September 19, 2005

Grokster in Talks with Mashboxx

NEW YORK (Reuters) - File-sharing service Grokster Ltd. is in talks to be acquired by Mashboxx LLC, which is attempting to establish a legal peer-to-peer music company, the Wall Street Journal reported on Monday.

Financial terms of the deal under discussion could not be learned, the newspaper said, but Grokster itself is expected to have little or no value.

Instead, Mashboxx would likely share a portion of any future revenue Grokster generates with Grokster's current owners, the Journal cited people familiar with the matter as saying.

It said the talks are a sign that file-sharing companies like Grokster are under pressure to join the mainstream music industry. Grokster makes software that has been widely used to illegally swap music over the Internet, a phenomenon that the music industry has blamed for a steep sales decline during the past five years.

But in June, Grokster and another company, StreamCast Network Inc.'s Morpheus, were on the losing end of a U.S. Supreme Court ruling that said file-sharing companies could be sued for copyright violation if they encourage illegal activity. Grokster had argued that, because file sharing has legal applications, it was not liable for copyright violations.

Following the court ruling, Grokster appears to be taking a different tack as it fights to survive, the Journal said. Mashboxx, a Virginia Beach, Virginia-based company established by former Grokster President Wayne Rosso and two Madrid-based lawyers, is developing a legitimate peer-to-peer service that would allow users to sample music free, but then pay to download

The service, expected to launch in the next few months, has announced it signed a deal with Sony Corp., and is finalizing deals with the other major labels, the Journal said.

Rosso told the newspaper Mashboxx would be willing to work with any existing file-sharing companies that want to go legitimate. Grokster's lawyer, Michael Page, declined to comment.

The newspaper said it is unclear who Grokster's owners are, though they are believed to include its founder, Daniel Rung, who lives in Nevis, West Indies, where Grokster is based.


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