UPDATE 3-US court shuts down LimeWire music-sharing service

Tue Oct 26, 2010 7:00pm EDT

* LimeWire told to disable software functionality

* Music body says LimeWire enriched itself through piracy

* Damages potentially "staggering," to be set at trial

* LimeWire had more than 50 million users in 2009 (Adds details from ruling, second byline)

By Yinka Adegoke and Jonathan Stempel

NEW YORK, Oct 26 (Reuters) - A U.S. federal judge on Tuesday granted the music industry's request to shut down the popular LimeWire file-sharing service, which had been found liable for copyright infringement.

The ruling by Judge Kimba Wood in Manhattan federal court halts one of the world's biggest services for letting consumers share music, movies and TV shows for free over the Internet.

Saying that LimeWire's parent Lime Wire LLC intentionally caused a "massive scale of infringement" involving thousands of works, Wood issued a permanent injunction that requires the company to disable its "searching, downloading, uploading, file trading and/or file distribution functionality."

Record companies "have suffered -- and will continue to suffer -- irreparable harm from Lime Wire's inducement of widespread infringement of their works," Wood wrote.

She called the potential damages "staggering," and probably "well beyond" the New York-based company's ability to pay.

The signed ruling was made available by The Recording Industry Association of America, which represents music companies. It has said Lime Wire has cost its members hundreds of millions of dollars in revenue. A copy of the ruling was not immediately available on the public court docket.

In a statement, Lime Wire expressed disappointment at the ruling. "While this is not our ideal path, we're working with the music industry to move forward," it said.

Lime Wire said the injunction lets it continue testing a service that allows users to buy music from independent labels. The company said it hopes to negotiate agreements with the entire music industry ahead of a full launch.

Founded in 2000 by Mark Gorton, Lime Wire has been a thorn in the side of record companies because millions of fans used it as an easy means to find and download music for free.

U.S. recorded music sales have fallen in value to $7.7 billion in 2009 from $14.5 billion in 1999 according to the RIAA. The music industry blames online and physical piracy as the primary reasons for the decline.

"MASSIVE PIRACY" ALLEGED

Tuesday's injunction "will start to unwind the massive piracy machine that Lime Wire and Gorton used to enrich themselves immensely," the RIAA said in a statement. It said the court will consider damages at a January trial.

The RIAA represents labels owned by Vivendi SA's (VIV.PA) Universal Music Group, Sony Music Entertainment (6758.T) (SNE.N), Warner Music Group WMG.N and EMI Group, owned by the Terra Firma [TERA.UL] private equity firm.

LimeWire has said it has more than 50 million monthly users. These users accounted for 58 percent of people who said they downloaded music from a peer-to-peer service in 2009, a survey by NPD Group showed.

As technology and broadband speeds have improved, LimeWire has also been used to illegally share movies and popular TV shows, attracting criticism from Hollywood as well.

Wood's decision to shut the LimeWire service followed a unanimous 2005 U.S. Supreme Court ruling against file-sharing service Grokster Ltd.

In that ruling, the court said companies could be sued for copyright infringement if they distributed services designed to be used for that purpose, even if the devices could also be used lawfully.

The case is Arista Records LLC et al v Lime Group et al, U.S. District Court, Southern District of New York, No. 06-05936. (Reporting by Yinka Adegoke and Jonathan Stempel; Editing by Steve Orlofsky, Bernard Orr)

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