For a considerable time now Internet Service Providers (ISP) in Europe have been awaiting the outcome of a case being considered by the European Court of Justice (CJEU) which if upheld would have required ISPs to monitor all peer-to-peer traffic, determine if the content was the copyright of a third party and if it was block the communication. The action was originally bought by the Belgian Society of Authors, Composers, and Publishers against Tiscali in 2007. The result was an injunction requiring Tiscali to install software that would monitor all peer-to-peer communications to ensure no illegal copying of music occurred.
Not surprisingly Tiscali appealed and it finally ended up in the CJEU.
To cut a long story short, the CJEU found that the type of monitoring that would be required was prohibited by the Article 15 of the E-Commerce Directive (see the E-commerce Directive here) which states that Member States shall not impose a general obligation on providers to monitor the information which they transmit or store nor a general obligation actively to seek facts or circumstances indicating unlawful activity. Hence, CJEU ruled that the Belgian courts had no right to grant the injunction. Well, that seems pretty conclusive.
However, as will all things European there was a lot on the background statement given by the court that should still worry the ISPs, not least the concept of "proportionality" ie all situations require a balance between the rights of free trade and the right to prevent illegal actions. I suspect the ISPs haven't heard the last of this. But at least for now the buck doesn't stop with them as far as illegal file sharing is concerned.