File sharing service RapidShare may find itself without a viable business model if a German court ruling stands. After getting sued by a German copyright holder, the company argued that it was doing all it could to screen out copyrighted material. The court, however, has ruled that its efforts were insufficient, raising questions about whether doing anything that was legally sufficient could be done without incurring enough costs to sink the company.

RapidShare is one of a large number of companies that will host large files for users who need to exchange them with friends and family. Like many of these companies, it offers a free service with limited features in the hopes of enticing users to spring for the cost of a premium service, which offers some significant perks, such as hosting larger files, unlimited download speeds, and permanent storage. All of this occurs through a simple web interface, and doesn't involve the P2P transfers that have attracted the ire of ISPs and the copyright industry. As a result, their popularity is growing rapidly; RapidShare accounts for five percent of all IP traffic in some regions.

Of course, the exchange of large files is what P2P was all about, so it's no surprise that copyrighted material is showing up on RapidShare, as well; attention from copyright holders was also inevitable. In this case, that attention came in the form of a lawsuit in Germany, where a copyright holding organization called GEMA has been seeking legal sanction and financial penalties. As we noted in our earlier coverage, Germany lacks the "safe harbor" provisions afforded to US companies, which are exempted from liability for infringing material that their users place on servers or make accessible through their networks if they take it offline once notified of its infringing nature.

The case has been going poorly for RapidShare so far, and it appears to have taken a turn for the worse. The P2P Blog notes that the German courts have issued a ruling (in German, naturally) in which their expectations for RapidShare's antipiracy efforts are spelled out more clearly.

RapidShare argued in court that it maintained hashes of copyrighted material that had appeared on their service in the past, and used those to prescreen material that is uploaded. In addition, it had hired six full-time staff members to go through material it was hosting and to respond to complaints about infringing material. None of this, apparently, is good enough. Simply twiddling a few bits could defeat the hash-based screening, the court ruled, and the six employees were insufficient to proactively examine everything posted to the company's servers before it was made available for download.

The blog translates part of the decision as stating, "a business model that doesn't use common methods of prevention cannot claim the protection of the law," in determining that the near impossibility of screening for all copyrighted material doesn't excuse RapidShare from the legal requirement to do so. I'm hard pressed to think of a "common method" that would suffice to enable the screening of this volume of data. As a result, it looks as though RapidShare may be forced to manually screen every bit of uploaded content. Closing its doors is likely to be a cheaper option should the ruling stand.