EMI has won a partial - but only partial - victory against San Diego-based music locker service MP3tunes.
EMI was alleging that MP3tunes and its founder, Michael Robertson, were violating its copyright.
But MP3tunes argued that it was exempt from prosecution under the safe harbor rules of the Digital Milennium Copyright Act (DCMA). These protect service providers from the consequences of users' illegal activities as long as they take certain basic measures to enforce copyright.
MP3tunes pointed out that it had removed links to sites known to distribute pirated music when EMI and other copyright holders asked it to.
Judge William H Pauley agreed that MP3tunes did qualify under the safe harbor rule.
"While a reasonable person might conclude after some investigation that the websites used by MP3tunes executives were not authorized to distribute EMI's copyrighted works, the DMCA does not place the burden of investigation on the Internet service provider," he wrote in his judgement.
"If enabling a party to download infringing material was sufficient to create liability, then even search engines like Google or Yahoo! would be without DMCA protection."
Hoewver, he said the company didn't go far enough to enforce copyright, and that it should have deleted pirated songs from its users' accounts. It's now subject to financial penalties for ignoring hundreds of takedown notices, which could cost it tens of millions of dollars.
The decision does mean, though, that the safe harbor rules are applicable. This could be very good news for other cloud-based providers, such as Amazon's Cloud Drive and Google Music, both of which have launched services without agreement from the music industry.
EMI says it may appeal.