The legal problems for Kazaa were however only just beginning. In late March 2002, a Dutch court of appeal reversed an earlier judgment, and stated that Kazaa was not responsible for the actions of its users. Consumer Empowerment responded by selling the Kazaa application to a complicated mesh of offshore companies, primarily Sharman Networks, headquartered in Australia and incorporated in Vanuatu. In November 2001, the court ordered Kazaa's owners to take steps to prevent its users from violating copyrights, or else pay a heavy fine. Consumer Empowerment was sued in the Netherlands in 2001 by the Dutch music publishing body, Buma/Stemra. Like the creators of similar products, Kazaa's owners have been taken to court by music publishing bodies to restrict its use in the sharing of copyrighted material. Morpheus later became a client of the Gnutella network. But once the official Kazaa client became more widespread, its developers used their ability to automatically update it, changing the protocol in February 2002, to shut out Morpheus clients when its developers failed to pay license fees. Initially, most users of Kazaa were users of the Morpheus program, formerly a client of MusicCity. Kazaa and FastTrack were created by Niklas Zennström and Janus Friis (also known as the inventors of Skype) and introduced by their Dutch company Consumer Empowerment in March 2001, near the end of the first generation of P2P networks. Throughout the past few years, Kazaa's developing company was the target of many copyright-related lawsuits. The official Kazaa client can be downloaded free of charge and is financed by bundled adware and Spyware (despite the 'No Spyware' claims found on Kazaa's website). Kazaa is commonly used to exchange MP3 music files over the Internet, however it can also be used to exchange other files types such as videos, applications, and documents. Kazaa is owned by Australian company Sharman Networks. Kazaa Media Desktop (once capitalized as 'KaZaA', but now usually left as 'Kazaa') is a controversial peer-to-peer file sharing application using the FastTrack protocol.

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