maintain they do not condone copyright infringement.