Since Feb. 11, more than 1 million people have downloaded KaZaA 1.5, the latest version of KaZaA's file-swapping software. Distributed by privately held Australian company Sharman Networks, the software speeds up searches and file trading for KaZaA's 33 million-plus users.
That's good news for fans who use it to trade about 1 billion files -- including MP3 music files, software titles, and even pirated movies -- a day. But it's more bad news for the entertainment and software industries. The music business is watching retail sales plummet as illegal music-swapping continues to skyrocket. In 2000, music sales dropped 9.3%, from $869.7 million to $788 million. Total revenues slipped 2.3%, from $13 billion to $12.7 billion.
The entertainment industry is not standing idly by. The Recording Industry Association of America (RIAA) and the Motion Picture Association of America (MPAA) have jointly filed suit against KaZaA and licensees of the FastTrack file-trading technology, owned by KaZaA parent company Sharman. Licensees include West Indies-based Grokster and Nashville-based Streamcast. The latter has distributed more than 60 million copies of its Morpheus file-sharing software.
"PIRATICAL BAZAAR". The RIAA lawsuit claims that, like music-trading pioneer Napster, the companies "have created a 21st century piratical bazaar," providing a tool to quickly and easily exchange copyrighted audio and video. The plaintiffs seek a permanent injunction to shut down the services as well as penalties of $150,000 for each work infringed through copying on the network. Federal District Court Judge Stephen Wilson will hear the case in his Los Angeles court beginning Mar. 4.
The defendants are using many of the same arguments that Napster used before the courts shut it down in 2001. KaZaA, Morpheus, and Grokster plan to argue that their services have perfectly legal uses. Consumers can use them to trade copies of public-domain books, personal documents, even chili recipes. Moreover, the companies argue that they can't be held responsible for the illegal actions of their users.
"I fully understand that consumers are making choices to put copyrighted material in shared folders and share it with other consumers around the world," Streamcast CEO Steve Griffin told an audience at the Feb. 4 Digital Music Summit in Los Angeles. He says he also understands that "people go to the Xerox copier and make a copy of a magazine article to distribute it around the office so that everybody doesn't have to buy the magazine. Morpheus has no...idea what users are looking for and exchanging anymore than you know what kind of content the person sitting next to you has Xeroxed this week and distributed."
NO CENTRAL SERVER. And in that crucial respect, this case differs greatly from the Napster lawsuit. After all, Napster wasn't shut down because it gave away file-trading software but because its servers enabled users to find pirated music and download it without paying the artists or the record companies. Also, Napster could monitor which users were online and what files they were sharing via its central server.
KaZaA, Morpheus, and Grokster don't use a central server. Rather, these systems float amorphously on the Internet, without any set physical location. The FastTrack architecture randomly selects as "superpeers" individual users' PCs that have either a fast connection or a lot of memory. The superpeers function somewhat like servers in that they keep track of the files available but computer owners don't know if their machine has been designated a superpeer. Perhaps more important from a legal perspective is that the software's architecture makes it impossible for any of these services or their users to know who's doing what and when they're doing it.
The defendants plan to argue that those features exculpate them from any responsibility for the system being used illegally. It also makes the amoebic network impossible to shut down, according to industry insiders. In fact, if all three file-trading services ceased operation it appears that the searching, indexing, and downloading functions of the software would continue unaffected, according to a July, 2001, paper written by Kelly Truelove, an independent research analyst and an expert on peer-to-peer networks.
LEGAL USES. Some legal experts claim that those key differences mean the file-trading services may have a stronger case than Napster did. "The odds are they'll win in court," says James Burger, a partner at Washington (D.C.) law firm Dow, Lohnes & Albertson. He points to the famous 1984 Supreme Court Sony-Betamax decision, which ruled that VCRs were legal because they had "significant noninfringing" uses, such as recording a program to watch at a later time.
"Closing down these companies would fly in the face of the Sony decision," says Burger. "The mere capability of noninfringing activities is sufficient to find the product legal." Plaintiffs' lawyers counter that the vast majority of activity on these networks infringes on copyrights, a key test that the courts have used when considering whether to penalize companies. Further, they claim that KaZaA and its ilk have sufficient technological means to police the trading but have elected not to.
"As with any service, the developers of these systems retain a high level of control," says Frank Creighton, antipiracy vice-president at the RIAA. But even if Creighton is right, ever-improving peer-to-peer technology will make it more difficult to crack down on rogue file traders. "The trend in peer-to-peer technology is to get away from a central list of who's sharing what with whom," says Truelove. In the future, file-trading networks will ensure that no single PC has a full copy of a song or video, Truelove believes. Instead, the system will fragment files and spread the pieces among multiple PCs, making it even more difficult to know who's guilty of sharing copyrighted material.
PROMO TOOL. The record companies and movie studios see the writing on the wall. The music industry even seems to have grasped the usefulness of KaZaA, Morpheus, and Grokster. Toronto-based Jive Media is working with record labels and cable-TV channels to seed the file-trading networks with promotional copies of songs and videos by new artists. Last fall, Jive conducted a successful trial for EMI when it released a copyright-protected version of rapper Lil' Romeo's latest video.
According to Jive Media CEO Sean Mayers, more than 1 million copies of the video have been downloaded over the last six months. In the initial eight-week trial, about 15% of those who viewed the video clicked through to an advertisement to buy the album. Standard click-through rates are about 0.33%. In December, Lil' Romeo won Billboard's 2001 Best Rapper of the Year award.
Entertainment industry execs aren't waiting for an answer from the courts. On Feb. 12, MPAA President Jack Valenti told a Senate committee that the movie industry is trying to reach out to the makers of computers, chips, and recording devices to establish a universal standard to protect copyrighted content. That could foretell inclusion of copyright-protection schemes at the hardware level, a prospect that has consumer advocates howling in protest.
They argue that it's time to revisit copyright rules and apply them to the 21st century. But revising copyright law would take years in Washington. In the meantime, FastTrack and the services that use it continue to run unchecked. By Jane Black