Big Music: Win Some, Lose a Lot More?


By Jane Black The Recording Industry Association of America (RIAA) may have lost the battle for the hearts and minds of music fans. But it always believed it would be a winner in one place: The courts. Until now, that is. Over the last three years, the RIAA's legal juggernaut has crushed Napster, the original file-sharing service, plus imitators like Aimster and Audio Galaxy. But on Apr. 25, the industry group's string of victories came to an end when a California federal judge ruled that popular peer-to-peer services Grokster and StreamCast could not be held responsible for the illicit trading of copyrighted music and movies over their networks.

Unlike Napster, Grokster and StreamCast do not link music swappers through a centralized server. Instead, these second-generation services merely provide software that enables computer users to distribute files by connecting directly to one another's machines (see BW Online, 2/21/01, "Sons of Napster: Singing a Different Tune"). So, these services "do not have actual knowledge of infringement at a time when they can use that knowledge to stop" illicit music swapping, wrote Judge Stephen Wilson of the U.S. District Court in Los Angeles.

Just as Xerox (XRX) cannot stop its customers from making hundreds or thousands of copies of newspaper and magazine articles or books, the same goes for these music-swapping sites. The RIAA and its sister organization, the Motion Picture Association of America (MPAA), have vowed to appeal the ruling.

TARGETING CUSTOMERS. Judge Wilson's decision ushers in a new era in the music industry's battle against technology. One of the main legs supporting the RIAA's strategy -- suing faceless P2P services out of existence -- has suddenly become shaky. With CD sales falling 8.8% last year, that's prompting the industry to come down hard on its customers.

"They either chase the technology or the people using the technology. The record industry can't ignore piracy," says Jay Handlin, a copyright lawyer at Los Angeles firm Howrey Simon. RIAA President Cary Sherman is unequivocal: "We've been very public that stepped-up enforcement is on the table. Our research shows that the only thing that will make a difference is if there is a risk of serious consequences."

The RIAA's effort to target its customers was well under way before Judge Wilson's decision. Last fall, the industry group sent 2,300 letters to colleges, pleading for cooperation from the schools' network administrators to help stamp out file-sharing on university networks (see BW Online, 11/27/02, "Music Pirates at the Naval Academy?").

SCHOOL SUITS. In January, the RIAA was handed some high-power ammunition when a federal judge ruled that Internet service provider Verizon (VZ) must unmask a customer whom the RIAA alleged was sharing copyrighted files. And the RIAA on Apr. 3 provided a further demonstration of its revolve, when it filed a multimillion-dollar lawsuit against four college students at Rensselaer Polytechnic Institute, Princeton University, and Michigan Technological University who allegedly ran mini-Napster networks allowing users to share copyrighted music and movies.

All four settled out of court on Apr. 30. Although none admitted guilt, each promised not to knowingly infringe on the music companies' copyrights. They also agreed to pay the RIAA between $12,000 and $17,000 in installments over three years. Those sums represent tough punishments for college kids, but far short of $100 million for which the students technically were liable.

That stratospheric sum is the result of the Digital Millennium Copyright Act, a 1998 law that protects copyright holders with regard to digital media, and provides for a $150,000 fine for each copy of infringed material. "I don't believe that I did anything wrong," says Daniel Peng, the Princeton University student. "I hope that for the sake of artists, the larger issues can soon be resolved."

"REALLY SCARED." One battle over, a war still to wage, says the RIAA. On Apr. 30, the music industry announced that it would use the file-trading networks to send pop-up messages over instant-messaging software to users who were uploading or downloading music. The RIAA says it hopes to send out 1 million messages each week saying: "When you break the law, you risk legal penalties. There is a simple way to avoid that risk: DON'T STEAL MUSIC."

As much as the RIAA's enforcement battle draws contempt from college students, some evidence shows that it's getting the downloaders' attention. The day the RIAA filed suit against the four students, 18 college music networks were shut down, the RIAA says. At Rowan University in Glassboro, N.J., news of the student payments to the RIAA set off alarm bells. "The settlement had some people really scared," says one Rowan student who requested anonymity.

In the wake of the ruling, some students are considering burning their immense music collections onto CDs -- an attempt to safeguard their pirated booty. "No one believes this is wrong. If they sue the company, I'll just go use [a rival file-sharing service]," the Rowan student adds. "But it really hits home when you have to pay thousands of dollars for an MP3 collection."

WHAT MUSIC FANS WANT. Scaring kids straight may be one part of the equation for ending music piracy. But not everyone is so sanguine. "Stealing music is wrong. There's no question. The question is: How do you deal with it?" says intellectual-property attorney Jim Burger of Washington (D.C.) firm Dow Lohnes & Albertson, who represents the computer industry. "Turning everyone off the idea of P2P when you don't have a competitive alternative isn't good business sense."

Burger and others believe the music industry should push a more understanding message while simultaneously developing services that offer consumers what they really want: A massive selection of songs that they can burn to CDs or transfer to digital music players.

The Apple iTunes Music Store service, launched Apr. 28, is a good first step: Apple charges no subscription fee. Anyone with a Mac can download any of 200,000 tracks for 99 cents apiece. In the first two days, users downloaded 475,000 tracks, according to record-label executives. If the momentum continues, the labels will have sold more than 1.4 million tracks in a single week -- far more than they've sold at the existing industry-backed services in the past 18 months (see BW Online, 4/30/03, "Steve Jobs, Pied Piper of Online Music").

"CHANGE THE CULTURE." The bottom line: Being feared, rather than loved, has its points. The music industry does have to make it clear that violating copyrights is illegal -- and for now, a strategy of threats against young, impressionable customers may be the only thing that works. Yet no legal strategy by itself is likely to end rampant music piracy anytime soon.

"Law is never the leading edge. We must change the culture to solve the problem," says David Byer, an intellectual-property attorney at Boston law firm, Testa, Hurwitz & Thibeault. Harnessing existing technology to give the culture what it wants in a legal way wouldn't hurt, either. Black covers technology issues for BusinessWeek Online in New York


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