Music Pirates, You're Sunk


By Mike France In early September, the U.S. music industry is planning to break every known rule of corporate public relations by suing hundreds of high school valedictorians, pilots, firefighters, entrepreneurs, and other seemingly upstanding citizens for stealing songs online. The legal confrontation will pit a small group of powerful, technophobic oligopolists against a hip, youthful army of digital sophisticates -- who are the very heart of the companies' consumer base. It doesn't take a poll to figure out which side is going to win the battle for hearts and minds.

In the Steven Spielberg version of this conflict, the plucky rebels with the long hair and grandiose rhetoric would ultimately win the war. Until now, that's how the script seemed to be playing out. The Recording Industry Association of America (RIAA), the industry's main lobbying group, has failed to shut down many of the key file-sharing services that facilitate song piracy, such as KaZaA, Morpheus, and Grokster.

Some Internet service providers, such as Verizon Communications (VZ) and SBC Communications Inc. (SBC), have balked at handing over the names of their customers to RIAA lawyers. And Senator Norm Coleman (R-Minn.) has lashed out at the industry for sending threatening paperwork to "unsuspecting grandparents whose grandchildren have used their personal computers."

MEDIEVAL PENALTIES. But don't be fooled by the industry's rough stretch. The RIAA is methodically overcoming all these nuisances -- and its upcoming legal war on digital pirates is shaping up as a massacre. Copyright law is unambiguously hostile to people who swap music files over the Internet. And the penalties are medievally harsh -- up to $150,000 per song. That means the average college sophomore with 10 weeks of music on his hard drive theoretically faces more than $1 billion in liability.

Oh, and by the way, penalties for violating copyright law may not be dischargeable in bankruptcy court. "The remedies are so terrifying that even if you have a good defense, you have to think twice," says Fred von Lohmann, an intellectual-property attorney at the Electronic Frontier Foundation, one of the industry's staunchest critics.

This fear and awe campaign -- which the RIAA has publicized in a variety of ways, such as sending instant messages directly to KaZaA and Grokster users informing them that "when you break the law, you risk legal penalties" -- already appears to be having an impact. After the number of households downloading music from the Internet climbed to a high of 14.5 million in April, it dwindled to 12.7 million in May and 10.4 million in June, according to market researcher NPD Group Inc.

DRIVEN LEGIT. Some of this decline is attributable to the fact that vacationing college kids could not take advantage of their school's high-speed Internet connections -- but not all, says NPD Vice-President Russ Crupnick. "The RIAA has clearly raised the level of awareness on this issue," he says.

This is not to say that Universal, Sony (SNE), BMG, Warner Music, and EMI can solve all of their piracy problems in court. New anonymous file-sharing mechanisms may emerge that allow computer wizards to hide their identities. And overseas downloaders are free to ignore American lawsuits.

But the fact is that the upcoming legal blitz has captured the imagination of one important group of people: normally law-abiding citizens who deceived themselves into believing that all music should magically be available for free. This group responds rationally to risk and reward. Now that the danger of downloading is about to increase dramatically, many are likely to be driven right into the arms of legitimate Internet music services, such as Apple Computer Inc.'s (AAPL) iTunes and BuyMusic.com.

BIG STICK. The pressure to buy songs legally will be reinforced by a continuous stream of lawsuits. Several hundred are scheduled to be filed shortly after Labor Day. Targets will receive a copy of the lawsuit against them, a letter explaining the charges, and a number to call if they want to talk settlement, according to Matt Oppenheim, the RIAA attorney coordinating the legal attack. "You can expect new waves of lawsuits on a regular basis," says Oppenheim. "This is going to become part of our daily routine."

The industry's strategy will be to threaten accused pirates with the stick of crippling penalties -- then offer the carrot of relatively mild settlements. Consider four cases the RIAA brought in April against college kids who were running miniature Napster-style music services. The suits were dropped for sums from $12,000 to $17,500 and written pledges to cease unlawful file-sharing. Anybody rejecting the offer was warned that the price of settling would increase if capitulation didn't come swiftly. An attorney who defended one college student says music lawyers threatened to boost the cost of a deal to approximately $50,000 if he filed an answer in court.

Although the RIAA legal campaign is likely to cost tens of millions of dollars, the companies are going to recover a lot of that money in settlement payments. DirecTV has been running a similar anti-piracy campaign for more than a year in which it has sued more than 10,000 people and sent cease-and-desist letters to 65,000 more. Most settle for $3,500 to $4,500. "We believe we'll earn back close to our attorneys' fees," says Christopher Murphy, DirecTV's assistant general counsel.

That's undoubtedly an encouraging precedent for the folks at RIAA. Although they're likely to be vilified for bullying teens, the PR hit will be a small price to pay for the fear they'll be striking into the hearts of downloaders. Senior Writer France covers the courts from New York.


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