A German court has ruled that file-hosting services can be held liable for the copyright infringements of their users if certain conditions are met. The ruling was reached in a case involving Swiss-based RapidShare and video games company Atari, after the latter accused the former of providing unlawful access to the game Alone in the Dark.

In common with many – if not all – public file-hosting services in existence today, RapidShare has some illicit content on its servers.

Of course, RapidShare didn’t put it there – its users did – but can the company be held liable when its customers commit copyright infringement via its service?

One company that believes so is video games outfit Atari. They brought a case against RapidShare in 2008 after illicit copies of its (dire) videogame Alone in the Dark were found on the Swiss-based file-hoster’s servers. Although RapidShare deleted the files in question, Atari wanted more action including a filter and other measures to ensure further user uploads were blocked.

Initially the District Court upheld the complaint, but on appeal the Higher Regional Court of Düsseldorf sided with RapidShare and dismissed the action. The Court acknowledged that the company already takes sufficient measures against copyright infringement and ruled that a filtering requirement wouldn’t be imposed.

Atari, however, weren’t prepared to concede defeat and this week the German Federal Supreme Court (BGH) announced its ruling on the case. The Court found that RapidShare could not be held liable for direct infringement but could in some circumstances be held liable for secondary infringement.

The Court said that generally file-hosters don’t have to monitor user uploads, but could be required to take action once they have been advised of a specific problem with infringement, i.e Atari’s report to RapidShare of Alone in the Dark piracy.

As we know, RapidShare did indeed take speedy action by deleting the infringing files, but the big question is should they have to go further than that to stay within the law?

According to the Federal Court, RapidShare has to take all “technically and economically reasonable precautions” (without compromising its business model) to ensure that its users do not upload Atari’s game. The Court also noted that by not installing a word filter RapidShare may have already breached the “reasonable” threshold.

One of the additional steps that the Court said RapidShare must take is to monitor a “manageable number” of third-party sites that offer “link collections” of content available on RapidShare. Should it find them indexing a copy of Atari’s game available on RapidShare it should then delete it from its servers.

However, as revealed in our earlier interview with RapidShare, the company explained that it had already “..developed a crawling technology that is constantly watching Internet forums, message boards and warez blogs for information about copyright infringement taking place on our system.”

Nevertheless, this week the Federal Court said it didn’t have enough information at its disposal to decide if such a process would reasonable for RapidShare to carry out, so it sent the case back to the Higher Regional Court of Düsseldorf – the court that previously ruled in RapidShare’s favor.

“RapidShare remains confident that the German courts will recognize our vigilance in curbing copyright abuse,” RapidShare attorney Daniel Raimer told us.

“We’re doing more than any provider in the industry to police our site and third-party sites to ensure that legitimate intellectual property rights are protected and that wrongdoers are denied access to our services. Yesterday’s decision was a temporary setback. We remain confident that the Higher Regional Court Dusseldorf will ultimately rule in our favor as it has in the past.”