A judge in Canada has ruled internet service providers cannot be forced to identify people who swap songs online.
Anti-piracy crackdowns in the US led to a barrage of legal action
Judge Konrad von Finkenstein said uploading tracks to the internet was not in itself a breach of copyright.
He added recording companies had shown "no evidence" that the alleged infringers distributed or authorised the production of sound recordings.
The Canada Recording Industry trade group, who launched the action, can appeal to the country's Supreme Court.
Canada's music industry, the sixth largest in the world, had been encouraged to take action following the success of anti-piracy crackdowns in the US.
The companies claim music swapping costs them millions of dollars in lost sales every year.
The US has led the way in taking legal action against illegal music swappers, with more than 2,000 pursued to date.
Firms including EMI and Universal wanted the courts in Canada to order internet service providers to give them the names of 29 alleged large-scale offenders.
But Judge von Finkenstein, of Canada's Federal Court,
stressed that online music swapping did not constitute commercial distribution.
"Before it constitutes distribution, there must be a positive act by the owner of the shared directory, such as sending out the copies or advertising that they are available for copying," he said.
On Wednesday, the International Federation for the Phonographic Industry (IFPI) announced it would take legal action against 247 online music-swappers across Europe.
They have been targetted for illegally distributing hundreds of music tracks using file-sharing technology.
The UK's British Phonographic Industry is using instant messaging systems to warn users they face legal action.
Illegal song-swapping is a major factor blamed for a 7% global downturn in record sales in 2002, while the 2003 downturn is expected to be sharper.