A decision to use maximum force to fight online piracy has blown up in the government's face after the Teeside Crown Prosecution Service (CPS) decided to drop its case against a teenager charged with illegally uploading music files to a file-sharing website.

A BPI spokesman said, "We are disappointed with this decision by the CPS. It comes after a thorough investigation by Cleveland Police and follows a complaint by the industry concerning illegal distribution of pre-release music. However, this decision does not undermine the strong case for tackling the serious damage done by pre-release piracy."

The prevention of illegal file-sharing is at the heart of the Digital Economy Bill, which the House of Commons will debate on 6 April. Copyright holders, led by the music industry, have lobbied extensively for powers to cut off subscribers who download copyright materials from unlicensed websites and block those websites.

The decision not to proceed with the prosecution of 17-year-old Matthew Wyatt throws an unflattering light on the behaviour of the authorities and the music industry in fighting illegal file-sharing. According to Wyatt's lawyers, six people, including police officers, Trading Standards employees and members of both the International Federation of the Phonographic Industry (IFPI) and the British Phonographic Industry (BPI), entered the Wyatt family home on 10 September 2007 and seized more than 160 items.

Wyatt was later charged with distributing copyrighted material so as to prejudicially affect the copyright holder, a criminal offence that carries a maximum 10-year custodial sentence. At no stage was he alleged to have been the original uploader of the music. Wyatt's lawyer, David Cook of Burrows Bussin, said Wyatt had found four music files on one publicly accessible music site and moved them to Oink, a popular BitTorrent file-sharing site. In a separate case decided in January, Oink's owner, Alan Ellis, was found not guilty of fraud.

Civil case

Commenting on the CPS's decision to drop the case, Cook said it had always appeared to be a civil rather than a criminal case. He said this was the first time he had seen a case where the Crown Prosecution Service acted as proxy for a private prosecutor.

"Every indication we had was that this should have been a civil, not a criminal, case. I think the 11th hour decision not to proceed means that is probably true," he said.

Cook said the CPS never produced any evidence that the material in question was copyrighted. "In a world where kudos can be gained through early leaks, and fake tracks consisting of live versions, white noise and loops are rife, we believed that this was a dangerous gap in the evidence. We also found it extraordinary that the copyright holder was never asked to identify the tracks as being theirs.

"Case law definitively states that copyright offences arising out of BitTorrent should be put before a civil judge," he said. "In this case, there appeared a simple reason behind the decision to charge with a criminal act - the IFPI wanted to make an example of Matthew Wyatt. We asked the CPS to comment on this issue, but it dropped the case prior to the court hearing.

"Government ministers have categorically stated they do not want to see teenagers arrested in their bedrooms for file-sharing. This case makes clear such assurances are hollow. This prosecution was not only incompetently handled, it has never been in the public interest and the CPS was forced to admit that," Cook said.

The CPS, the IFIP and the BPI did not respond to requests for comment.