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Deal Ends Grokster's File-Sharing

Posted on: Wednesday, 9 November 2005, 12:00 CST

By Jeff Leeds

Grokster, a developer of file-swapping software used to trade copyrighted music and movie files, plans to halt distribution of the software and cut off support for its associated network as part of a landmark settlement with the recording industry and Hollywood studios.

The agreement, announced on Monday, comes four months after the U.S. Supreme Court unanimously ruled that Grokster could be held liable for copyright infringement by users of its software, a decision that delivered a decisive victory to entertainment companies, particularly music labels, which have blamed widespread digital piracy for a worldwide slump in sales.

The court decision sent the case back to a trial court, but the settlement, submitted to a federal judge in Los Angeles on Monday, averts further legal wrangling for Grokster in the four-year-old lawsuit.

Grokster also agreed to pay as much as $50 million in damages, though music executives say they do not expect to collect because the software company lacks the resources to pay. The deal also includes an injunction that bars Grokster from directly or indirectly infringing on the plaintiff's copyrighted material.

While Grokster is disappearing in its original form, the underlying case that led to the Supreme Court showdown may continue. Grokster's co-defendant in the case, Streamcast Networks, the promoter of a file-sharing network known as Morpheus, has indicated that it plans to keep battling the movie studios and record labels in court.

More broadly, the popularity of file-sharing networks shows little sign of waning in the wake of the settlement, or the earlier court decision. An estimated 9.2 million people are using various so- called peer-to-peer networks at any one time, according to BigChampagne, a data service. The figure has edged up from 8.8 million in June.

And it is a global problem. In Hong Kong on Monday, a man received three months in jail for using an Internet file-sharing system to make three Hollywood movies available for others to download free.

"I don't think, practically speaking, we're expecting to see much of impact in the peer-to-peer landscape," said Eric Garland, the BigChampagne chief executive, based on the agreement Monday. "People moved on from tools like Grokster some time ago."

The entertainment industry continues to scramble to keep pace, taking legal action against file-sharing networks in Australia and South Korea.

The campaign, led by the Recording Industry Association of America, has also taken aim at individual computer users. The major labels have sued more than 15,000 people since the effort began two years ago.

The recording industry has said its extensive legal campaign is intended to gradually deter the entrepreneurs who run many of the biggest file-sharing networks and the advertisers that support them, while driving music fans to authorized services like Apple Computer's iTunes, which sells individual songs for 99 cents each.

The end result, industry executives say, should be to corral digital piracy to the point that it is a tolerable nuisance instead of a huge drain.

If the industry can hang on, many music executives say, the four major record corporations will eventually rejuvenate their businesses with an array of new products, including digital downloads, ring tones and music videos.

So far this year, sales of downloads at licensed services, where consumers are favoring the purchase of cheaper individual songs over more expensive full-length albums by a wide margin, have risen sharply.

But the gains are not enough to offset the decline in "physical" album sales, which have been dwindling for four of the past five years.

For its part, Grokster has added a new message to its Web site: "There are legal services for downloading music and movies. This service is not one of them."

The company said it planned to create a "safe and legal" service and was referring users to a new Web site, www.grokster3g.com.

Grokster is expected to be absorbed by Mashboxx, a new venture run by Wayne Rosso, a former Grokster president, who already has struck a deal to license music from Sony BMG Music Entertainment, the world's second-largest music company.

Consumers who have already downloaded the Grokster software can still use it to trade files, though they risk being sued. While critics argue that the industry's court strategy cannot contain the problem of illegal downloading, the major labels "don't have a lot of alternatives right now," said Jay Cooper, a music lawyer who represents artists like Sheryl Crow and Supertramp.

"People have to be educated to realize they're going to have to pay for music; otherwise there won't be music," Cooper added. "Going out to college campuses and lecturing them hasn't worked. I think we're going to have to start with grammar school."

Source: International Herald Tribune

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