September 22, 2005

P2P Music Sites Closing Doors in Legal Fallout

LOS ANGELES/SAN FRANCISCO -- Popular file-sharing site WinMX.com ceased operating and the New York office of another, eDonkey.com, appeared to be closed, in the continuing legal fallout among underworld peer-to-peer music services, industry sources and users said on Wednesday.

The turmoil among file-sharing networks follows the landmark ruling by the U.S. Supreme Court in June that held anyone who distributes a device used to infringe copyright is liable for the resulting acts of infringement by others.

In the wake of the decision, the trade group Recording Industry Association of America (RIAA) last week sent out "cease-and-desist" letters to seven file-sharing groups. A spokeswoman for the RIAA declined to name the targets.

Popular file-sharing sites BearShare, eDonkey and WinMX were reportedly among the targets.

The decentralized nature of most peer-to-peer file-sharing software makes it uncontrollable once it is released over the Internet. However, shutting off sites where users first download the software may strangle the flow of new users.

"There's certainly a big realignment of networks going on after the RIAA letters. Everyone is going to see a fallout since the ruling is making it tough for these companies to exist," said Marc Morgenstern, vice president for Loudeye, during the Digital Hollywood conference in Santa Monica.

An eDonkey executive with a Boston phone number was not immediately available to comment. Industry sources said the phone in the New York office had been disconnected.

A spokesman for Frontcode Technologies, developers of the WinMX application, could not be located to comment.

Users in both Europe and North America complained that the WinMX site (http://www.winmx.com)) was unavailable throughout the day on Wednesday. Free Peers Inc., backers of BearShare, did not respond to attempts to contact them via e-mail.

The latest developments come on the heels of a pending deal in which file-sharing service Grokster Ltd. is set to be acquired by Mashboxx LLC, a new company formed with the intent of establishing a legal peer-to-peer music company, sources familiar with the matter said.

A spokesman for Mashboxx, formed by former Grokster President Wayne Rosso and other partners, declined comment.

Michael Page, a lawyer for Grokster, which makes software that has been widely used to illegally swap music over the Internet, also declined to comment.

Both Grokster and Morpheus, distributed by StreamCast Network Inc., were on the losing end of the Supreme Court's ruling.


The Rosso spokesman declined to comment on the talks with Grokster but said he expects the Mashboxx service to launch in the next few months. Mashboxx has announced a licensing deal with Sony Corp. and is talking with other major labels.

The sources familiar with the matter said the pending deal with Mashboxx helped pave the way for settlement discussions between Grokster and the major record labels.

Michael Weiss, Morpheus's chief executive, declined to comment on whether his company had engaged in settlement discussions.

Last June, the Supreme Court sent the case against Grokster and Morpheus back to a lower courts for further action on whether or not the file-sharing networks encouraged its users into infringing action.

Weiss has said he is confident Morpheus can prove it did not induce copyright violation. On Wednesday, he said he was awaiting his next date in court in mid-October.

The current generation of file-sharing networks are all descendants of the original music-sharing phenomenon Napster, which was forced to shut down, and now operates as a legal music service.

However, peer-to-peer technology has lived on in programs like WinMX, which represent a sort of transitional generation of media-sharing programs between the pioneering Napster and more modern programs like Gnutella and eDonkey.

Despite the legal wrangling, free file-sharing has persisted and many in the industry believe it is about to embark on a new era in which it will finally be embraced commercially by media companies for legitimate purposes.

"Six months from now, P2P usage will be beyond what it is today," said Weiss during a panel at the Digital Hollywood conference.