Sharman Networks, owner of the popular Kazaa file-swapping software, has
launched a legal counterstrike against the major record labels and
Hollywood studios, asserting they have 'obscenely' abused their copyright
powers.
In a lawsuit filed late Monday in federal court in Los Angeles, Sharman
claims that major entertainment companies have colluded to drive potential
online rivals out of business. The conduct should preclude the industry
from being able to defend its copyrights in court, at least until the
behavior is corrected, Sharman contends.
The lawsuit is a counterstrike by Sharman, which has been sued for
allegedly contributing to massive online copyright infringement. Last week,
a federal judge ruled that record companies and movie studios can proceed
with their lawsuit against Sharman.
The entertainment industry considers Sharman to be as much an outlaw as
Napster and Aimster, two file-sharing services that have been shuttered.
But Sharman executives say their business is fundamentally different
because the company was created to take advantage of legal online
distribution.
What the industry is incapable of doing is realizing that Kazaa is
different,said Sharman attorney Rod Dorman. Now (they) have got to face the
legal consequences.
The lawsuit marks a significant development in the most critical online
copyright case since the disappearance of Napster. Sharman is being sued
along with Grokster and Morpheus parent Streamcast Networks. The popularity
of Kazaa, the leading file-trading service in the United States, has
brought it to the top of copyright holders' list of online enemies.
Sharman purchased the Kazaa software in early 2002 and planned to make
money by distributing authorized, copy-protected content, its attorneys said.
Other companies, however, also have entered the file-swapping business
contending their plans were legal. Early entrant Scour turned on its
file-trading service only after seeking the advice of top Hollywood
copyright lawyers. But that didn't prevent it from being sued and driven
out of business.
The 'legal consequences' Sharman is seeking are potentially severe. Sharman
is asking the judge to declare the copyright holders guilty of antitrust
and related violations, and to bar them from enforcing any of their
copyrights.
According to the lawsuit, Sharman and a partner called Altnet met
repeatedly with movie and music industry executives over the course of
2002, seeking to license copy-protected content for online distribution.
Providing legal, authorized versions of popular entertainment content would
help mitigate piracy on the file-swapping system, Sharman and Altnet said.
A few industry executives were interested, but were repeatedly instructed
not to pursue relationships with Sharman or Altnet by the Recording
Industry Association of America and other trade groups, attorneys for
Sharman said.
Altnet CEO Kevin Bermeister said Monday he supports Sharman's claims.
"Altnet confirms the allegations made by Sharman, relating to Altnet, in
its counterclaim against the record and motion picture
industries,Bermeister said in a prepared statement. While we have seen a
shift in consumers' willingness to pay for the licensed content we now
supply, that behavior would be further along if we enjoyed the full support
and cooperation of the entertainment industries."
Recording industry executives have maintained that Sharman was created to
take advantage of online piracy and that there is no need to negotiate with
the company.
"Sharman and its cohort Kazaa, which built the world's largest piracy
network, premised on flouting copyright laws and not obtaining licensees,
now claim that a lack of licensing has somehow inhibited their
development," an RIAA spokesman said. "This proposition is laughable, but
the real harm to creators and copyright owners is no joking matter."
Although unconventional, the copyright misuse and antitrust claims have
been the sole bright spot in file-swapping companies' repeated string of
losses in court.
Last year, federal judge Marilyn Hall Patel ordered an investigation into
the record labels' licensing practices towards online companies and into
the structure of Pressplay and Musicnet, services largely owned by record
labels.
"The evidence now shows that the plaintiffs have licensed their catalogues
of works for digital distribution in what could be an overreaching manner,"
Patel wrote in a February 2002 decision that was part of the Napster
lawsuit. "The evidence also suggests the (record labels') entry into the
digital distribution marketplace may run afoul of antitrust laws."
Napster went out of business before that investigation or court case could
be concluded. However, a United States Department of Justice antitrust
investigation of the music labels, begun in 2001, has yet to conclude.
Meanwhile, some of the initial criticism of the labels' reluctance to
license to digital music companies has passed, as subscription services
such as Listen.com's Rhapsody have won rights to large music catalogs.
Along with the sweeping antitrust claims, Sharman's legal defense rests on
familiar grounds. The Kazaa software is a technology that has considerable
non-infringing uses, and cannot therefore be deemed illegal, the company
says. That argument harks back to a Supreme Court ruling defending the
legality of the videocassette recorder against a copyright lawsuit mounted
by the movie industry.
Judges have not given the 'non-infringing use' argument much sway in
previous file-swapping cases, but Sharman appears to have more to show than
predecessors Napster and Aimster. Together, Sharman and Altnet distribute
more than 15 million copy-protected files per month though the Kazaa
network, the company says in its legal papers.
Kazaa's own popularity has now outstripped Napster's, even at its peak. The
software has been downloaded at least 181 million times, according to
Download.com, a software aggregation site owned by CNET Networks, publisher
of News.com. Many of those downloads have been upgrades or duplicate
copies, however.
The federal judge in the Sharman case is still considering separate
requests by the copyright holders and Streamcast Networks to decide the
case quickly, without going to a full trial.
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