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File-Swapping Debate Rages On Innovators, recording industry at odds over how, and whether, to restrict transmission of digital downloads

By Jodie Carter

Opinions expressed by Entrepreneur contributors are their own.

In one of the latest battles over the rights to restrict thetransmission of music, movies and other copyright-protected filesover the Internet, a Los Angeles federal judge ruled on April 25 infavor of two online services that create software allowing users toshare files for free. Simply creating the software does not meanthe services are contributing to copyright infringement, the judgefound, so Grokster and StreamCastNetworks are off the hook for now.

The ruling is just one in the sea of legal quandaries associatedwith digital downloads of copyright-protected material. On the oneside is the recording industry, which asserts that services likeGrokster and StreamCast are encouraging piracy. The RecordingIndustry Association of America (RIAA), which deferred to astatement on its Web site in response to calls seeking comment forthis story, has this to say about file-swapping: "Businessesthat intentionally facilitate massive piracy should not be able toevade responsibility for their actions. We disagree with theDistrict Court's decision that these services are not liablefor the massive illegal piracy that their systems encourage, and wewill immediately appeal to the 9th Circuit Court ofAppeals."

On the other are people like Grokster founder Daniel Rung, whoclaims Grokster and other similar Web sites should not be penalizedfor providing a service that allows users to share files meant forfree distribution (like songs from up-and-coming bands and othernoncopyrighted works) just because some users have used thesoftware to pirate copyright-protected music. (Services likeGrokster and StreamCast differ from Napster, which was shut down inJuly 2000: Grokster operates a peer-to-peer network--not a centralserver where individual files are accessed; this eliminates some ofthe accountability issues, because Grokster has no direct knowledgeof when and what types of files are shared.)

"This [Grokster/StreamCast] case is not about stoppingpiracy; it's about controlling new technologies," saysFred von Lohmann, senior intellectual property attorney for theElectronic FrontierFoundation, a San Francisco organization created to protectfree expression, privacy and other rights in the digital arena."The court ruled that merely making and distributing software,even if it is used by some people for bad purposes, does not putthe technology company on the hook for everyone'smisdeeds."

But the entertainment industry sees things a little differently,and the recent Grokster/StreamCast ruling has only added fuel tothe fire. Now, however, instead of targeting the software companiesthat facilitate the file-sharing, the industry has shifted itsfocus to individuals.

In April, the RIAA charged four university students from threecolleges with directly infringing copyrights by using the campuscomputer network to make popular songs available for other studentsto copy. And late last month, the RIAA used the Digital MillenniumCopyright Act (DMCA) to convince a U.S. district judge to orderVerizon, whoseofferings include Internet service, to hand over the names of atleast two individuals suspected of offering copyright-protectedmusic as free downloads. Verizon is currently seeking to delay thesubpoena to serve up the names until the company can appeal thedecision.

The DMCA, enacted in 1998 to prevent Internet piracy, makes itillegal to break the digital locks that protect intellectualproperty, such as a CD or a DVD. But some companies--even those notin the entertainment industry--have clued in to the potential broadreach of the law. In another potentially precedent-setting legalbattle, for instance, printer manufacturer Lexmark is invoking theDMCA to try to control the sale of aftermarket products, like tonercartridges, by smaller competitors.

Other companies, like Apple--which jumped onto the digital bandwagon withits 2001 slogan "Rip, Mix, Burn"--have responded to thedownload debacle with the April 28 launch of its iTunes MusicStore. With the backing of all five major record labels,iTunes--which offers downloads at 99 cents a pop--is Apple'sattempt to sway users away from free services.

So what do current copyright rulings say to innovators in thetechnology sector? "You're finally free to be creative andto try to fulfill the promise that technology can deliver,"says Grokster president Rosso (founder Rung was unavailable forcomment). But intellectual property experts are quick to point outthat the Grokster ruling is only one battle in a much larger war.With the possibilities evolving almost daily in the digitallandscape, it's tough to say when and how the conflict betweeninnovation and intellectual property will be resolved.

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