[opendtv] News: A Supreme Court Showdown for File Sharing

http://www.nytimes.com/2005/03/28/technology/28grokster.html?th=&emc=th&pagewanted=print&position=

March 28, 2005

A Supreme Court Showdown for File Sharing
  By SAUL HANSELL and JEFF LEEDS


For someone whose business is under attack in the United States 
Supreme Court, Mark Gorton was remarkably serene last week, sprawled 
on a couch in his Manhattan office.

  Mr. Gorton's company, the Lime Group, publishes LimeWire, one of the 
most popular software programs used to trade music, video and other 
files over the Internet.

  Tomorrow, the Supreme Court will hear arguments in a case in which 
the recording and film industries seek to hold makers of file-sharing 
software liable for the illegal copying and distribution of 
copyrighted material online. The case is against other file-sharing 
services, Grokster and Morpheus, which won in lower courts, but Mr. 
Gorton said that if those rulings were overturned, it could make 
LimeWire vulnerable.

  "If the Supreme Court says it is illegal to produce this software, 
LimeWire the company will cease to exist," Mr. Gorton said. "But 
LimeWire the software will continue to be on the Net no matter what 
we do in this business."

  The case, M.G.M. v. Grokster, is in many ways the culmination of 
five years of escalating legal, technical and rhetorical attacks 
against file-sharing systems and their users by the music industry. 
It is being eagerly followed by a range of media and technology 
companies because the court may use this case to redefine the reach 
of copyright in the era of iPods and  TiVo.

  But no matter how the court rules, both music executives and 
file-sharing advocates like Mr. Gorton agree that it will probably 
always be possible for fans to find loads of free music with a few 
clicks of a mouse.

  Still, the case will determine whether file sharing can continue to 
be promoted by companies like LimeWire and Sharman Networks, which 
makes Kazaa, that operate in public and earn profits from advertising 
and software sales, or whether the software will be written and 
distributed by shadowy players on the fringes of the law.

"I think this court decision is a game changer. It will dramatically 
affect behavior, and behavior will dramatically affect how music is 
sold and distributed and consumed," said Andrew Lack, chairman of 
Sony BMG Music Entertainment, which releases music by stars like 
Usher and Bruce Springsteen. "It will clarify the law and establish 
right from wrong."

If the music industry loses, it will likely redouble its efforts to 
sue individuals trading files and intensify its technical efforts to 
disrupt the networks. So far, those tactics have been modestly 
effective at best, and a loss in the Supreme Court may well erode the 
industry's control of copyrighted material further.

Yet, since the court can do little to alter the spread of technology 
or the interests of copyright owners to protect their material, many 
expect something resembling a permanent war.

  "We are guerrillas fighting the despotic regime," said Alan Morris, 
the executive vice president of Sharman Networks, the Australian 
company behind Kazaa, once the leading file-sharing network and the 
recording industry's leading target, which is being sued by the music 
industry in both American and Australian courts. "They have some 
quite heavy guns, but we can see where they are firing from, " Mr. 
Morris said.

There are some who say that a court ruling, in any direction, may 
also help define the terms of a cease-fire. The end of litigation 
could rekindle the back-channel negotiations between some music 
labels and some file-sharing services to create ways for users to 
trade some files free while paying for others.

  Some executives have discussed a plan in which users could download 
free, low-quality tracks with an offer to buy higher-quality versions.

  The two biggest music companies, Universal Music Group, a unit of 
Vivendi Universal, and Sony BMG, for example, recently signed deals 
to provide music through Snocap, a software package intended to 
control the swapping of unauthorized songs.

  Snocap also happens to be the creation of Shawn Fanning, the founder 
of  Napster, the original file-sharing, or peer-to-peer, service. 
"Peer-to-peer is the way that people access content," said Mr. 
Fanning. "There is a void in the marketplace, there are people who 
are willing to pay for it."

Of course, getting people to pay anything is an enormous challenge. 
There are about 60 million people using file-sharing services in the 
United States, with roughly 8.5 million logged on at a time, said 
Eric Garland, chief of BigChampagne, which studies traffic on 
file-sharing networks.

  While some surveys have suggested that file-sharing activity slowed 
in 2003, when the Recording Industry Association of America began to 
sue individual users for trading copyrighted songs, Mr. Garland said 
that the number of people logging on to file-sharing networks had 
risen steadily and that he expected the number to increase by 10 
percent or more this year.

