What with the RIAA suing people and third parties exploring options to prevent filesharing programs from sending copyrighted music, it's important to remember that not all file sharing is illegal.
First off, the term "file sharing" is pretty broad. Let's look at clipart — there are innumerable image files on the Internet which are free for anyone to use. The creaters of these images have deemed them available for anyone's use, without requiring notification of the creators, and without any payment. Or how about a .pdf of lecture notes for that class you slept through? Many professors will post notes on their websites, free for anyone to download and print out.
Most of us aren't worried about clipart or class notes, though — at the moment, the issue revolves around music (although movies are getting involved in a big way, too). I'll spend the rest of this node talking about music file sharing.
Tlogmer's writeup above makes some excellent points. Essentially, it boils down to this: the music industry's current form is that way because it is "a successful model" — the pattern of search for talent, pair with other talent, create a product that the public will pay for, and then PROFIT is well-established and not likely to go away any time soon.
However, Tlogmer also says "without the system [i.e. the way the industry is now], music cannot possibly be produced" — ignoring the fact that music can be produced without the multi-million dollar pop music industry, and furthermore it is being produced as we speak. Good music, too, not just shitty stuff recorded in some pimply teenager's garage.
"Every CD has a cost behind it -- not merely the physical cost involved in creating and distributing the disc and packaging, which amounts to less than a dollar out of the 15 that you pay, but the salaries of producers (often tens of thousands of dollars per album), studio fees, equipment selection, etc."
This is true — but what if there was no CD? What if the album wasn't put together by expensive producers, and wasn't mixed in a prestigious studio with fancy equipment? What if an album was put together by people in their spare time, with the intentions that it was to be a freely-distributed album? Tlogmer asserts that "'sharing' music with those who have not bought the right to listen to it is stealing", but if the right to listen to it does not need to be bought, you can't steal it.
That's what Soulseek Records has done. The small label's couple albums are all free to be downloaded by anyone, and distributed in any way you see fit. Some tracks are created by people in their spare time, and some are created by "actual" musicians. (You may recognize "Soulseek", the file sharing program, in the label's name — Soulseek Records is a branch of the file sharing program, which was initially created to promote and legally distribute little-known electronica artists.)
Art Tatum makes exactly this recommendation in a node expressing distaste with a major player in the music industry, and emil gmeer's writeup in the same node makes it apparent that this way of creating and distributing music has already taken hold.
This certainly isn't the norm for albums these days, but there are other ways to download your favorite album and still be okay with the law. Many popular music groups have announced that it is fine with them to record and distribute a large part of their musical repertoire — namely, live recordings. Groups such as the Grateful Dead, Medeski Martin and Wood, and Phish have thousands of hours of live material which can be freely downloaded off the web at sites like nugs.net and the impressive archive.org. There are even file sharing clients like specifically designed for this, like FurthurNet, "the first and only 100% non-commercial, open-source, peer-to-peer network of legal live music".
Tlogmer also says "many pirates have invented counterarguments to rationalize their theft - some assert that 'file sharing' can increase the exposure of unknown bands (though if they are unknown, surely they can be producing nothing of quality)". For the time being, I'll disregard the fact that many already-popular bands have agreed to let their material be shared (AC/DC, Dave Matthews Band, Radiohead, Bob Marley and the Wailers, Sigur Ros...see FurthurNet's list or archive.org's list for more), and instead point out that the music pirates' argument actually is true — many a small-time band has built up a strong and loyal fan base by file sharing and word of mouth alone.
Tlogmer also refers to a library as an instance of "file" sharing. In this analogy, the problem with the term "file sharing" is evident — while a library really does share its books, when you use a file sharing programs you're actually making a copy of the file. (This same sort of thing happens at your local video rental store, too, or when you lend a friend a book.) Obviously, when you check out a book at a library you're not copying the book; you eventually return it, at which point it's no longer in your possesion. Electronic files rarely work this way — it's as if instead of checking out a book, a librarian hands you a photocopy of the book and says you can keep it. Also, though it's certainly possible to photocopy every page of that book (which would be a better analogy to electronic file sharing), it's somewhat misleading because copying things electronically is much easier than photocopying a book one page at a time. (Also, libraries and video rental stores know where you live.)
I'm done with the majority of my argument now. All I ask is that the next time you're poking around some insanely offtopic Slashdot thread about the inherent problems with file sharing and how the best solution is to delete the Internet, or just put everyone who uses Kazaa in jail, remember that file sharing is not always theft.
Quote about FurthurNet from http://www.furthurnet.org/.