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I'm finding a way to prevent a shared folder from being copied by LAN users.
Is there a way for Windows XP ?
If there is any good software out for the purpose, please suggest me.

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What you ask is impossible to do by server configuration if the LAN users are supposed to have read access to the shared folder. You might want to redefine your goal as something like "Find a way to limit the amount of data/number of files that can be copied by LAN users". –  Eroen Mar 29 '12 at 7:23
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3 Answers

As the other two answers mentioned, there is no way to prevent them copying.

I changed my goal. My current workaround is that I removed the folder sharing and enabled remote desktop connection. Only authorized users connect remote desktop and access the folder.

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You can't prevent them copying it, but if you are in an active directory environment, you can deploy Active Directory Rights Management Services, which could prevent the copied file from being usable elsewhere.

You can also revoke a user's rights to the file at any time, which will prevent them from doing anything with any copies of the file.

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By definition, a read only file is able to read and copied from start to EOF but is not able to be written to. If you grant read permissions to a file, you also grant the permission to copy that file's contents to another medium. The only way to prevent the files in question from being copied is to deny read access to the files.

tl;dr

You cannot have files be read only AND not copyable.

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