Supreme Court to rule on file-sharing

The eyes of the technology and entertainment worlds are on the U.S. Supreme Court this week for a pivotal decision that could determine the future of music on the Internet.

The decision on MGM v. Grokster, which could come as early as tomorrow, tackles the problem of illegal file sharing of songs and video over the Web, but its impact could be much broader.

As more creative content goes digital, the case has far-reaching implications for consumers and companies across the country.

At the heart of the case is a question: Should Grokster and other companies that provide technology be held responsible for the actions of people who use the technology?

Rights holders — from movie studios to Major League Baseball — argue that the manufacturers of the technology should be held liable for protecting copyrights. Technology advocates and civil libertarians argue that manufacturers should not have the burden of controlling how their product will be used.

"There should be some way of prohibiting so-called pirate services so copyright owners don't go bust," said Steve Gordon, an entertainment attorney and consultant who has written extensively on the issue. At the same time, he said, "You don't want to thwart new technologies from growing and expanding and helping the economy."

Companies on both sides of the debate already have started to formulate strategies. For some, the outcome could make or break their business plans.

Lining up on file sharing


MGM v. Grokster has attracted supporting legal briefs from dozens of organizations, corporations and individuals. Here's a selected list.

Supporting the Grokster position

Computer science professors

National Venture Capital Association

Intel

Group of Internet law professors

Consumer Electronics Associations and other industry trade groups

Cellular Telecommunications & Internet Association and other telecom trade groups and corporations

Consumer Federation of America and other consumer-advocacy organizations

Musical artists

American Conservative Union

American Civil Liberties Union

Supporting the MGM position

Progress and Freedom Foundation

U.S. Solicitor General's Office

Business Software Alliance

Law and economics professors

Kids First Coalition, Christian Coalition of America and other groups

Commissioner of Baseball, NBA, NFL and other groups

Napster, Movielink and other Internet companies

American Federation of Musicians and other trade groups

National Academy of Recording Arts & Sciences

National Association of Broadcasters

Neutral position

Digital Media Association, Netcoalition and other industry groups

Sen. Patrick Leahy, D-Vt., and Sen. Orrin Hatch, R-Utah

American Intellectual Property Law Association

Audible Magic and other companies

Source: Electronic Frontier Foundation Web site

That's because the technology behind Grokster's software, called peer-to-peer, or P2P, has spread into all kinds of applications.

Peer-to-peer networks enable files to be transferred directly from one computer to another through a decentralized setup that escapes easy control by a central source. This setup gives P2P enormous power because the software can find and share content — music and video — from one person's computer with the million other PCs on that network.

Kirkland-based Laplink uses the technology in a software product that helps lawyers, doctors and business people share files. Laplink Chief Executive Thomas Koll says some of the arguments in the Grokster case give the useful and promising technology a bad name.

"It's as if, through some of the debate, everyone doing peer-to-peer is criminalized," Koll said. "A lot of business-class peer-to-peer services offer a legitimate way of exchanging files that is very necessary to the world. We are all connected to the Internet, but not to each other. When businesses want to exchange data, the best way to do it is through peer-to-peer."

Although he's watching the case closely, Koll doesn't think the court will restrict the sale of file-sharing products. "Then the printing presses would have to be prohibited because they print illegal material," he said.

Encouraging lawbreakers?

The film studios and recording companies are suing Grokster, which is registered in the West Indies, along with its cousin Morpheus, created by StreamCast Networks of Los Angeles. They claim Grokster's technology encourages illegal sharing of copyrighted works and should be shut down.

A federal court forced song-trading site Napster to close four years ago, but then new services cropped up to let people share music files directly without going through a central database like the one Napster operated. As a result, millions of people can use Grokster software to download songs free from any other computer with Grokster, bypassing record-industry control.

Courts have rejected MGM's arguments so far, upholding the 20-year-old Sony Betamax standard. Even though people could use the Betamax recorders for making unauthorized copies of movies, they could also use them for legitimate purposes, so a ban was not justified. That decision set the precedent for a host of new consumer-electronics products, from VCRs to personal computers with CD burners.

Serving the industry

In anticipating a court ruling that could change the legal landscape, the head of Seattle-based Loudeye says he's taking a two-pronged approach in promoting and protecting digital files.

Loudeye encodes, stores and distributes music for its clients, including the five major record labels. Loudeye's technology allows third-party companies, such as Microsoft and its MSN Music, to set up their own digital music stores. Meanwhile, Loudeye is working on ways to drive more Web users to those sites, says President and CEO Michael Brochu.

But, he says, "A lot of people are only going to take music if they can get it for free."

Loudeye's other approach is to enhance anti-piracy protection through a separate service it sells to record labels.

"If the court comes out and says P2P networks are legal," Brochu said, "we stay very focused on anti-piracy and shift more emphasis on protecting those files."

Old system "dying"

Record companies blame illegal file sharing over the Internet for decimating CD sales, now in a three-year decline.

But the Internet itself is also forcing a tectonic shift in the way people are listening to music, watching videos and otherwise using media.

The new models threaten the system that record companies have dominated for decades, says Seattle music producer Steve Fisk.

The next album Fisk is helping produce for the band Harvey Danger will be available free on the Internet and later sold as a CD with extra tracks.

"The minute you make a CD, you have to have a building with employees running around trying to sell that CD and trucks to transport the plastic disks all over the world," he said. "That's the system that's dying."

Growing up through the cracks of the old system are new services like Weed, a tool for sharing files legally over peer networks created by Seattle-based Shared Media Licensing.

WeedShare technology embedded in the file lets users download a song and listen to it three times for free. Most songs cost about $1.25 each. The artist earns 50 percent of every sale. When people who buy songs persuade others to buy them, they earn a commission of 20 percent. Weed collects 15 percent of each sale.

Musician Roger Manning Jr. is selling his new album as a Weed file. He has earned $1,000 from sales over the past 2 ½ months, he said. While that amount is still tiny, the approach "puts control back into the hands of artists," he said.

Manning has worked with four record companies over the past 10 years. But he says he makes more money selling music directly over the Internet. With a record contract, he'd have to sell half a million records to cover marketing costs and other expenses.

Creative model

The Weed model proves the value of creative solutions to the entrenched problem of unlicensed file sharing, said John Beezer, president of Shared Media Licensing.

Beezer, a veteran of RealNetworks and Microsoft who ran Maria Cantwell's online senatorial campaign in 2000, started the company three years ago.

Regardless of the Supreme Court decision, Beezer expects his company to endure because it has made friends on all sides. Weed works with P2P sites Morpheus and LimeWire, and it just inked its first deal with a major record label for online sales.

Either way, Beezer thinks the peer-to-peer phenomenon can't be stopped. "You may as well outlaw the tide coming in," he said. "It's going to become much more important in the future, and anything that hampers it would be a huge mistake."

Kristi Heim: 206-464-2718 or kheim@seattletimes.com