Kazaa Media Desktop was commonly used to exchange MP3 music files and other file types, such as videos, applications, and documents over the internet. The Kazaa Media Desktop client could be downloaded free of charge; however, it was bundled with adware and for a period there were "No spyware" warnings found on Kazaa's website. During the past few years, Sharman Networks and its business partners and associates were the target of copyright-related lawsuits, related to the copyright of content distributed via Kazaa Media Desktop on the FastTrack protocol.

Kazaa and FastTrack were originally created and developed by Estonian programmers from BlueMoon Interactive (who were later to create Skype and later still Joost and Rdio). After selling it to the Swedish Niklas Zennström, and the Danish Janus Friis, 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.

Initially, some users of Kazaa were users of the Morpheus program, formerly an application made available by MusicCity, but once the official Kazaa client became more widespread, its developers used their ability to automatically update it, changing the protocol, in February 2002, to shut out Morpheus clients when its developers failed to pay license fees. Morpheus later became a client of the gnutella network.

Consumer Empowerment was sued in the Netherlands in 2001 by the Dutch music publishing body, Buma/Stemra. The court ordered Kazaa's owners to take steps to prevent its users from violating copyrights or else pay a heavy fine. In October 2001 a lawsuit was filed against Consumer Empowerment by members of the music and motion picture industry in the USA. 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. Buma/Stemra lost its appeal before the Dutch Supreme Court in December 2003.

In 2003, Kazaa signed a deal with Altnet and Streamwaves to try to convert users to paying, legal customers. Searchers on Kazaa were offered a free 30 second sample of songs for which they were searching for and directing them to signup for the full featured Streamwaves service.

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 other defendants in that case (Grokster and MusicCity, makers of the Morpheus file-sharing software) initially prevailed against the plaintiffs on summary judgment (Sharman joined the case too late to take advantage of that ruling). 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..

Following that ruling in favor of the plaintiff labels and studios, Grokster almost immediately settled the case. Shortly thereafter, on 27 July 2006, it was announced that Sharman had also settled with the record industry and motion picture studios. As part of that settlement, the company agreed to pay $100 million in damages to the four major music companies—Universal Music, Sony BMG, EMI and Warner Music—and an undisclosed amount to the studios. Sharman also agreed to convert Kazaa into a legal music download service. 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.

While the U.S. action was still pending, the record industry commenced proceedings against Sharman on its home turf. In February 2004, the Australian Record Industry Association (ARIA) announced its own legal action against Kazaa, alleging massive copyright breaches. The trial began on 29 November 2004. On 6 February 2005, the homes of two Sharman Networks executives and the offices of Sharman Networks in Australia were raided under a court order by ARIA to gather evidence for the trial.

On 5 September 2005, the Federal Court of Australia issued a landmark ruling that Sharman, though not itself guilty of copyright infringement, had "authorized" Kazaa users illegally to swap copyrighted songs. The court ruled six defendants—including Kazaa's owners Sharman Networks, Sharman's Sydney-based boss Nikki Hemming and associate Kevin Bermeister—had knowingly allowed Kazaa users illegally to swap copyrighted songs. The company was ordered to modify the software within two months (a ruling enforceable only in Australia). Sharman and the other five parties faced paying millions of dollars in damages to the record labels that instigated the legal action.

On 5 December 2005, the Federal Court of Australia ceased downloads of Kazaa in Australia after Sharman Networks failed to modify their software by the December 5th deadline. Users with an Australian IP address were greeted with the message "Important Notice: The download of the Kazaa Media Desktop by users in Australia is not permitted" when visiting the Kazaa website. Sharman planned to appeal the Australian decision, but ultimately settled the case as part of its global settlement with the record labels and studios in the United States.