Italy's highest criminal court has ruled that file sharing is legal, so long as the participants are not profiting from the activity.

The decision overturned a guilty verdict against two students from the Turin Polytechnic Institute who set up a short-lived P2P network in 1994.

They were found guilty of illegal duplication and given prison sentences of one year apiece, later reduced on appeal to three months.

However, the court has now ruled that, so long as no profit is made from sharing, there is no case to answer.

"I consider this sentence as a very intermediate step in clarifying what is legal and what is not legal," analyst Carlo Alberto Carnevale Maffe, president of Assodigitale, a think-tank on digital technology, told the International Herald Tribune.

"This sentence marks an important step in that peer-to-peer per se is not an illegal activity. What stays and remains illegal is copyright infringement by cracking copyright files, and distributing it for commercial purposes."

But the findings are now in dispute, as Italy has since introduced a law to make the file sharing of copyrighted material illegal and punishable by fines or imprisonment.

SIAE, the Italian agency that monitors copyright theft, said that it would be applying the law in all new cases.