A major Hollywood court win against the IsoHunt torrent site has been upheld on appeal. In a ruling (PDF) issued this morning, a three-judge panel found that IsoHunt and its founder Gary Fung had illegally induced users to swap copyrighted files.

After seven years of litigation, the site may finally have to adopt some serious filtering. Fung was first sued by Columbia Pictures in 2006, lost his case in 2009, and was slapped with a strongly worded injunction in 2010. That injunction allowed content companies to submit long lists of search terms to Fung that he was supposed to filter for. However, despite Fung's court losses, IsoHunt today doesn't appear to be functionally very different from the site that the entertainment industry objected to back in 2006. Searches for copyrighted material readily turn up lists of files with names that strongly suggest they are infringing.

Even if you interpret the data in a light favorable to IsoHunt, there's no question that the site's main use was to trade copyrighted material, the judges wrote. Columbia's expert found that between 90 and 96 percent of content on the site was confirmed or "highly likely" to infringe copyright. And while Fung "takes issue" with some aspects of the methodology, "he does not attempt to rebut the factual assertion that his services were widely used to infringe copyrights." Even tripling the margin of error on the Columbia survey would mean that the overwhelming use of IsoHunt was to violate copyright.

No “safe harbor” for Fung, who helped users break the law

IsoHunt's argument that the site should be protected by the "safe harbor" of the Digital Millennium Copyright Act (DMCA) didn't impress the appeals judges, although they took a somewhat different tack than the Los Angeles District Court judge who first heard the case. He had ruled that Fung wasn't protected by DMCA "safe harbors" at all. "Fung had 'red flag' knowledge of a broad range of infringing activity," write the judges.

Fung personally urged his users to upload and download particular copyrighted works; he helped users watch copyrighted films and burn DVDs. And he didn't deny that he personally had used his site to download infringing material.

And while his tools attracted hordes of users looking to swap copyrighted material, Fung got rich from advertising. One of the factors that can kick you out of the safe harbor is getting a "financial benefit directly attributable to the infringing activity." The US Court of Appeals for the 9th Circuit, which heard this case, has never before specified if that phrase applied to a site like Fung's, which makes its money off advertising to users. Today, it made clear that it does.

Fung explicitly used the fact that his site was full of illegal files to make more money off ads. The court noted: "Fung marketed... to one advertiser by pointing to the 'TV and movies... at the top of the most frequently searched by our viewers,' and provided another with a list of typical user search queries, including popular movies and television shows."

The court also found that Fung's IsoHunt was more than a passive search engine for Torrent files, in part because of the activity of torrent "trackers." If the Plaintiffs can show a "connection between users' infringing activity and the use of Fung's trackers, the fact that torrent files were obtained from elsewhere may not relieve Fung of liability," wrote the judges.

Ira Rothken, the lawyer representing Fung and IsoHunt, took particular issue with the court's holding on trackers. "The logic of the tracker exception is inconsistent with the plain meaning of the safe harbor and puts at risk a large part of the Internet infrastructure, including, for example, automated intelligent load balancers," he wrote to Ars in an e-mail today.

Courts don't care what’s “under the hood”

The case against IsoHunt is the latest in an essentially unbroken stream of cases in which file-sharing services have been shut down by courts. Napster, Grokster, Aimster, KaZaa. As Internet law professor Eric Goldman noted when IsoHunt lost its case in 2009, the fact that peer-to-peer file-sharing technology has changed over the years doesn't really matter much. "[C]ourts don't really care how file sharing technology works under the hood," he noted. "We have P2P copyright law on the one hand, and mainstream copyright law on the other, and it simply isn’t possible to harmonize them."

No matter how often these services claim they are just performing mainstream functions—the "We're just like Google!" defense—courts aren't going to accept it. File-sharing services have looked bad since Napster, and they continue to have a serious PR problem. The road-map for services that want to survive using the safe harbor is better mapped by a case like UMG v. Veoh, which successfully beat Universal Music in court. Of course, it didn't matter that much for Veoh, which had gone bankrupt in any case, in part due to litigation costs.

The court did rule that minor changes should be made to the injunction order against Fung. For example, he's barred from "indexing or providing access" to torrent files "harvested or collected from well-known infringing sites, such as 'The Pirate Bay.'" The court ruled that Columbia and its co-plaintiffs will have to provide the names of specific sites that Fung must block. Overall, though, it rejected Fung's argument that the injunction is overly broad.

Rothken says he'll pursue an en banc re-hearing of the case by the full 9th Circuit. That's a longshot, since not many such requests are granted, but it's not out of the question in a tumultuous area of the law like file-sharing. "Inducement must be more than a gestalt standard especially when the Court is taking away a person's right to a jury trial," Rothken wrote. "Ambiguous copyright standards chill innovation." Fung's case should be heard by a jury, he said.

The Motion Picture Association of America, meanwhile, fired off a press release saying it's looking forward to seeing the case go back to district court, where Fung should face a trial on damages. "Those who build businesses around encouraging, enabling, and helping others to commit copyright infringement are themselves infringers, and will be held accountable for their illegal actions," said MPAA general counsel Henry Hoberman.