The three-judge panel from the U.S. Court of Appeals for the District of Columbia overturned a trial judge’s ruling that enforced a type of copyright subpoena under a law that predated the music-swapping trend.

“It’s an incredible ruling, a blow for the little guy,” said Bob Barnes, a grandfather in Fresno, Calif., who was targeted by one of the earliest subpoenas from the Recording Industry Association of America but isn’t among the hundreds who have been sued so far.

The ruling does not make it legal to distribute music over the Internet, but it removes one of the most effective tools used by the recording industry to track such activity and sue downloaders.

The appeals court said the 1998 copyright law doesn’t cover the popular file-sharing networks currently used by tens of millions of Americans to download songs. The law “betrays no awareness whatsoever that Internet users might be able directly to exchange files containing copyrighted works,” the court wrote.

The appeals judges said they sympathized with the recording industry, noting “stakes are large.” But the judges said it was not the role of courts to rewrite the 1998 law, “no matter how damaging that development has been to the music industry or threatens being to the motion picture and software industries.”

Legal experts said the appeals ruling probably would not affect the 382 civil lawsuits the recording industry already has filed since it announced its campaign nearly six months ago.

But it will make identifying defendants for future lawsuits much more difficult and expensive.

The ruling forces the recording industry to file copyright lawsuits against “John Doe” defendants, based on their Internet addresses, then work through the courts to learn their names.

Cary Sherman, president of the recording industry group, said the ruling “unfortunately means we can no longer notify illegal file sharers before we file lawsuits against them to offer the opportunity to settle outside of litigation.”

Sherman promised to “continue to defend our rights online on behalf of artists, songwriters and countless others involved in bringing music to the public.”

U.S. District Judge John D. Bates had approved use of the subpoenas, forcing Verizon Communications Inc. to turn over names and addresses for at least four Internet subscribers. Since then, Verizon has identified dozens of its other subscribers under subpoena by the music industry.

Verizon’s lawyer, Sarah Deutsch, called the ruling “an important victory for all Internet users and all consumers.” She said the music industry should be required to file traditional civil lawsuits — which are more expensive and time-consuming — to prosecute downloaders.

“Consumers’ rights cannot be trampled upon in the quest to enforce your copyright,” Deutsch said.

The appeals court said one argument by the recording industry “borders upon the silly” — the trade group’s claim that Verizon was responsible for downloaded music because such data files traverse its network.

The Digital Millennium Copyright Act (news – web sites), passed years before downloading music over peer-to-peer Internet services became popular, compels Internet providers to turn over the names of people suspected of operating pirate Web sites upon subpoena from any U.S. District Court clerk’s office. A judge’s signature is not required. Critics contend judges ought to be more directly involved.

Verizon had argued at its trial that Internet providers should only be compelled to respond to such subpoenas when pirated music is stored on computers that providers directly control, such as a Web site, rather than on a subscriber’s personal computer.

In his ruling, the trial judge wrote that Verizon’s interpretation “makes little sense from a policy standpoint,” and warned that it “would create a huge loophole in Congress’ effort to prevent copyright infringement on the Internet.”