Kazaa was introduced by the Dutch company Consumer Empowerment in March 2001, near the end of the first generation of P2P networks typified by the shutdown of Napster in July 2001.

The court ordered Kazaa's owners to take steps to prevent its users from violating copyrights or else pay a heavy fine.

In response Consumer Empowerment sold the Kazaa application to Sharman Networks, headquartered in Australia and incorporated in Vanuatu.

In late March 2002, a Dutch court of appeal reversed an earlier judgment and stated that Kazaa was not responsible for the actions of its users.

Searchers on Kazaa were offered a free 30-second sample of songs for which they were searching and directed to sign up for the full-featured Streamwaves service.

[6] However, Kazaa's new owner, Sharman, was sued in Los Angeles by the major record labels and motion pictures studios and a class of music publishers.

The summary judgment ruling was upheld by the Ninth Circuit Court of Appeals, but was unanimously reversed by the US Supreme Court in a decision titled MGM Studios, Inc. v. Grokster, Ltd.[7][8] Following that ruling in favor of the plaintiff labels and studios, Grokster almost immediately settled the case.

[2] Like the creators of similar products, Kazaa's owners have been taken to court by music publishing bodies to restrict its use in the sharing of copyrighted material.

In February 2004, the Australian Record Industry Association (ARIA) announced its own legal action against Kazaa, alleging massive copyright breaches.

Sharman and the other five parties faced paying millions of dollars in damages to the record labels that instigated the legal action.

Sharman planned to appeal against the Australian decision, but ultimately settled the case as part of its global settlement with the record labels and studios in the United States.

Thomas testified that she does not have a Kazaa account, but her testimony was complicated by the fact that she had replaced her computer's hard drive after the alleged downloading took place, and later than she originally said in a pre-trial deposition.

[2] Without further recourse, and until the lawsuit was settled, the RIAA actively sued thousands of people across the U.S. for sharing copyrighted music over the network.

However, the lawsuits (and a failed venture into a legal, monthly music subscription service similar to Napster)[2][25] eventually ended the company.