Record and movie companies suffered a setback on Thursday after a US appeals court ruled that internet file sharing groups Grokster and StreamCast Networks were not legally liable for copyright infringement when customers used their software to swap songs or movies over the internet.

The ruling upheld a controversial lower court decision last year that found Grokster and SteamCast, which distributes Morpheus peer-to-peer software, were not liable because they did not operate central computer systems that directed internet users to copyrighted material.