Mounting legal bills are forcing the creators of popular file-swapping system Kazaa to concede defeat in a court battle with record makers and film studios.

The music and movie makers sued the Kazaa creators last year claiming that the peer-to-peer network built with their software was helping people pirate copyrighted pop music and films.

Although the court case could soon collapse, the Kazaa creators could still face huge damage claims.

The ongoing legal action is unlikely to stop the growth of the Kazaa file-swapping system because it has been sold to another company that has not yet been sued.

Poverty plea

Lawyers for Kazaa BV, which created the file-swapping software of the same name, said what they called the "Rambo-style litigation" of the record companies was putting its client out of business.

Kazaa was now asking for terms of surrender, said legal documents filed with the US court last week.

Industry observers thought that Kazaa would avoid being sued by the entertainment industry because, unlike Napster, it did not have much of a co-ordinating role in the net-based file-swapping system bearing its name.

Music companies fear users are pirating pop

A Dutch appeal court upheld the view that a company was not responsible for what people did with its software in a ruling made in March this year.

However, seven large Hollywood studios and five record companies disagreed with this view and went ahead with legal action claiming the Kazaa creators had knowingly put copyright circumvention software into the hands of users.

Kazaa BV is now likely to face multi-million dollar damages claims.

However, the Kazaa network is unaffected by the legal action because its current owners are not included in the legal action.

Since it launched, Kazaa has managed to gather a large number of users. Sharman Networks, which bought Kazaa in February, claims that the peer-to-peer software has been downloaded more than 64 million times.