The reason given was personal jurisdiction, meaning that most of the people either couldn't be identified or they lived outside of the court's jurisdiction. Most were just listed as IP addresses, and even those who were linked to their owners' names could only be targeted by the USCG if they live in the District of Columbia, where the case was filed. Unfortunately, since the suit was dropped without prejudice, the USCG is free to file again, including in another district.
This is all thanks to District Court Judge Rosemary Collyer, who ordered the USCG to limit their case only to those defendants who the Court has jurisdiction over. This means the thousands of people who have been pressured to pay up in settlements merely have to check if they are in the Court's jurisdiction, and if not, ask to have their case dropped. This apparently new rule seriously limits the profitability of antipiracy law firms; In other words, fighting piracy is no longer a relatively easy revenue stream.
The news is hot on the heels of the story from last week that torrent users were suing the USCG for extortion, fraudulent omissions, mail fraud, wire fraud, computer fraud and abuse, racketeering, fraud upon the court, abuse of process, fraud on the Copyright Office, copyright misuse, unjust enrichment, and consumer protection violations. Dmitriy Shirokov accused Dunlap, Grubb & Weaver, the Washington law firm that sent threatening letters to thousands of alleged downloaders of Far Cry, of knowingly breaching copyright law to make money. His argument is that the lawyers made a business of threatening people with expensive litigation and fines unless they pay settlement offers, but the firm was apparently never interested in actually litigating the claims.