A Tokyo district court has ruled that an online music service is illegal, even though the users own the music on it.

Image City, set up in 2005, allowed subscribers to rip their own CD collections, upload them to a central server and download individual songs to their phones as they went around the city.

But the Japanese Society for Rights of Authors, Composers and Publishers (JASRAC) took the server owners to court, claiming infringement of copyright. The service stopped after JASRAC sued and Image City has now lost the case.

The court found that because Image City owned the servers which stored the music the company was copying and distributing material which it did not own. This was despite the fact that the only people with access to it were the CD owners.

The ruling could be crucial to the future to the online music industry in Japan, and in similar cases around the world.

It effectively rules that only the copyright owners can run online music companies, thus effectively handing the market to the major record labels.