The Court of Justice of the European Union ruled that Internet service providers cannot be forced to continually monitor Web traffic in an effort to stem copyright infringement efforts. This case has its origin in a dispute between Scarlet Extended SA, an ISP, and SABAM, a Belgian management company, which is responsible for authorizing the use by third parties of the musical works of authors, composers and editors.

In 2004, SABAM established that users of Scarlet's services were downloading works in SABAM's catalog from the Internet, without authorization and without paying royalties, by means of peer-to-peer networks (a transparent method of file sharing that is independent, decentralized and features advanced search and download functions).

The Brussels Court of First Instance ordered Scarlet, in its capacity as an ISP and on pain of a periodic penalty, to bring those copyright infringements to an end by making it impossible for its customers to send or receive in any way electronic files containing a musical work in SABAM's repertoire by means of peer-to-peer software. Scarlet appealed to the Brussels Court of Appeal, claiming the injunction failed to comply with EU law because it imposed on Scarlet a general obligation to monitor communications on its network, something that is incompatible with the European Parliament's directive on electronic commerce and with fundamental rights.

In its judgment, the court said holders of intellectual-property rights may apply for an injunction against intermediaries, such as ISPs, whose services are being used by a third party to infringe their rights. However, in this case, such an injunction would result in a "serious infringement" of Scarlet's freedom to conduct its business as it would require Scarlet to install a complicated, costly, permanent computer system at its own expense. In addition, the court said the injunction could potentially undermine freedom of information, since that system might not distinguish adequately between unlawful content and lawful content, with the result that its introduction could lead to the blocking of lawful communications.

Consequently, the court found that, in adopting the injunction requiring Scarlet to install such a filtering system, the national court would not be respecting the requirement that a fair balance be struck between the right to intellectual property on the one hand and the freedom to conduct business, the right to protection of personal data and the right to receive or impart information on others.

The court ruled that EU law precludes an injunction made against an ISP requiring it to install a system for filtering all electronic communications passing via its services, which applies indiscriminately to all its customers, as a preventive measure, exclusively at its expense, and for an unlimited period.