Kazaa's bobbing and weaving to avoid being dragged into the Grokster-Morpheus lawsuit has been stopped with a body blow:

A Los Angeles federal judge has ruled that record companies and movie studios can proceed with a lawsuit against the parent company of Kazaa--the most popular online file-swapping service--in the United States.
In a 46-page decision that became public Friday, U.S. District Judge Stephen Wilson said a lawsuit against Sharman Networks could proceed, since Kazaa software had been downloaded and used by millions of Californians.

Sharman Networks is headquartered in Australia and incorporated in the Pacific island nation of Vanuatu. The company had filed a motion to dismiss the lawsuit, arguing it was not bound by U.S. laws since it did not have substantial contacts with California.

"Given that Sharman's (Kazaa) software has been downloaded more than 143 million times, it would be mere cavil to deny that Sharman engages in a significant amount of contact with California residents," Wilson wrote. Also, he said, "many, if not most, music and video copyrights are owned by California-based companies."

The Motion Picture Association of America and the Recording Industry Association of America applauded the decision in a joint statement.

"We are pleased that the court denied the efforts of Sharman Networks...to avoid being subject to the suit. Sharman Networks...should be held accountable by U.S. laws, which clearly indicate that what they are doing is illegal, and that they should not profit from it," the trade associations said. [CNET]