An Australian court has given one of the world's largest P2P networks two months to stop material protected by copyright from being traded.

Kazaa, owned by Sharman Networks which is based in Australia, will also have to pay 90 per cent of the costs in the case incurred by the Recording Industry Association of America.

Federal Court Judge Murray Wilcox ruled that posting warnings not to share illegal material on the Kazaa website was not a sufficient deterrent, and that Sharman must institute software changes to make such transfers impossible.

"After Australia and America it will not be long before we get the same decision in Europe," said Conan Chitham, head of the brand and rights group at law firm Mishcon de Reya.

"It shows the way the things are going and this is an even more harsh ruling than the Grokster case in the US. There is going to be a considerable impact in Europe where a lot of people use the Kazaa code."

The news could be the final blow for the file sharing network, which was originally developed by Skype co-founder Niklas Zennström. After a similar case in The Netherlands the system was moved to Australia but has been continuously targeted by music companies.

"This ruling has implications for organisations across the world," said Mark Herbert, founder and director of intY, a provider of secure managed internet and email services.

"Any business that sticks its head in the sand and does nothing to stop employees using file-sharing software at work could open themselves up to legal proceedings, and company directors may find themselves facing prosecution.

"As these sorts of copyright issues are becoming more widely publicised, businesses really have no excuse for not sitting up and taking action to make sure that they and their employees are not infringing copyright."

The Australian court will meet in two months to decide on damages owed to the recording companies, and to assess any changes made to the Kazaa code.