Industries digest Grokster ruling

Companies mull how Supreme Court's decision will change the landscape for the file-swapping and entertainment industries.

Robert Summer, the former president of Sony Music International, was shocked as he read Monday morning's Supreme Court decision sharply questioning the legality of the Grokster file-sharing service.

It wasn't that he was surprised by the outcome. In fact, he had bet his future on a decision that would tip the legal scales toward the music industry. Summer, who is also former head of the Recording Industry Association of America, had agreed three months ago to become executive chairman of iMesh, a popular file-swapping company in the process of replacing its unregulated downloads with a service approved by the music labels.

Still, the unanimity of the court's decision was unexpected. From his office in iMesh's midtown Manhattan headquarters, he called a friend who was still a top executive at Sony Music to compare notes. Then he called other music industry types, shared a few congratulations and talked about where they would go from here.


What's new:
Supreme Court's decision has cast a dark cloud over the future of companies seeking to profit from swapping software.

Bottom line:
Executives are mulling how the ruling will change the landscape for file swapping and the music and movie industries.

More stories on file swapping

"The response across the board was one of elation," the 70-year-old Summer said in an interview Tuesday. "It's only as the hours and days pass that what sinks in is how much work there still is to be done."

The first task at hand is understanding how Monday's landmark ruling against Grokster and StreamCast Networks will change the landscape for file swapping and for the music and movie industries. While far from a death knell for unregulated peer-to-peer networks, the decision has certainly cast a dark cloud over the future of companies seeking to profit from swapping software.

For two years, peer-to-peer software companies operated with the relative security of two court rulings that had given them a clean bill of legal health despite repeated lawsuits from the record industry and movie studios.

But now, with a unanimous Supreme Court decision saying otherwise, big content companies are already turning their sights on peer-to-peer software companies that have managed to stay out of the courtroom, such as Lime Wire and eDonkey.

Robert Summer
Robert Summer,
executive chair,

"The same principles that apply (in the Supreme Court decision) are going to apply to other companies that are engaging in the same business," Donald Verrelli, the attorney who argued on behalf of the record labels and Hollywood studios in front of the Supreme Court, said in a press conference Monday. "They do all the same things that Grokster and StreamCast do, in the same ways. I think we'll have a strong case against them as well."

For their part, file-swapping software executives aren't saying much. Executives from BearShare, Lime Wire and eDonkey--all leading peer-to-peer software companies--declined requests for comment or did not return calls. One Lime Wire executive was quoted in The New York Times as saying he is skeptical about his service's future.

Wayne Chang, the 21-year-old founder of i2Hub, said cautiously that he will continue operating his college-focused service, which facilitates textbook sales and offers a Friendster-like dating service, as well as file swaps. Although i2Hub users have been sued for swapping movies, he said his company doesn't actively encourage or "induce" illegal behavior and so shouldn't be in danger under the court's ruling.

"We don't condone or promote activities and actions that breach the rights of copyright owners," he said. "We're waiting to see how things unfold over the next few days and weeks."

From the emboldened record industry's perspective, these companies have only a few options: keep swapping and be sued; stop swapping and go out of business; or, as Summer's iMesh is in the process of

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