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Monday, March 28, 2005

The New York Times > Technology > A Supreme Court Showdown for File Sharing

The New York Times > Technology > A Supreme Court Showdown for File Sharing: "The New York Times
March 28, 2005
The New York Times
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 d├ętente 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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