Internet firm Tiscali has suspended its music sharing Juke Box and accused the European recording industry of being "virtually impossible to work with". It took the move after it was told to remove the service's search by artist.
Tiscali said services in the US offered that facility, and European music fans were being discriminated against.
But the International Federation of the Phonographic Industry (IFPI) said Juke Box had offered a level of interactvity that breached its licence.
Tiscali Juke Box, which launched in April, was a legal peer-to-peer service where songs could be listened to but not copied or downloaded, and royalties were paid for "non-interactive rights" to songs.
However the IFPI decided Tiscali "was paying to offer one type of service but was actually offering another very different one".