The music industry, meanwhile, is recovering from a long slump. It 
sold 814 million CD's, cassettes and units of music in other formats 
last year in the United States, up 2 percent, its first increase in 
five years, the recording industry association said. It also sold 140 
million digital tracks in the United States, the association said. 
But the industry says it thinks it would have seen a bigger sales 
rebound had it not been for online piracy.

The recording industry is exploring ways to release new CD's with 
technology that will restrict copying. Sony BMG is expected to use 
such technology on at least half their new recordings in the United 
States by the end of this year.

  Some independent record labels are taking a less confrontational 
stance and trying to tap into the popularity of file-sharing networks 
by selling their music on them, often alongside pirated versions of 
the same songs.

Kazaa has been pursuing that idea for several years through an 
affiliated company called Altnet, which allows labels to put 
authorized files of songs on its networks. These files are either 
offered for sale, or they are free for promotional purposes, often 
with technology that restricts their use to a certain time period.

  Altnet is still small, with revenues of less than $1 million in 
2004, but it has been used by some independent labels, including V2, 
the label of Richard Branson's Virgin Group.

  V2 sells songs by its acts like the Stereophonics and Moby through 
Altnet for 99 cents each because file-sharing networks have eclipsed 
MTV and radio as the place fans discover new music, said Jeff 
Wooding, its director of marketing and new media. He said that the 
move would not stop piracy, but could be used to promote the bands' 
merchandise and concert tickets as well as earn something for 
download sales.

"No one's kidding themselves that we expect to convert a whole lot of 
users," Mr. Wooding said, but he added that he thought many file 
sharers would buy merchandise and concert tickets from bands they 
liked and that some might eventually purchase a CD.

  Altnet is also experimenting with an advertising-driven format 
developed by Intent MediaWorks, which buys rights to songs from 
artists for distribution in a special file format. The first time a 
user tries to play the song, the file opens a Web page with an 
advertisement on it. Intent MediaWorks is also working on ways to 
insert audio commercials into the songs.

  "The idea for the advertising model is to transform file-sharing 
networks into radio," said Lee Jaffe, president of Altnet, which is 
distributing Intent MediaWorks' files. "But unlike radio where 
artists and labels don't get paid, they will be able to share the 
revenue."

  Major recording labels, however, have been very resistant to doing 
deals with Altnet and similar systems, fearing that such alliances 
might undercut their lawsuits against the file-sharing networks. They 
have demanded that the networks remove all the unauthorized songs 
before they do any business with them.

Shawn Fanning's Snocap system is an attempt to help file-sharing 
networks do just that. It creates a way for copyright owners to 
register the songs they own. The networks, using a technology called 
acoustic fingerprinting, can identify whether a file being downloaded 
is in a copyrighted registry. The copyright owner can choose to block 
the download, offer the song for sale or offer a limited-use version 
of the song as substitute.

  Snocap, in addition to endorsements from Universal Music and Sony 
BMG, will also be used by Mashboxx, a new file-sharing service 
started by Wayne Russo, the former president of Grokster, which is 
based in Nevis, West Indies.

  But it still faces some significant challenges. First, the company 
has not released a working version of the software, and many 
file-sharing advocates dismiss the concept as thoroughly unworkable.

"Snocap will fail miserably in the market," said Michael Weiss, chief 
executive of StreamCast networks, which makes Morpheus.

  "If I was looking for a download, and I got some sort of truncated 
file with a message that says buy this or do that, I don't see why 
anybody would embrace that," he said. "If you wanted to buy music, 
you could go to the online stores that are doing a great job like 
iTunes."

Mr. Russo said that his approach did not need to win over all 
file-sharing users to make some money for him and the record 
companies.

"There are 2.5 billion music files traded every month," he said. "If 
we can capture 1 percent of that, 25 million files, and we convert 5 
to 10 percent of those to paid, I am very happy."

Aside from these attempts to reach détente with the free file-sharing 
networks, the recording industry knows it also needs new products and 
new avenues for distribution.

  It has, for instance, placed a hefty bet on DualDiscs, a new 
two-sided CD format that features music on one side and video on the 
other. "We are committed to giving consumers what they want, 
legitimately and in a way that fairly compensates those that work so 
hard to create content," said Zach Horowitz, president of Universal 
Music Group, which releases music by acts like U2 and 3 Doors Down.

  "If we win the case," Mr. Horowitz said, "all the efforts we are 
making to launch compelling legitimate alternatives will gain 
traction. There will be no turning back the clock in terms of the 
countless ways we are making our music available to take advantage of 
the new technologies."

 
 
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