The case, pitting Hollywood movie studios, record companies and music publishers against StreamCast and similar firms, dated back to 2001. Last year, the Supreme Court issued a landmark decision, ruling that some technology firms could be held liable for distributing software used to violate copyrights.
StreamCast, based in Woodland Hills, California, said it was considering an appeal and maintained that it did not encourage users to infringe on copyrighted works and never intended to do so.
"The court's ruling is disappointing. StreamCast will consider its options, including appealing the decision," the company said in a statement.
"Morpheus is an innovative, multiuse program with legal uses that are overwhelming. In the meantime, Morpheus will continue to discourage users from infringing upon copyrighted works," the company said.
StreamCast was the only file-sharing company that continued fighting after the Supreme Court ruling.
"This is an especially gratifying marker in the continuing transformation of the online music marketplace," said Mitch Bainwol, chairman and chief executive of the Recording Industry Association of America, the trade group for major record companies like Warner Music Group and Vivendi's Universal Music Group.
"No single court ruling solves piracy or can make up for several challenging years for the music community, but there's no doubt that this particularly important decision means that the rules of the road for online music are better today than they were yesterday," he said.