Legal controversy

Under US law, "the Betamax decision" case holds that copying "technologies" are not inherently illegal, if substantial non-infringing use can be made of them. This decision, predating the widespread use of the Internet applies to most data networks, including peer-to-peer networks, since distribution of correctly licensed files can be performed. These non-infringing uses include sending open source software, public domain files and out of copyright works. Other jurisdictions tend to view the situation in somewhat similar ways.

In practice, many, often most, of the files shared on peer-to-peer networks are copies of copyrighted popular music and movies in wide variety of formats (MP3, MPEG, RM, etc.) Sharing of these copies among strangers is illegal in most jurisdictions. This has led many observers, including most media companies and some peer-to-peer advocates, to conclude that the networks themselves pose grave threats to the established distribution model.

The research that attempts to measure actual monetary loss has been somewhat equivocal. Whilst on paper the existence of these networks results in large losses, the actual income does not seem to have changed much since these networks started up. Whether the threat is real or not, both the RIAA and the MPAA now spend large amounts of money attempting to lobby lawmakers for the creation of new laws, and some copyright owners pay companies to help legally challenge users engaging in illegal sharing of their material.

In spite of the Betamax decision, peer-to-peer networks themselves have been targeted by the representatives of those artists and organizations who license their creative works, including industry trade organizations such as the RIAA and MPAA as a potential threat. The Napster service was shut down by an RIAA lawsuit. In this case, Napster had been deliberately marketed as a way to distribute audio files without permission from the copyright owners. In Grokster the U.S. Supreme Court again held illegal the services of Grokster which included allowing users to illegally share copyrighted music.

As actions to defend copyright infringement by media companies expand, the networks have quickly adapted and constantly become both technologically and legally more difficult to dismantle. This has caused the users that are actually breaking the law to become targets, because whilst the underlying technology may be legal, the abuse of it by individuals redistributing content in a copyright infringing way is clearly not.

Anonymous peer-to-peer networks allow for distribution of material - legal or not - with little or no legal accountability across a wide variety of jurisdictions. Many profess that this will lead to greater or easier trading of illegal material and even (as some suggest) facilitate terrorism, and call for its regulation on those grounds.

Others counter that the potential for illegal uses should not prevent the technology from being used for legal purposes, that the presumption of innocence must apply, and that non peer-to-peer technologies like e-mail, which also possess anonymizing services, have similar capabilities.