Here's an interesting quote from one of the legal briefs in the case:
"Once Defendant converted Plaintiffs' recording into the compressed
.mp3 format and they are in his shared folder, they are no longer the authorized copies distributed by Plaintiffs" [Supplemental Brief, page 15, lines 16-18, emphasis added].
The phrasing that they used seems to indicate that the MP3 files were authorized until they were placed into the shared folder. Now, I'm not a lawyer, so it's possible that this means absolutely nothing, but it's still an interesting notion.
What it seems that they are saying is that the MP3's are authorized until used for an illegal purpose (i.e. file-sharing). Amazon's MP3 Music Service TOS seems to support this interpretation. It encourages users to make backup copies of MP3's they purchase (which would be authorized); and, if you violate any of the terms (such as infringing upon the copyright of the MP3), your license to use the music terminates, making the MP3 unauthorized. While the music in this case wasn't purchased from Amazon, it seems like the same philosophy is involved.