Companies face criminal sanctions - including jail for staff - if their networks, software programs or online services are used to carry illegally copied material, according to a draft law from the European Commission.
The proposed directive switches the onus from end users to the technological conduits, which could include internet service providers (ISPs), mobile phone operators, instant-messaging services, video- and music-sharing websites such as YouTube and open source software producers.
The controversial draft law has sparked an outcry, uniting rivals within the IT industry, ranging from free and open-source software advocates, the Foundation for a Free Information Infrastructure, at one end to a lobbyist for the world's biggest software companies, the Business Software Alliance (BSA), at the other.
The clause in the draft law that most worries them is one that criminalises aiding and abetting or incitement to infringe an intellectual property such as copyright protected music, software or film. Another major concern across the board is the inclusion of utility models -- in effect short-term, unexamined patents -- within the scope of the law.
Patents themselves were included in the original version of the law proposed by the European Commission but the legal affairs committee of the European Parliament has now excluded them from the scope of the law.
"The exclusion of patents is welcome, but we are very disappointed the committee chose to keep the incitement clause," said Francisco Mingorance, European affairs manager at the BSA.
"This creates a huge legal threat right across the IT industry," said Ante Wessels, an analyst at the FFII. He added that if the draft becomes law "it will hamper software designers' freedom to act in the market".
"In a sense it criminalises innovation," he said.
"The aiding and abetting clause is serious. It could sweep within its scope all kinds of online products and services," said Thomas Vinje, a partner in the Brussels office of law firm Clifford Chance. "It is very sensible of the Parliament to exclude patents from the scope of this directive but why then include utility models? It doesn't make sense," Vinje added.
Hardware manufacturers also fear being swept up into high-stakes criminal proceedings. Mobile phone maker Nokia has spoken out against the proposal in the past. Nokia representatives weren't immediately reachable on Tuesday for a comment after the European Parliament committee vote.
While the incitement clause helps rights holders such as record companies and Hollywood film studios pursue the carriers of illegally copied material, it narrows the scope for legal action against individuals who duplicate copyright-protected material.
The legal-affairs committee agreed to exclude all intellectual-property infringements by private users for personal use. They went even further by saying that the abuse must be "a deliberate and conscious infringement of the intellectual property right for the purpose of obtaining commercial advantage."
On this point the BSA and the FFII diverged. The FFII welcomed the limiting of personal liability, while the BSA said it amounted to "decriminalising illegal file sharing and software copying," according to Mingorance.
"This clause effectively says it's OK to make illegal downloads" of music from the internet," he added.
The International Federation of the Phonographic Industry has lobbied for criminal sanctions to be extended to individuals. It wasn't immediately available to comment.
Similarly, Microsoft was approached for a comment but has yet to respond. Googles, owner of YouTube, declined to comment.