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The French parliament rejected a bill that proposed disconnecting Internet users if they download music or films illegally, with the ruling UMP party failing to turn out in force to approve the law.
Backed by President Nicolas Sarkozy's government, the legislation was meant to quell the flow of free songs and films on the Internet, that has hurt the revenues of artists and production companies.
However, opposition politicians managed to defeat it at a final vote in the National Assembly on Thursday when only a small number of UMP lawmakers turned up for the session, handing the centre-right government an embarrassing defeat.
Socialist parliamentarians broke out in applause after the vote went their way.
Under the proposed law, users caught illegally downloading files would have received two warnings and then, after a third infraction, disconnected from the Internet for up to a year.
Some consumer groups warned that it might have hit the wrong people, saying honest users risked being unfairly punished and forced to prove their innocence if hackers had hijacked their computers' identity.
Socialist parliamentarian Patrick Bloche described the bill as "dangerous, useless, inefficient, and very risky for us citizens".
Under pressure from a struggling music industry, governments have long been trying to crack down on online file-swapping.
"It's a balanced bill for a legal and civilised Internet, " said Culture Minister Christine Albanel.
The government has the right to demand that the bill is re-introduced to parliament later this year.
In January, Irish Internet provider Eircom agreed to disconnect users who download music illegally in a settlement with four major record companies. Irish media said it was the first deal of its kind in the world.
